Impact of AFTA On Construction Sector

IMPACT OF AFTA ON ACF
MEMBER COUNTRIES
Prepared for
The ASEAN Constructors Federation (ACF)
Shamsul Majid, CFA, MBA(Finance), BSc (Imperial College) Project Leader

Raida Abu Bakar, MBA (UM), BSc (Purdue)
Louie Sieh, MA (Cantab), AA Dipl, ARB
Prof Sieh Lee Mei Ling, PhD (Sheffield) Project Advisor
36
Report Outline
0.
Executive Summary
1.
1.0
1.1
1.2
1.3
1.4
Preliminaries
Introduction
Objectives
Approach
Limitations
Organization of Report
2.
2.1
2.2
2.3
2.4
2.5
2.6
2.6.1
2.6.2
2.6.3
AFTA
Creation and Objectives of AFTA
Framework of CEPT
CEPT and Member Countries
Trade Facilitation Measures
Progress Thus Far
AFTA within the Context of AEC
AEC
AFAS
AIA
3.
3.1
3.2
3.3
3.4
3.5
3.6
Analysis of the Construction Industry

Regional Overview
Country Overview
Segmental Analysis
Supply & Supply Conditions on Labour
Cross-Border Investment
Policies and Regulations of Member Countries
4.
4.1
4.2
4.3
4.4
4.5
4.6
Liberalization of the Construction Industry

AFTA and the Construction Industry
Views and Concerns Raised by Construction Players on AFTA
Degree of Readiness towards AFTA
AFAS and the Construction Industry
Views and Concerns Raised by Construction Players on AFAS
Degree of Readiness towards AFAS
5.
Impact of AFTA and AFAS on Construction Industry
5.1
Overview of Competition in the Construction Industry
5.2
Issues and Challenges in Cross-Border Movement of Construction Players
5.3
Current Strengths and Weaknesses of ACF Members
5.4
Possible Impact of Trade Liberalization to Individual Members
5.4.1 Market and Demand Growth Effects
5.4.2.1 Investment Capital
5.4.2.2 Labour
5.4.2.3 Professionals
5.4.2.4 Materials
5.4.3 Trade Effects
37
6.
6.1
6.1.1
6.2.1
6.2.3
6.2.
6.2.1
6.2.2
6.2.3
6.2.4
Conclusions and Recommendations

Imperatives for Readiness
Member Firms
Associations
Governments
Framework for Cooperation
Cooperation at Firm Level
Cooperation at National Level
Cooperation at Government Level
Cooperation at Global Level
Appendices
A.
Value of Gross Domestic Product by Country
B.
Export and Import of Construction Materials
C.
AFAS: Schedule of Commitments Made by Members
D.
Presentation Materials to ACF on 11 June 2004
38
Executive Summary
This report investigates the impact of trade and economic liberalization in ASEAN
within the context of the construction industry, and how they will affect ACF
members. As the construction industry involves the usage of both materials and
services and is dependent on the financial capability of firms, the study focuses on the
impact of three initiatives that have been signed and committed by the ASEAN
governments, namely ASEAN Free Trade Area (AFTA), ASEAN Framework
Agreement on Services (AFAS) and ASEAN Investment Area (AIA). These three
initiatives form the pillars for the eventual creation of ASEAN Economic Community,
a goal that is specified in ASEAN Vision 2020.
A major feature of ACF member countries is that they are currently at different stages
of development, both in terms of economic prosperity and readiness for trade
liberalization. At one end, Singapore is a free economy with first-world social
demographics and physical infrastructure, while at the other end of the spectrum,
Vietnam is in the transition phase of moving from a state-dominated centralized
economy to a socialist-oriented free-market system. At the same time, while Indonesia
is recuperating sluggishly from the Asian financial crisis, Thailand is experiencing
high growth from its expansionary fiscal and monetary policies. All these features
require careful consideration on the factors that influence the construction industry in
each member country.
In general, this study finds that ACF members have the potential of benefiting from
AFTA as trade liberalization initiatives will continue to take place in the medium to
long term irrespective of any political impediments that may slow the process in the
short term. There is a need for members to understand the likely impact of AFTA on
their businesses and to prepare themselves for competition with foreign firms.
Although numerous issues have been identified at the country level as contributing
factors to the slow pace of cross-border movement of construction materials and
services, three common issues are relevant at the regional level. The first issue is
capital inadequacy and difficulties in getting the necessary financial assistance and
services when bidding for foreign projects; the second is the lack of understanding of
what and how the trade and economic liberalization will affect specific local players
in construction and construction-related industries, and thirdly there seems to be a
reluctance among construction players within the region to work together as it is
perceived that they all share similar knowledge and expertise, hence little opportunity
to complement each other through alliance or joint-venture.
The study lays down several recommendations for ACF representative associations.
At the regional level, ACF representatives should promote more dialogues with their
governments as an input mechanism prior to the development of national and regional
policies. This requires the setting up of a coordination unit that will not only
participate in the working groups in various national and regional institutions related
to the construction industry, but also to identify potential member firms that can work
together in competing for regional and international projects. Others include the
development of procedures for trade facilitation for bulky construction materials and
mechanisms for mutual recognition of workers and professional qualifications. At the
global level, ACF should lead the efforts in creating ASEAN-wide construction
39
companies that can compete with other established construction companies in

international projects. At the same time, the members of the federation must work
together in identifying critical construction sub-sectors that require temporary
protection or special incentives prior to the signing of regional trade agreements,
either in the form of bilateral trade agreement with other major trading partners or
multilateral trade agreement like WTO. Hence, it is necessary that ACF initiates the
following activities firstly, develop a comprehensive database of its members for the
purpose of facilitating alliances and joint-venture in bidding for both regional and
international projects. Secondly, the federation should develop a database of
information that describes the procedures of doing business in each member country,
as well as news on business opportunities in ASEAN countries. Lastly, it should set
up focused teams that are able to handle communications with governments and
ASEAN Secretariat in assisting, lobbying and providing feedbacks in the development
of policies that are related to the construction industry.
40
Chapter 3:
Analysis of the Construction Industry
3.1
Regional Overview
The construction industry in the ACF member countries was valued about US$28.85
billion in 2002 (Refer Appendix A). Construction demand generally recovered
following the Asian financial crisis and has since been a great source of the countries
economic growth. Indonesia has become the largest construction industry in
comparison to other ACF member countries in 2002 with US$9.92 billion of value.
The restructuring of Indonesias housing market is one of the few examples of the
positive result of economic development. The next largest construction industry from
the ACF members is Singapore at US$4.68 billion. The rapid growth of infrastructure
in these countries is due to the development of buildings and other infrastructure
projects. Vietnam is the smallest contributor with only US$2.07 billion.
Trends
The pace of the industrys development varies across economies in the region. This is
due to the changes in public support in terms of finances and the stage of economic
development of each country. Percentage shares of each of the construction
industrys GDP have decreased for Singapore, Thailand and Indonesia from 1998 to
2002. However, in Malaysia, Philippines and Vietnam, GDP construction share had
decreased from 1998 to 1999. Improvement of the construction GDP shares was seen
in the year 2000 for Philippines, and after the year 2000 for Malaysia. Vietnam, on
the other hand, had only picked up in 2001.
The construction industry in ASEAN has developed over the years due to continued
investment in infrastructure construction. The adoption of AFTA has benefits the
region in terms of better procurement of construction materials, allowing trade of
construction materials to move more freely than before. Indonesia, Malaysia,
Philippine, and Thailand were some of the countries that were badly affected by the
financial crisis. However, they began their recovery in 1999 with the resumption of
growth. This growth was partly driven by the construction industry, which helped to
speed up Asias recovery of the financial crisis.
Export
Export and import of construction materials have recovered (However unavailability
of data for Vietnam does not allow us to make an accurate explanation of all ACF
countries). The buoyant external market continues to be a positive engine of growth.
Export for Indonesia, Malaysia, Philippines, and Singapore almost tripled in the year
2002 in comparison to 1998 (Refer Appendix B). For example, Indonesias export
had increased more than 300 percent in 2002, an increase of construction materials for
global market at a value of US$4.993 billion in 1998 to US$17.193 billion in 2002.
Malaysia had an increment from US$9.419 billion (1998) to US$26.672 billion
(2002), Philippines of US$2.879 (1998) to US$7.288 (2002), Singapore of US$9.22
billion to US$26.094 billion, while Thailand increased from US$4.912 billion to
US$7.095 billion (2001). This indicates that the producers of construction materials
41
in ACF countries, whether for semi-finished materials or finished materials, are

