NEWS : Construction take-off: Saving grace

 Arguably, few incentive policies in Pakistan have yielded such instantaneous results as the one introduced a few months ago by PM Imran Khan on construction; 

pegging industrial growth to the building and construction sector making it the ultimate catalyst for manufacturing and jobs. It is a time-tested formula—construction is a great propellent for economic growth.

There are at least 40 ancillary sectors tied to construction, including large and small manufacturers of bricks, marbles, cement, steel, tile, wood, paint, glass and so on. 

Two major indicators: cement and steel show tremendous outcomes. 

Cement tapped a new high in Oct-20 selling nearly 6 million tons of cement in that month; a historic high (read more “Cement: Grabbing the bull by its horns”, Dec 4, 2020) while long steel products also gathered steam. Industry players in both sectors are gearing for a fresh round of expansions (read more: “IPO files: Agha steel’s ‘Midas’ touch”, Oct 6, 2020).

Builders are not shying away either. According to official numbers from the Federal Board of Revenue, nearly 400 projects have been registered (74 of which are approved in Sindh) under the construction package where builders will be eligible for the new fixed tax regime (on the basis of surface area), a 90 percent tax waiver for low-cost housing projects with government promising not to ask any questions on the source of funds. This is an ideal and rather lucrative way to whiten money.

To push demand in Naya Pakistan Housing, cash and interest rate subsidies are available for end-users while SBP has mandated mortgage finance targets for banks to provide home loans.

 The demand inflow right now is just the beginning where construction of new projects under NPHP has barely started. Other infrastructure development is going hand-in-hand. Construction of hydro power plants (Suki Kinari, Dasu and Karoot) and dams (Mohmand, Basha), for instance, is already creating ripples; more are on the way which together will continue to feed demand in key construction sectors for years to come.

While one could question the efficacy of the construction and housing packages itself (read more: “Housing: Reading between the lines”, Nov 12, 2020) and what impact it would have on urban development, income inequality, low-cost housing, and skilled employment—because there are certainly those relevant concerns—there is no doubt that government incent is working the way it was intended—as a low hanging fruit, easy to grasp and delivering quick outcomes.