Efficiency eludes $10trn global construction industry on dwindling investment, failure to consolidate

Global construction industry is adjudged to be holding the dubious honour of having the lowest productivity gains of any industry, according to an article in London-based The Economist, which cited McKinsey, a consultancy firm as making the claim.

McKinsey in its claims said in the past 20 years the global average for the value-added per hour in the construction industry has inched up by 1 percent a year, about one-quarter the rate of growth in manufacturing, adding that trends in rich countries are especially bad.

“Over the same period Germany and Japan, paragons of industrial efficiency, have seen nearly no growth in construction productivity. In France and Italy, productivity has fallen by one-sixth. In America, astonishingly, it has plunged by half since the late 1960s,” it said.

Although not specifically citing Nigeria, the article mirrors happenings in the country’s construction project cycle where roads, buildings, airports and rail projects go through similar fate, many of which are left abandoned after budgets would have been provided many times over. The quality of many projects completed sooner give way because of inefficient and dubious construction.

But the article, citing the Berlin Brandenburg as an example, indicated that 90 percent of the world’s infrastructure projects are either late or over-budget and that the Berlin Airport even though nine years behind completion is six times over budget and has had 66,500 building errors in need of fixing.

“Even the sharpest of tech firms suffer. Apple’s new headquarters in Silicon Valley opened two years behind schedule and cost $2bn more than budgeted. Smaller projects have similar woes. One survey of British architects found that 60% of their buildings were late,” the article entitled ‘Least Efficient, claims.

It equally said American builders’ productivity has plunged by half since the late 1960s

“Prices for building materials are not to blame. They are subtracted from measures of value-added (and have not risen in any case). The burden over time of complying with regulation—applying for permits, for instance—is only partly responsible. In America such rules account for one-eighth of the productivity lost since 1987, according to the Bureau of Labour Statistics.”

The problem in the industry is laid on two broader structural trends, including volatility in demand for construction, which has trained builders to curb investment and the industry failing to consolidate.

On lack of investment, the article pointed out that the industry has become less capital-intensive, with workers replacing machinery. It cited Saudi Arabia, for example, where it is cheaper to import workers from India or Pakistan than to buy machinery.

“The industry has learned through bitter experience to prepare for the next recession,” says Luc Luyten of Bain & Company, a consultancy. Capital-heavy approaches to construction bring high fixed costs that are difficult to cut in downturns. Workers, in contrast, can be fired.

On consolidation, it said efficient firms theoretically should quash laggards, yielding bigger, more productive companies.

“But construction is an industry that appears to have defied Adam Smith,” says Mr Luyten, noting that it is partly because building codes differ not just between countries but within them, which makes it harder to reap the benefits of scale, adding that the customised nature of most projects further limits the usual advantages of size. Because the designs of most projects differ, contractors have to start from scratch for each one.

“Often projects have more than a dozen subcontractors, each keen to maximise profit rather than collaborate to contain costs,” says Thijs Asselbergs, a professor at the Delft University of Technology.

The result is an industry that raises prices for clients and mostly ignores tools that might improve productivity.

“While we are all using iPhones, construction is still in the Walkman phase,” says Ben van Berkel, a Dutch architect.

Specifically, many building professionals use hand-drawn plans riddled with errors. A builder of concrete-framed towers from the 1960s would find little has changed on building sites today, except for better safety standards.

On how the industry could improve, the article suggests that more builders could use computer-aided design, as is standard among architects and concentrate more investments in technology and mass production, which can boost efficiency.