becoming larger and also increasing in number, and thus an important supplier for the
construction industry. The two largest exporters of construction materials from the
ACF member countries are Malaysia and Singapore, having a value of US$26.672
billion and US$26.094 billion respectively. The main reason for this is because
Singapore and Malaysia re-exports the construction materials by adding value to the
products (finished and semi-finished goods). The fact that Malaysia and Singapore
act as transportation hub help them to import and re-export construction materials.
Import
Import of construction materials among ACF countries has also increased by a large
amount. The major ACF countries importers of construction materials from the
world are Singapore, followed by Malaysia. As explained above, Singapores import
of construction materials in 2002 was US$37.845 billion, mostly from Malaysia,
Japan and U.S.A., whereas Malaysias import of construction materials in the same
year was US$18.149 billion which was mainly from Singapore, Japan and U.S.A.
(Key Indicators of Developing Asian and Pacific Countries, 2004). The booming of
the U.S. construction market makes the country a huge source of imported products.
In addition, the lower price of materials is the key factor why most countries choose
to import their materials from particular countries, even if transport costs are
considered. In contrast, abundance in local supply is also a factor why certain
countries choose to use their own materials instead of importing from other countries.
The specific details on the amount of materials imported and exported for each
country will be discussed later in this chapter.
Private Sector
The investments of construction projects from the private sector are likely to be the
main driving force for the overall construction industry. Private sector markets in
ASEAN are important means for productivity growth for their construction industries,
creating not only productive jobs but also higher incomes. Table 1 shows many
projects are spent on the telecommunications and energy sectors that are increasingly
being privatized. Investment in these sectors envisions a transition to a more modern
energy and telecommunication sector that is more efficient and reliable.
Table 1: Private Sector Development
Investment in infrastucture projects with private participation (US$ mil)
Telecommunications
Energy
Transport
Water and sanitation
90-95
96-01
90-95
96-01
90-95
96-01
90-95
96-01
Indonesia
3,549
7,780
3,202
7,347
1,204
1,728
3.8
882.8
Malaysia
2,630
2,603
6,906.5
2,121.1
4,657.6
7,603.2
3,986.7
1,105.5
Philippines
1,279
5,528.6 6,831.3
6,943.1
300.0
1,996.8
..
5,846.15
Singapore
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Thailand
4,814
3,679.1 2,059.6
6,445.5
2,395.9
499.4
153
347.5
Vietnam
n.a.
n.a.
n.a.
435.5
10.0
85.0
n.a.
212.8
Source: World Bank, 2003. n.a. not available
Table 1 also shows that investment of telecommunications in Indonesia increased

from US$3.549 billion dollars between 1990-1995 to US$7.780 billion in 1996-2001,
42
while Philippines spent about US$1.279 in 1990-1995 to US$5.528 billion in 19962000. In terms of the energy sector, large investments were made by Indonesia (US$
7.347 billion), Philippines (US$6.943 billion), and Thailand (US$ 6.445 billion)
between the year 1996 to 2001. Malaysia, followed by the Philippines invested a
large amount in the transportation sector. However, for the water and sanitation
sector, large amount of the investments were made by the Philippines.
Public Sector
Government also plays a complementary role with the construction industry players,
particularly in terms of regulation and investment. Today, more of these countries
have assistance from their governments who had made substantial investment in
infrastructure, recognizing that inadequate and inefficient infrastructure constitutes a
major barrier to growth, FDI inflow and poverty reduction. The Malaysian
government for instance, in its mid-term review of Eighth Malaysian Plan (20012005), increased the development allocation to US$42.1 billion. Thailands
government on the other hand invested most in infrastructure projects such as
telecommunication and energy. A representative of the Thailand Contractors
Association indicated that Thailand is expected to spend US$25 billion on
infrastructure in the next 5 years. More details on other ACF countries are discuss
later.
Labour and Professional Services
In terms of employment, labour mobility within ACF member countries is currently
driven by economic reasons such as seeking employment, better income and working
conditions. Malaysia and Singapore are the main destination for workers from
countries like Indonesia, Philippines, Thailand, and Vietnam. As expected, the
greatest pressures of labour mobility naturally comes from Indonesia due to their large
population. The National Centre for Economic Research - Indonesian Institute of
Sciences found that movement of highly skilled professional to Malaysia and
Singapore appears to be associated with their inflow of foreign investment, while the
movement of the large number of semi-skilled and unskilled migrant workers is
mostly associated with labor shortage in the destination countries. Also, socioeconomic and political pressures in the sending countries account for some of the
people movement. This will be elaborated later in the chapter.
3.2
Country Overview
3.2.1
Indonesia
Construction investment in Indonesia is strongly linked to economic growth (Refer

Table 2). Thus, the recovery of Indonesias construction sector will depend on the
recovery of the Indonesian economy. In 1999, the growth in the construction sector
was -1.91 percent but in the year 2000, the growth in the construction sector
recovered to 5.64 percent due to stable economic growth rate (Asian Development
Bank, 2003). Total value of the construction in 2000 was US$9.09 billion. However,
between 2000 to 2002, the growth of Indonesian construction has not changed much.
Total value of the construction in 2002 was US$9.92 billion dollars.
43
Table 2: Indonesia Growth of Construction sector

Year
1999
2000
2001
2002
Real growth of output, annual changes (%)

GDP
Construction
0.79
-1.91
4.92
5.64
3.44
4.21
3.66
4.11
Source : Asian Development Bank, 2003
Percentage
Indonesia :Construction and GDP, 1999-2002

