Manpower crunch crimps construction sector

By Krista A. M. Montealegre, Businessworld, Mar 30, 2017

CONSTRUCTION companies are experiencing an unprecedented “tightness” in the supply of skilled workers that threatens to derail the real estate sector’s growth momentum and the government’s ambitious infrastructure program.

The construction sector may be a victim of its own success.

Robust private real estate activity, coupled with the take-off of government infrastructure projects, have left contractors scrambling for workers to take on more contracts and get the job done.

To support the construction boom, the industry expanded its work force by 675,000 last year — equivalent to the combined employment generated from 2011 to 2015 — to end at 3.3 million, according to data from the Construction Industry Authority of the Philippines (CIAP), an attached agency of the Department of Trade and Industry (DTI).

That is still insufficient.

“We are seeing some tightness (in supply),” D.M. Wenceslao & Associates, Inc. Chief Executive Officer (CEO) Delfin Angelo C. Wenceslao said.

Noting that “[t]he local industry was not ready for this number of projects to happen simultaneously,” Megawide Construction Corp. Chief Marketing Officer Manuel Louie B. Ferrer said: “As far as I know, there hasn’t been this kind of growth in construction and infrastructure in past decades.”

Construction activity overseas has also picked up, attracting some of the best talents to work on projects abroad that offer more competitive compensation packages and experience, Mr. Ferrer said.

The Philippines has been losing its best construction workers to higher-paying jobs abroad. Philippine Overseas Employment Administration (POEA) data show that skills required for construction such as welders and flame cutters, plumbers and pipe fitters, and wiremen were consistently among the top 10 skills in demand from 2008 to 2014.

PRODUCTIVITY PROBLEM

Mukund Sridhar, co-lead for Capital Projects & Infrastructure Practice in Southeast Asia global management consulting firm McKinsey & Co., said in an interview that labor migration has been tagged by local contractors as one of the major issues facing the construction sector today, resulting in productivity problems.

Productivity growth — the value added by construction workers per hour of work and its increase over time — slowed to 2.7% per annum from 2010-2015 compared to the 10.9% per annum from 2005 to 2010, according to data from McKinsey, citing CEIC and Philippine Statistics Authority as sources.

An increase in productivity means that higher value can be delivered to customers with the same or fewer resources, translating to a desirable mix of better quality structures at lower cost for owners, increased profitability for contractors and improved wages for workers.

“Clearly, Manila is one of the most happening metropolitan areas in terms of investment in infrastructure, but it’s clear there’s a huge problem in productivity,” Mr. Sridhar said.

The Philippines is not alone on this front.

According to McKinsey Global Institute’s (MGI) Reinvigorating Construction: A Route to Higher Productivity report published last month, global construction productivity growth has stagnated at one percent on average a year over the last two decades, well below the 2.8% expansion for the global economy and 3.8% for manufacturing.

An estimated $900-billion investment in infrastructure, housing and real estate between 2014 and 2030 is needed to sustain the country’s rapid economic expansion, Mr. Sridhar said.

The government has responded with a $160-billion war chest to usher in a “golden age of infrastructure.”

As construction activity picks up, it is imperative for the Philippines to overcome the productivity challenge so that “outcomes become more certain,” said Mr. Sridhar.

“If I do know I am in a high productivity country, it’s easier for me to predict that a project which will finish in 60 months will finish in 60 months as opposed to 75 or 90 months. Therefore, it’s easier for me to estimate how much capital is needed,” he said.

“The risk premium comes down so I need to pay lower in terms of capital.”

TELLING IMPACT

Slow labor productivity growth, coupled with increased demand for manpower, has started to take its toll on property developers, with real estate projects suffering delays in turnover as early as 2015, Monique Cornelio Pronove, CEO of property consultancy firm Pronove Tai.

“For the last year, the industry has been affected by the increased demand for skilled labor. It caused shortage across the supply chain, particularly residential, so the entire industry suffered from issues of finding contractor capacity to finish their projects,” Vista Land & Lifescapes, Inc. President and CEO Manuel Paolo A. Villar said.

“That will be an issue this year — the difficulty of increasing your capacity in terms of construction because everybody will be building.”

CIAP data showed the increase in manpower failed to keep up with construction demand from 2012 to 2015, with work force growth averaging 6.57% versus the 11.31% average expansion of construction demand.

MISMATCH, NOT SHORTAGE

“I would not call it a manpower shortage, however, but a mismatch between the available and the required skills in the industry,” CIAP Undersecretary Ruth B. Castelo said.

The government alone needs an additional 2-2.5 million workers — a number that will slowly decline as construction projects near completion — in the next four years to undertake its ambitious infrastructure program, Ms. Castelo said.

“The construction industry is willing, ready and able to participate in infrastructure projects of government in the next five years,” said Philippine Constructors Association, Inc. (PCA) Executive Director Ibarra G. Paulino.

The industry is marching with P953 billion in net financial contracting capacity — which measures a contractor’s capacity to carry out a service agreement — of 8,424 contractors at end-2016.

This capacity is above the P890.9 billion the government has allocated for spending this year to bankroll “hard” infrastructure.

Former Philippine Contractors Accreditation Board (PCAB) chairman Ramon F. Allado said the lack of skilled manpower is the easiest scapegoat for delays, insisting that the “perceived” shortage is “manageable.”

CULPRITS

“In my view, poor pre-construction planning, lack of competent construction managers, and low worker productivity are the main culprits,” Mr. Allado said.

“When a contractor starts incurring delays, the tendency of the managers and owners representatives is to demand that additional manpower be deployed.”

The government, the PCA and even the private sector are ramping up efforts to build more training centers to arm workers with basic skills such as heavy equipment operation and maintenance, masonry, plumbing, carpentry, steel fabrication, welding, and electrical works.

More than the lack of skills, what must be addressed as soon as possible is the lack of competent planners and construction supervisors or managers, “as competence in the field as compared to worker skills cannot be acquired in a short period,” Mr. Allado said.

The CIAP board is studying a proposal to have a standardized wage structure for construction workers and professionals, and a salary scheme at par with standards elsewhere in Southeast Asia, Ms. Castelo said.

In the meantime, the strong demand for workers has intensified competition for skills among construction companies and real estate firms.

BITE THE BULLET

As the labor woes become “more and more pronounced,” 8990 Holdings, Inc. President Januario Jesus Gregorio B. Atencio III has decided to bite the bullet and hike labor cost by 30% this year, resulting in a P10,000-15,000 increase in the package price of its products.

“The only way to keep your skilled labor is to pay them more,” Mr. Atencio said.

A long-term solution for 8990 Holdings is the creation of skilled labor institute by the end of the year or early 2018 to ensure a steady stream of manpower for its projects.

Aside from higher pay, workers must be provided with incentives and support such as a barracks to lower transport costs, as well as free training and tools to encourage them to practice their trade, said Jorge A. Consunji, president of D.M. Consunji, Inc., which employs 10,000 people.

Without these incentives, firms are more prone to losing workers and may also encounter difficulty in hiring enough skilled manpower besides, Mr. Consunji said.