7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00
% Growth in GDP
% Growth in Construction
GDP
1999
2000
2001
2002
Year
The abundance of land outside Java that are still undeveloped makes Indonesia an
attractive place for foreigners to venture into. Further, the need for infrastructure
development and cheaper land offer foreigners a greater opportunity in Indonesian
construction industry. Expansion of infrastructure particularly the construction of
highways also provide opportunities to contractors from ACF member countries, as
founded out during interviews with ACF members. In addition, the Indonesian
government has been trying to open up its market to foreign firms to form a joint
ventures with local construction firms for such projects. These foreign firms are
issued three-year construction license. However, their foreign capital must not exceed
55 percent in equity in firms that supply construction services (Ministry of
International Trade and Industry, 2004).
Although the Central government, Provincial and District governments are in charge
of infrastructure development in Indonesia, but the private sector has been providing a
growing share of the funding. In 1996, private sectors contribution was 44% and it is
projected that the private firm will be providing 77% of the finance for infrastructure
development by 2018 (ASIA Construct Conference, 1998).
3.2.2
Malaysia
In Malaysia, the construction industry has had positive real growth of output since the
year 2000 through 2002, while at the same time maintaining a steady amount of
construction GDP share (Asian Development Bank, 2003). Nevertheless, when
comparing the industrys share of GDP from 1998, the value fell to 4.07 percent in
2002 from 5.12 percent in 1998. Several factors have a negative effect on the
construction industry which has caused its share of GDP to be depressed. This
includes a number of unsold properties, high vacancy rates for offices and shops, and
44
perhaps a slower economic growth before this year. Furthermore, the Malaysian
construction industry is in the process of recovering from price escalation of major
building materials such as steel bars. In Malaysia, the price control of steel bars by
the government aggravate the situation because it has caused a shortage of supply,
which in turn caused the delay of certain projects.
In recent years, the growth of construction GDP has increased positively, from 1.01
percent in 2000, 2.33 percent in 2001, and 2.32 in 2002. The industry remains
competitive with other ACF member countries and this growth was supported by the
rapid expansion in the construction sector, with the development of highways,
upgrading ports and airports, Putrajaya, and other infrastructure projects by main
players in the construction industry such as Sunway Construction Bhd, Roadbuilder,
Perspec Prime (M) Sdn. Bhd., and many others. Many of the companies interviewed
and feedback from the Form For Views discussed about Malaysias good track record
of infrastructure construction particularly highways, and this make the contractors
more attractive in getting job overseas.
Spending on expansion can also be seen under the Eighth Malaysian Plan (20012005), where the government budget about US$3.68 billion on building new
infrastructure and expansion of the old ones. In the Eighth Malaysian Plan (2001
2005), the Government planned a budget of about US$263 million for airports
infrastructure alone (UK Trade and Investment, 2003). The development of airports
remains a priority area for the Malaysian Government to turn it into a regional hub.
The construction industry in Malaysia has slight linkages with the rest of the
economy. Table 3 below shows the growth of construction sector from 1998 to 2002
in comparison with the growth of GDP of the country.
Table 3: Malaysia Growth of the Construction sector
1999
Year
GDP
Construction
6.14
-4.35
2000
8.33
1.01
2001
2002
0.45
2.33
4.21
2.32
Malaysia : Construction and GDP, 1999-2002

10.00
8.00
Percentage
6.00
% Growth in GDP
4.00
2.00
GDP
0.00
-2.00
1999
2000
2001
-4.00
-6.00
Year
45
2002
In Malaysia, the government shapes the direction of the nation towards an

industrialized status. Public sector projects in health and education area steer the
development in construction. In addition, privatization has fostered the private sector
to supplement the government in the provision of infrastructure in Malaysia. Several
companies that were interviewed did mentioned that the construction industry in
Malaysia will always have new opportunities to venture into, there will always be new
schools to build, new highways, new buildings, etc. And once all of these projects
have been undertaken, or at least many, most companies would venture outside of
country particularly Indonesia and India to develop the countries infrastructure.
3.2.3
Philippines
In Philippines, construction demand sagged in 1998-1999 due to the postponement of

investment and projects implementation and the rise of interest rates. The growth of
construction GDP in 1999 was -1.54 percent (Refer Table 4). The downturn of
Philippines construction industry was short-lived and return to a solid economic
growth in 2000 where the construction sector peaked to a GDP growth of 26.27
percent. Nonetheless, construction GDP contracted significantly in the following year
with a growth of only -4.97 percent. Growth would have been stronger but the
slowdown was due to political turbulence that weakened consumer and business
confidence. Due to this, the government formulated the Medium-Term Philippine
Development Plan covering the period of 2001 to 2004, to help raise the living
standards of the Philippine people with the construction of roads, irrigation, basic
drinking water supply, building of schools and many others.
Although the government would like to achieve the Medium-Term Philippines
Development Plan goal, the lack of funds available inside the country causes them to
obtain financial support from various international institutions. Thus, infrastructure
projects in Philippines are mostly funded through general revenues, loans form
various international financial institutions which are the World Bank, Asian
Development Bank, OECF, and various grants. Further, it must be noted that private
investment is much higher in comparison to the public sector in the year 2001 to
2003. For instance, the proportion of the two sectors was about 63 percent on private
and 37 percent on public in 2001 (National Statistical Coordination Board (NSCB),
National Statistic Office (NSO), 2001).
Table 4: Philippines Growth of Construction sector
1999
Year
GDP
Construction
3.40
-1.54
46
2000
5.97
26.27
2001
2.95
-4.97
2002
4.43
-3.27
Philippines : Construction and GDP, 1999-2002

30.00
25.00
Percentage
20.00
% Growth in GDP
15.00
10.00
% Growth In Construction
GDP
5.00
0.00
-5.00
1999
2000
2001
2002
-10.00
Year
Total value of construction share of GDP remained fairly the same throughout 1998 to
the year 2000, being 5.91 percent and 5.85 percent respectively (Refer Appendix B).
Exports of construction materials from Philippines are led by furniture and wardrobe,
glass, and sanitary wares (Refer Appendix B).
The average CEPT tariff rates for Philippines had declined from 7.43 in 1998 to 3.62
in 20031. This signifies that there will still be opportunities for changes in the number
of export and import materials from the Philippines. Feedback of Form For Views
received indicated that the key opportunities in the Philippines building and
construction industry that should be looked upon include high-quality, low-cost
materials, new mass-housing technology, local manufacturing insulation products,
steel products, construction equipment, contracting and consulting, especially for
infrastructure projects.
With the coming of AFTA, local contractors need to be more specialized, take part in
design-build and turnkey projects, and prove more training for the technical
personnel. In the interviews, it was also mentioned that 87 percent of the contractors
are actually small players. Thus, there is a need for these small players to unite
together and form a larger entity to protect themselves against foreign competition.
On the other hand, opening up the market will also give an opportunity to other
countries to venture into Philippines infrastructure sector. Some of which includes
the road maintenance, toll-road construction (eg. sub-contracting), building
development, and engineering services.
3.2.4
Singapore
The size of Singapore constructions industry has been falling from the year 1998
where the construction share of GDP was at high 9.36 percent and fell to 5.38 percent
in the year 2002. The growth of the construction sector has also not been
encouraging. In 1999, the growth of construction GDP fell to -8.99 percent. In the
following year, the reduction of construction GDP growth has not been large but
nevertheless, a negative one. The Singaporean construction industry actually shrank
1
ASEAN Secretariat (www.moc.og.th/thai/dbe/afta_net.html)
47
in the year 2002, having construction share of GDP of 5.38 percent in comparison
with 9.36 percent in 1998. According to the Building and Construction Authority, at
least 11 firms have dropped out of its registry in the first half of 2002, compared to 15
for the whole of 2001. Further, a September survey by Singapore Confederation of
Industry shows manufacturers have become pessimistic about business conditions.
Most expect falling sales, rising costs, poor profits and weak investment commitments
in the future (Singapore Economic Outlook 2002).
Table 5: Singapore Growth of Construction sector
1999
Year
GDP
Construction
6.42
-8.99
2000
9.41
-1.85
2001
2002
-2.37
-3.20
2.25
-10.83
Singapore : Construction and GDP, 1999-2002

15.00
Percebtage
10.00
5.00
% Growth in GDP
0.00
1999
2000
2001
-5.00
2002
GDP
-10.00
-15.00
Year
Although the industry has not been improving, Singapore government seeks to ensure
that the trading system is open to increase their trade with other countries and thus
help in recovering their construction industry. The reduction of CEPT tariff rates for
Singapore has long been reduced to 0%. Thus, the elimination of restriction to enter
Singapore market has attracted many international companies to do business in and
with Singapore. One of the main reasons would be for regional expansion.
Singapores position in the construction industry had been well respected for in terms
of its quality. Thus, the vital reason why many foreigners are interested in coming
into Singapores market is due to the superior quality of their projects. This is
because all projects built in Singapore are subject to review under the countrys
Construction Quality Assessment System (CONQUAS). Its objective is to examine
contractors work in three areas, which are structural, architectural and external
works. It measures the extent to which a building conforms to the contract
specifications. Further, most sizeable construction organizations aim to attain ISO
9000 and ISO 14000 certification. As discussed in the interviews, this qualifications
are imposed on every practitioners in the industry, not only foreigners, but also local
48
players. Thus, the Singaporean government is actually creating the same level
playing field for all players, be it local or foreigners. With AFTA coming, one of the
main concern for them is having lack of track records especially in terms of
experience in building extensive highways and airports. Can they actually venture
into other foreign countries and compete with other players who have extensive track
records?
3.2.5
Thailand
Thailand has been a major investor in the construction industry. For example, in the
year 2002, US$3.75 billion was spent on construction alone (Refer Appendix A). The
growth of the construction industry has also turn positive in 2002 with 5.96 percent, a
recovery of constant negative growth since 1999 (Refer Table 6).
Table 6: Thailand Growth of Construction sector

1999
Year
GDP
Construction
4.45
-6.84
2000
4.65
-9.54
2001
1.94
-0.95
2002
5.22
5.96
Percentage
Thailand : Construction and GDP, 1999-2002

8.00
6.00
4.00
2.00
0.00
-2.00
-4.00
-6.00
-8.00
-10.00
-12.00
% Growth in GDP
1999
2000
2001
2002
GDP
Year
The average CEPT tariff rates for Thailand had also declined from 10.56 percent in
1998 to 4.64 percent in 2003 (ASEAN Secretariat, 2004). In 2001, a value of
US$8.396 billion was spent on importing construction materials from all over the
world (Refer Appendix B). Further, liberalization of the construction industry has
helped many local players to form strategic alliances with overseas firms. Under the
new law, overseas companies will be allowed to hold majority stakes in local firms, as
opposed to a limit of 49 percent in the past (Ministry of International Trade and
Industry, 2001).
In Thailand, there is a National Information Technology 2000 policy to ensure there is
development of the telecommunication sector. The first pillar of IT is for better
49
telecommunication infrastructure. Thus, this would be one area of opportunity that

foreigners might want to venture into in the future.
3.2.6
Vietnam
Vietnams GDP growth rate was about 8.2% per annum from 1991 to 1995 and was
over 9.5% in 1995 (Vietnam Embassy in USA, 1998). As a result of many positive
factors, exports grew an average of 20% annually from 1990 to 1994. In 1995, export
earnings reached US$5.3 billion, more than five times higher than export earnings in
1988 and 38% higher than in 1994.
Vietnam construction industry has had a positive growth throughout 1998 to 2002. In
1999, the growth of GDP on construction was 2.4 percent (Table 7). A much higher
increment was seen in 2001 where the growth had come about to 12.78 percent.
Although the value of the construction industry remains small, (total value of US$1.9
billion in 2001) in comparison with other ACF member countries, the country has
certainly been developing and expanding their construction market in a short period of
time.
Table 7: Vietnam Growth of Construction sector
1999
Year
GDP
Construction
4.77
2.40
2000
6.79
7.51
2001
2002
6.89
12.78
7.04
10.57
Vietnam : Construction and GDP, 1999-2002

14.00
Percentage
12.00
10.00
% Growth in GDP
8.00
GDP
6.00
4.00
2.00
0.00
1999
2000
2001
2002
Year
Vietnamese government has engaged in a number of measures to establish a good

environment for the construction industry. Some of them would be the liberalization
of construction investment, the extension of permits issued to foreign-invested firms,
and tariff reductions for the import of construction materials. However, in order to
invest in huge infrastructure projects, the Vietnamese government has limited
financial resources and therefore need various funding from home and abroad. For
example, monetary assistance from the Japans Overseas Development Assistance
(ODA) is used.
50
As for products from the South-East Asian countries, tariff rates on imported items
are reduced from an average of 3.92 percent in 1998 to 1.78 percent in 2003 (ASEAN
Secretariat, 2004). The dropping of the import duty for construction materials as part
of Vietnams participation in the AFTA agreement is troubling domestic investors.
Many now have oversupply of construction materials such as ceramics and tiles.
Competition comes from ACF member countries particularly Thailand, Indonesia and
Malaysia. This is much to be worried about in 2015 when import duty will be
reduced to 0 percent.
The Vietnamese Government uses quotas for imported items as a manner of balancing
market demand and supply which is due to the instability of local production and the
demand for some construction materials. For example, the demand for cement often
increases unpredictably at the end of every year when the construction season starts.
In this case, the government will allow the import of a certain amount of cement
products under quota. During other times of the year, cement import is forbidden to
protect local cement producers.
Other countries have large opportunities in terms of supplying what the Vietnamese
manufacturers cannot produce, or where local production cannot meet market
demands. Import has increased to US$454.97 million in the year 2003 (Refer Table
8). Production of major materials in Vietnam are tiles and ceramics at US$410.25
million, followed by bricks at US 241.13 million. In addition, value of Vietnamese
export in the construction industry has also increased throughout 1998 to 2002, from a
value of US$22.54 million in 1998 to US$64.70 million in 2003.
Table 8 : Import and export of construction materials Vietnam
Value in US$ mil
Year
1998
Export value
22.54
Import value
142.29
1999
19.29
130.46
2000
28.82
155.41
2001
35.25
250.35
2002
46.21
324.98
2003
64.70
454.97
Source : Vietnam Association of Construction Contractors, 2004
Table 9 : Production of Construction materials

Value in US$ mil
Year
Industry sector
Cement
Bricks
Tiles and ceramics
Glass
1997
1998
1999
2000
2001
2002
2003
443.8
114.116
56.8
15.56
500.066
124.916
94
14.26
590.533
123.500
129.6
47.2
684.000
136.200
215.1
90.1
809.266
141.183
296.8
100.9
1034.733
183.3
341.4
104.2
117.4
241.133
410.25
75.565
It was found out that one of the reasons for the decrease in demand in the construction
industry is that common people do not have enough money to spend since they are
unemployed, especially workers in heavy industries (coal, steel, miner, cement). In
these industries, the supply exceeds the demand so significantly that the stocks
increase very high.
It was also mentioned that corruption has been practised for a long time in Vietnam.
Now, they have become "traditions" and hinder the development of the national
economy. This practice becomes a well-known feature as "business culture" in
51
Vietnam. Thus, although the government has made special effort to restructure the
economy, the policies have not been implemented as tentative. The foundation is not
strong enough to carry big changes.
There is also the lack of competition and not having any sense of the "Kiasu" ("want
to be the best") system which help Singapore achieve amazing results, which makes
Vietnam economy recover more slowly than other countries.
Although Vietnam has shown effort to integrate to the global market, Vietnam
economy does not have enough competitive strength. The "sandwich" situation of
new member in the economic integration should be addressed here. On one hand,
Vietnam has to join ASEAN to gain favourable tariff and other conditions. On the
other hand, Vietnam has to open the door for foreign investors. Domestic producers
who lack of capital, expertise and competition cannot cope up with the sudden
changes.
Nevertheless, becoming a member of ASEAN is a progress step for Vietnam to
integrate into global market and this of course help them to gain information of the
regional market. With the coming of AFTA, reciprocal trade could actually help the
country in enhancing their construction industry.
3.3
Analysis of Construction Materials
Past shortages of construction materials have resulted in the accelerated liberalization

of the construction materials industry. Since the implementation of AFTA, the
increasingly competitive and dynamic construction industry has been affecting the
export and import of construction materials among the ACF members. Moreover,
infrastructure development programs and policies of industrial and regional expansion
support the increased production of construction materials. The production and
demand of major construction materials such as steel, cement, timber and hardware
materials are discussed below.
3.3.1
Steel
The steel industry comprised of raw materials (scrap steel), semi-finished materials
(bars and wire rods), and finished goods. The steel industry is mainly divided into two
sub-sectors, namely the manufacturing of long steel products and the manufacturing
of flat steel products that are used as construction materials.
The volume of imports of all steel products of the ACF member countries have
consistently far outweighed exports (Refer Appendix B). For example, import of steel
from the ACF countries (with the exception of Vietnam) in the year 2001 is US$6.102
billion as compared to export value of US$1.412 billion. Reductions in import duties
on steel that will take effect with AFTA will likely put downward pressure on the
prices of some locally available steel products. The outlook for the industrial steel
industry may face intense pressure from countries with higher comparative advantage
in steel production, and from inexpensive materials suitable for manufacturers needs.
Current demand for steel products has been strong owing to the continuing strong
growth of the economy. Thailand is the largest exporter of steel among ACF members
from 1998 to 2001. The value of Thailands export of steel is about US$677 million
52
for 2000 and US$428 million for 2001 (Appendix B). Malaysia is one of the main
destinations importing US$58 million in 2002. Thailands main players in the iron and
steel industry are Siam Yamamoto Steel Co., Ltd, The Siam Industrial Wire Co., Ltd,
and The Siam Iron and Steel Co., Ltd.
In Malaysia, one of the main concerns for local contractors is the issuance of
Approved Permit (AP) on steel products. This study finds that some contractors would
like to see a waiver of AP requirement for products such as seamless pipes and hot
rolled plate (above 30mm) which are not manufactured locally, and there are no
substitutes for these products.
In the case of Indonesia, the steel industry has grown from 2000. The countrys
largest steel producer PT Krakatau Steel reported considerable profit due to export
earnings. Nevertheless, the success was short lived because in 2001, the United
States, the largest market for Indonesian steel products and a number of other
countries including Thailand imposed anti dumping import duty on Indonesian steel
products. The import barriers abroad forced the countrys steel producers to turn to
domestic market. With AFTA, the reduction in import duty is seen to facilitate
expansion of the steel market at the regional level.
The Vietnamese on the other hand are having an imbalance in product mix and
production process. Vietnam produces long products but not flat steel products. As a
result, there is an excess in long products while imports of flat steel are rising. This
imbalance of capacity in the long product sector was caused by inconsistency between
the trade policy (heavy protection) and the competition policy (free entry). In 1996,
the imports of long steel products have been banned and the tariff of 30 to 40% was
charged when importing them for special purposes. In 2001, the Vietnamese
government has limited the entry of long product to restore balance between demand
and supply. Vietnamese steel producers should make full use of the relatively high
tax on steel imports at present to sharpen their competitiveness against regional rivals
before the countrys full admission to AFTA in 2006. With reduction of tariff, the
local producers may have to consider exporting their long steel products to other ACF
member countries to avoid local surplus and achieve a more balance mix of
production process.
In recent years, the steel markets in the world have faced escalation of price, from
2002 till early 2004. The price of steel has gone up due to increase in raw materials
price, such as scrap steel, for its production. The scrap prices have almost tripled
since 2002. In early 2002, the price for scrap steel was US 110 dollars per tonne and
it hit a record high in February 2004 to about US 300 dollars per tonne. This has
caused the shortages of steel bar influencing the pace of some construction projects to
slowdown. The reduction of tariff duty in AFTA could help to lower the price of steel
products and enhance the pace of construction projects.
Other issues that will have to be overcome before the sector sees a significant
improvement include the availability and quality of imported steel materials, and the
demands associated with the increased competition that could result from the
implementation of AFTA.
53
3.3.2
Cement
The cement industry is controlled by top producers in the world such as La Farge,
Cemex and Holcim which indirectly halt other exporters to export into ASEAN
countries, as mentioned during interviews with the Philippines Contractors
Association. Due to this, ACF countries cement producers, particularly the small
players, would most likely concentrate on local demand instead of exporting their
materials overseas, with the exception of Thailand. Thailands cement industry is
reputedly one of the largest in Southeast Asia, and until today, the country is a net
exporter. Cement exports for Thailand in 2001 was US 360 million dollars but import
was only about US 5 million dollars (Refer Appendix A).
In 1998, there was a surplus of 35 million metric tonnes of cement in ASEAN
countries (ASEAN Secretariat, 2003). Total production capacity of the ACF countries
in 1998 were 163 million metric tonnes (Asian Development Bank, 2001). Asias
combination of cheap labour and high infrastructure demand has persuaded
international cement companies to chase bargain assets in the region, especially since
the onset of the financial crisis. Due to this, the six ASEAN countries agreed to buy
cement from each other as a solution to excess production capacity (ASEAN
Secretariat, 2003). With the implementation of AFTA, the co-operation among
companies from ACF should further assist in trading cement materials regionally.
Nevertheless, China is a potential supplier of cement for the ACF countries. China
accounted for about 17 percent of the total world cement trade. But due to the
economic crisis, the number had decreased by nearly 30 percent as the prices of
cement dropped. As the industry stabilized throughout the year 2000 till recently,
China will likely continue in increasing its cement production capacity and improve
its quality along the way. Bulk cement is expected to become a large proportion of
Chinese cement output, estimating about 182 million tonnes or 29.5 percent of total
production by 2005 (World Business Council for Sustainable Development, 2003).
Thus, Chinas market could offer the ACF member countries cheaper price for cement
and lower the constructions cost.
3.3.3
Timber / Wood
With the implementation of AFTA, the tariff for timber and wood materials will
further be reduced. Besides focusing on the local market, countries that have
abundance of timber materials should focus on expanding the market regionally. The
main exporter of timber materials from the ACF countries are Malaysia and
Indonesia. In the year 2002, Malaysia has an export value of US$1.55 billion while
Indonesia with US$1.17 billion. Apart from having the benefit of abundance of
timber materials, AFTA allow member countries to enjoy national treatment for any
cross-border investments. Given its well-diversified wood- based industry and a high
level of productivity, Malaysia and Indonesia could emerge as a manufacturing hub
for timber products in ASEAN.
These ACF countries producers and exporters must take proactive steps to overcome
issues such as increasing price competition due to the emergence of lower-cost
producers such as China. To be able to compete more effectively, the ACF timber
54
industry should take advantage of its strength in advanced wood manufacturing

facilities to produce high quality value-added timber products for the markets.
In Philippines, there is an increasing substitution of tropical timber by non-wood
products due to the scarce supply of wood as a result of logging bans in virgin forests.
Among the non-wood products now being utilized for housing construction are
coconut lumber, bamboo, and steel. This is also the reason why the value of exported
timber materials of Philippines has decreased from a value of US 142 million dollars
in 1998 to US 122 million dollars in the year 2002. The advantage of having the tariff
lowered with the implementation of AFTA is that the Philippines could benefit from
importing timber materials from other ACF member countries at a reasonable cost.
Current global trade of timber or wood products is much different from the past years.
In the past, suppliers can actually compete on volume and prices. The trade today
however, is market-driven where it focused more on product value. Manufactured
timber products must be able to satisfy consumer demands and preferences, which
amongst others include product quality and the issues of sustainability. Hence, the
timber industry must pay more attention to such issues and take proactive action to
ensure that their products gain market acceptance.
3.3.4
Hardware Industry
Besides the major materials stated above, there are also many other materials used in
the construction industry which are considered as hardware. Amongst them are
sanitary wares, paints and coatings, electrical components, floor and wall tiles, pipes
and plumbing, furniture and wardrobe, as well as nails/screws/nuts and bolts.
These hardware materials are mostly secondary products, meaning that they are
produced from materials such as steel, cement or timber. For example, pipes and
plumbing as well as nails/screws/nuts and bolts are produced from steel plates and
steel bars. Sanitary wares, furniture and wardrobe are produced from timber, steel and
other materials.
In general, Malaysia and Singapore are the largest exporters as well as importers of
these hardware building materials (Refer to Appendix B). As mentioned early in this
chapter, the main reason for this is because Singapore and Malaysia re-exports the
construction materials by adding value to the products The fact that Malaysia and
Singapore act as transportation hub help them to import and re-export construction
materials. Basically Singapore is a net importer of many products from Malaysia
namely, sanitary wares (US$ 35 million), paints and coatings (US$41 million),
electrical component (US$1228 million), pipes and plumbing (US 37 million),
furniture and wardrobes (US 123 million), heavy and light machinery (US$64
million), nails/screws/nuts/bolts (US$37 million) and prefabricated building (US$1.9
million) (Department of Statistics, Malaysia, 2004).
The ceramic tile and sanitary ware industry has developed to an advanced level,
bringing it acclaim in domestic and overseas markets. It was found that Thailand
possesses a number of competitive advantages over other ceramic exporting nations,
including abundant reserves of high quality ceramic clay and low mining costs.
55
With the improvement of Asias economy, the paint and coatings market looks
promising as well. The potential for increased usage in decorative and quality paint
for construction are becoming significant. Singapore and Malaysia are viewed as most
favourable destination for growth.
3.4
Supply & Supply Conditions on Labour
Some of the ACF member countries can be classified as labour sending countries,
labour receiving or both. The pattern of movement of migrants in the ACF countries is
characterized by skill type, gender, and industry (Sieh & Ong, 2003). In terms of skill
type, most foreign workers are in the lower-skilled categories. For example, in
Singapore, of the 600,000 foreign workers, it was estimated that only 110,000
workers belonged to the higher skilled category (Firdausy, 2003). In terms of gender,
almost all workers in the construction industry are male.
The number of countries from which people are drawn from as migrants appears to
have widened due to easier mode of transportation and also because more economies
are emerging onto the global economic scene. Conventional routes of cross border
flows for foreign workers are also changing and this has resulted in migrant workers
appearing from far flung countries or areas (Sieh & Ong, 2003). For this section,
various data from different sources are used.
A major feature of labour in the construction industry is the role of contractors and
subcontractors which causes fragmentation in supply and demand of labour.
3.4.1 Labour
Labour migration in Asia has accelerated and many of such migrants are unskilled.
The willingness of migrant workers to undertake the so-called 3-D jobs (difficult,
dirty, and dangerous) which is mostly in the construction industry, has helped
destination countries in employment of construction workers and thus contribute to
the well being of their economy. The pattern could be seen in Table 10 where the
number of migrant workers has increased. Consistent with this trend, remittances from
foreign workers, both permanent and temporary, are the second largest source of
external funding for developing countries, after foreign direct investment (FDI). In
2001, workers remittances to developing countries stood at US 72.3 billion
(Worldbank, 2003).
Table 10: Outflow of Migrant Workers, 1976 1998 (No. of migrants 000)
Year India Indonesia Philippines Thailand Pakistan Bangladesh
Sri
Lanka
1976
4.2
1.9
47.8
1.3
41.7
6.1
0.5
1980
236.2
16.2
214.6
21.5
129.8
30.1
7.6
1985
163.0
54.3
389.2
69.7
88.5
77.7
12.4
1990
143.6
86.3
598.8
63.2
115.5
103.8
42.7
1995
415.3
120.9
488.6
202.3
122.6
187.5
172.5
1998
355.2
411.6
562.4
175.4
104.0
267.7
158.3
56
Sources: Adapted from Wickramasekara, 1996; Indonesia: Hugo, 1999; South Asia ILO/ACRAV studies on Bangladesh,
Pakistan and Sri Lanka; Statistical Handbook, Sri Lanka Bureau of Foreign Employment, 1997 and 1998, p. 15
Another factor is the attractive wage and opportunity gaps between the rich and the
poor countries. For instance, Indonesian workers can earn US$2 or more per day in
neighboring Malaysia compared to 28 cents per day at home country (World Bank
2001). This aspect alone had caused many to migrate to a destination country who
could offer a higher income. In the case of Malaysia for instance, most foreign
workers came from Indonesia (Refer Table 11) and a large number (60,197) of
foreign workers in Malaysia were construction workers. The relative share of young
adults in the populations of sending and receiving countries, and the reductions in the
cost and inconvenience of travel has also assist in the acceleration of migration
(Worldbank, 2003).
Table 11: Foreign workers in Malaysia (2002)
Number (persons)
Share (%)
566,983
105,744
48,257
17,287
6,539
2,440
2,218
20,098
60,197
214,595
283,401
55,309
155,883
181
769,566
73.7
13.7
6.3
2.2
0.8
0.3
0.3
2.6
7.8
27.9
36.8
7.2
20.3
0.0
100.0
Indonesia
Bangladesh
Nepali
Philippines
Myanmar
Thailand
Pakistan
Others
Construction Workers
Plantation Workers
Manufacturing Workers
Services Workers
Domestic Maids
Others
Total
Source: Malaysia, Department of Migration (January 2002)
Indonesia
Indonesia is an important source of labour supply due to the over surplus of their
unemployed worker. The official unemployment rate in 2002 for Indonesia is 10.3
percent which is about 8,005 people (ILO Labour Statistics 2003). It is also one of
the worlds major sources of unskilled international migrant workers. Although only
4.2 percent of workers are actually in the construction industry in the country, most
seek to migrate outside of Indonesia in search for better job and pay. Major companies
in Indonesia such as Total Bangun Persada, Jaya Konstruksi, and Pt. Wijaya Karya
felt that due to this reason, Indonesia has also become a major global source of
contract migrant workers (Refer Table 12). The table only shows the number of
Indonesian overseas contract workers and due to unavailability of data, the number of
illegal workers are not specified.
Table 12: Estimated stocks of Indonesian overseas contract workers in 2000
57
Country
Malaysia
Saudi Arabia
USA
Taiwan
Singapore
Hong Kong
U.A. Emirates
Philippines
South Korea
Japan
Brunei
Number of workers
1,376
425
100
90
70
40
35
26
12
3
2
Source : ILO Labour Statistics, 2001
Countries that promote labour emigration have good reasons to do so, namely, to
reduce domestic unemployment while at the same time earning foreign exchange
through remittances. For example, Indonesia in its Five Year Plans has generally
included targets for sending workers overseas (Wickramasekera, 2002).
Malaysia
Construction industry in Malaysia is also vital for generating employment. In the year
2000, the industrys contribution to employment is about 9.3% of total employment in
the country. Table 13 shows the percentage of employment by industry in 1990, 1995
and the year 2000. The percentage of construction labour has increased from 6.3
percent in 1990 to 9.3 percent in 2000.
Malaysia has long been recognized as the most important source of foreign workers
for the Singapore economy at least during the early days of Singapores development
(Sieh, 1988). Migrants in Singapore contributed to sustain high real economic growth
rates by 8 percent to per capita real GDP of US$18,757 in 1999 (Firdausy, 2003).
Table 13 : Employment by Industry, 1990-2000
Percent (%)
Sector
1990
1995
2000
Agriculture
26
18.7
15.5
Mining
&
Quarrying
0.6
0.5
0.5
Manufacturing
19.9
25.3
27.5
Construction
6.3
9
9.3
Services
47.2
46.5
47.3
Total
100
100
100
Source: Construction Industry Development Board (CIDB), 2003
As a result of rapid development of projects, the construction industry in Malaysia

faced a shortage of unskilled and semi-skilled workers. Construction companies have
become increasingly dependent on foreign labours. In 2000, majority of construction
workers in Malaysia is actually from Indonesia (110,764 workers), followed by
Bangladesh (29,275 workers) (Refer Table 14). The main reason that Malaysia
accepts many Indonesian workers in the industry is actually due to little barriers in
terms of communication since workers speak similar language. Thailand, Myanmar,
58
India, and Pakistan also contribute a fair amount of construction workers in this
country.
However, firms in Malaysia such as Satujaya and Sunway construction expressed
their concern with the fact that most of these construction workers are foreigners and
sometimes contributes to the social problems in the country. It is also important to
acknowledge that most Malaysians who are unemployed would still prefer to pursue
other areas instead of the construction industry, thus, this contributes to the
unavailability of local workers to work in this areas.
Table 14: Issuance of Temporary Work Permits to Foreign Workers in Peninsular
(2000)
Construction
Workers
110,764
1,121
49
1,369
29,275
3,305
3,115
148,998
Indonesians
Thais
Filipinos
Cambodians
Myanmarese
Bangladeshi
Indians
Pakistanis
Sri Lankans
Nepalese
Total
Source: Kassim (2001) in Hayase (2002).
Mobility of the Indonesian migrant workers to Malaysia has been an on-going

process. In contrast, few percentage of construction workers comes from Thailand and
Philippines.
Philippines
The growth rate for construction workers in Philippines has increased in 2003 by
about 5.7 percent (Refer Table 15). According to the Philippine Construction
Association, the major advantage that the workers have over other ACF member
countries is their understanding over the English language, and thus make it easier to
interact with people from different countries.
Table 15: Employment in Philippines
Philippines
Indicators
Total Domestic Employment
(in million workers)
2001
29.2
59
2002
30.1
2003
30.5
Growth Rate
2001- 200202
03
3.1
1.7
Average Construction Employment

(in million workers)
% Share of Construction to total
Employment
1.6
1.6
1.7
0.7
6.3
5.4
5.3
5.6
(2.3)
5.7
Source : Philippines Construction Association, 2004
In terms of training, not much has been done compared to countries like Singapore
and Malaysia. According to the Philippine Construction Association, the main reason
why companies do not want to invest a great amount of money in training is because
these people leave once they learned certain skills and move to another company and
provide that company with greater advantage. Meanwhile the previous company
probably spent more on training new workers. The fact that many employees leave
after training, and the fact that there is no protection for this practice, many companies
do not want to invest much in this area.
Singapore
Singapore obtains foreign workforce from two different categories of countries. One
being the traditional countries which are those countries whose culture and work
ethos are compatible with those of Singapore. These countries include Malaysia,
Republic of Korea, Hong Kong, Japan, and Macau (CIDB, 2004). Most of these
labours are actually from Malaysia. The other so called non-traditional sources are
from Bangladesh, India, Indonesia, Philippines, Sri Lanka and Thailand.
Singapore's economic progress has been based on systematically upgrading the level
of technology in all sectors, and adopting high value-added activities, while phasing
out labour-intensive ones. Whereas the employment of foreign workers is permitted in
some sectors, continued reliance on such workers is not considered desirable, as it is
thought that social and economic problems may result. From Table 16, we can see
that the number of construction workers in Singapore is decreasing from 131,300 in
1999 to 114,474 in the year 2003. This is due to the fact that skilled workers are
retained and dependency on less (in numbers) but quality worker are much sought for
in their country.
Table 16: Number of Construction workers in Singapore
1999
1998
2001
2002
Employment
131,330
130,730
124,925
119,068
2003
114,474
Source :Department of Statistics, Singapore, 2004
Thailand
The number of construction workers in Thailand has also increased throughout 1999
to the year 2003, from about 5,607 workers in 1999 to 7,522 workers in 2003 (Refer
Table 17). It was also recorded that a large number worked in Malaysia (1121
workers) in the year 2000 (Sieh & Ong, 2003).
Table 17: Number of workers (thousand persons) in Thailand (1999, 2001-2003)
1999
2001
2002
2003
5,607.1
6,580.7
7,146.3
7,522.8
Construction
117,914.5
121,836.3 125,097.1 127,841.4
Other Industry
123,521.6
128,417
132,243.4 135,364.2
Total
Source : National Statistical Office, Office of the Prime Minister, 2004
60
In the year 1990 to 1997, the number of Thai workers working outside of Thailand
has also increased as shown in Table 18. A large number had migrated to Singapore
between these years, while the number of workers going into Malaysia had decreased
by the year 1997.
Table 18: Number of Thai Workers Going Abroad by Country of Destination
Countries
1990
1991
1992
1993
1994
1995
1996
Middle East 27,392
& Africa
12,229
E-Asia
17,263
ASEAN
Singapore
6,464
Malaysia
2,087
Brunei
8,009
Others
703
6,140
Western
63,024
Total
% Shares by Region
Middle East 43.5
E-Asia
19.4
ASEAN
27.4
Western
9.7
1997*
21,482
23,029
17,019
17,614
19,987
22,607
16,367
16,931
21,546
9,488
2,473
8,840
745
3,890
63,849
24,984
31,181
11,337
6,608
12,729
507
2,524
81,718
77,661
40,939
14,171
11,358
14,750
660
2,331
137,950
105,861
44,626
15,100
12,232
16,553
741
1,663
169,764
134,524
46,257
15,624
11,830
17,292
1,511
1,528
202,296
110,516
50,425
17,601
9,363
20,714
2,747
1,888
185,436
106,830
42,829
16,601
5,820
16,024
4,384
2,112
168,138
33.7
26.5
33.7
6.1
28.2
30.6
38.2
3.0
12.3
56.3
29.7
1.7
10.4
62.3
26.3
1.0
9.9
66.5
22.9
0.8
12.2
59.6
27.2
1.0
9.7
63.5
25.5
1.3
Note: * January to November 1997.

Source: Department of Employment, Ministry of Labour and Social Welfare, from
http://www.thaieconwatch.com/articles/m98_2/m98_2t7.htm.
Vietnam
Vietnam's unemployment rate dropped from 7.4 percent in 1999 to 6.3 percent in
2001 (Asian Development Bank, 2003)). Nevertheless, the percentage rate of
unemployment is still high. In order to overcome unemployment at home, the
Vietnamese government put an effort to fight it by encouraging its people to work in
neighboring countries. In the past few years, Malaysia and other ASEAN countries
have become a growing market for Vietnamese labours. Most are employed in the
manufacturing and construction industry. And unlike its Southeast Asian neighbours
such as the Philippines and Indonesia, Vietnam is a relative latecomer to the idea of
exporting its workers overseas.
In 2002, about 2,763 Vietnamese workers were working in Malaysia, 110 in Laos, and
2,801 in the rest of the world (Refer Table 19). The number employed in other
countries has increased and progress has been made in poverty reduction and job
creation for the unemployed. Nevertheless, Vietnam is seriously lacking of human
resources locally. Local talents have not been employed and promoted properly.
Consequently, many students study overseas and later do not want to go back since
they cannot find relevant jobs.
Table 19: Export of Labour Services in Vietnam Construction Industry
Number of people
Year
2001
2002
2003
Countries
To Malaysia
2673
3606
61
To Laos
To the rest of the world
Total
4120
4120
110
2801
5584
3348
7054
Illegal Workers
The growth of illegal immigration has given rise to tightening of immigration rules
and regulations in ACF countries particularly with regards to semi-skilled and
unskilled workers in most countries facing massive numbers of illegal people
movement (Sieh & Ong, 2003). Further, immigration rules are now moving towards
incorporating political and cultural rationale as compared to before where economic
justifications were emphasized. The case of preference for cultural affinity in
selecting source migrant countries in Singapore and Malaysia has already been
discussed by their governments and firms as a strategy to avert potential social and
cultural conflicts.
Many factors contributed to the failure of the governments efforts to curb the illegal
inflow of foreign workers (Kassim 1991, 1993; Zanifan Md. Zain 1991). Legal
importation of alien labour was and still is time consuming and costly and, therefore,
unpopular with prospective employers who prefer illegals as they are also easy to
control and mobilize, and such labour could easily be found.
3.4.2 Professional Services
The construction industry is generally referred to as a service industry. The skilled
workforce comprised of engineering works, project management and many others.
With AFAS, governments can promote on harmonization of qualifications and
equalization of standards for skilled labour and professionals. Border entry point
details for such movement of people to conduct trade in services cannot be ignored.
AFAS promises to benefit both the developed and the developing countries, with
perhaps the former as the main beneficiaries of this mode (Sieh & Ong, 2003). The
flow of natural persons providing services among developed countries is very
significant, as it is among developing countries, as well as between developed and
developing countries. Countries would have to pay immediate attention to their
respective visa and work permit systems in order to identify areas to facilitate
movements of people if they earnestly wish to promote flows of skilled workers.
To illustrate further, Malaysia accepts foreign workers from countries such as the
Philippines, China, Indonesia, Thailand, Bangladesh and elsewhere. But the
Malaysian government has some formal arrangements with these economies, but not
with all of them. There are agreements between Malaysia and the Philippines and
between Malaysia and Indonesia on terms and agreements for certain jobs (Sieh &
Ong, 2003). The agreements are altered from time to time after talks between the host
and home governments in order that satisfaction is met on both sides. Similar
agreements are also enforced between Singapore and some home governments of
foreign workers that are employed in Singapore.
62
The progressive liberalization of services under AFAS will help to address the issue
on the needs of a similar ASEAN visa for professionals, which could be one means to
promote greater cooperation. A good data base, which is currently lacking, will help
to facilitate the formulation and implementation of an ASEAN visa. Perhaps such data
issues may be taken up under certain agency or association that has expertise on
record keeping across countries.
In the case of Singapore, some policy measures are in place to encourage immigration
of a permanent nature usually for higher level skills. Skilled workers holding work
permits are eligible for entry/reentry permits. Professional personnel on work passes
(as distinguished from work permits) are granted permanent resident status. Social
Integration Management Service is established by the government of Singapore to
encourage permanent integration of workers with desirable skills into the labour force
(Ruppert, 1999). A further step is taken by the Singapore government to encourage
skilled personnel to settle in Singapore by providing them with subsidized health care,
education and housing.
Malaysian services sector is considered relatively open and therefore, fairly
significant foreign participation is already allowed. However, future negotiations as
planned under AFAS provision will see further liberalization and bindings of services
activities. Other ACF countries such as Philippines, Thailand, and Indonesia are
generally prepared to co-operate with foreign professional workers as discussed in the
interviews. The opportunity to work with other countries professionals should be
seen as beneficial to develop ones own country.
Despite the reality that different countries have different needs and priorities with
respect to migrant or foreign workers, there is a need to look at the issues relating to
foreign workers, either to reduce the incidence of unlawful people movement usually
from the unskilled category, or to regulate the flow of highly skilled and
knowledgeable professional people across borders.
Table 20: Summary of Suppliers Strengths
Suppliers Strengths
Country
Indonesia
Malaysia
Philipppines
Singapore
Thailand
Vietnam
Steel
++
+
0
0
+++
0
Cement
+
+
+
+
++
0
Timber
+++
+++
0
0
0
63
Machinery
+
+
+
++
+
0
Hardware
0
0
0
0
0
0
Chapter 4:
The Liberalisation of the Construction Industry
4.1
AFTA and the Construction Industry
AFTA, which is implemented through CEPT scheme, is expected to facilitate

reduction in the cost of importing construction-related goods and materials within the
ASEAN region. Goods with a minimum 40% content originating from ASEAN
countries are qualified to be categorized as local goods that will be accorded with
CEPT privileges. In general, the official target of AFTA for ASEAN-6 was to have
tariff for all items in the Inclusion List fall within 0-5% by January 2003. In the case
of Vietnam, the target deadline was set at January 2006.
As of 2003, the tariff for all construction-related goods and materials have fallen
within the 0-5% tariff band, with the exception of Vietnam. To illustrate the range of
import tariffs applicable to ACF member countries, Table 4.1 summarizes the tariff
rates applicable to selected construction materials. Four groups of countries emerged
from their tariff patterns Vietnam with its high import barrier, Malaysia and
Thailand with 5% flat tariff, Indonesia and Philippines with tariff in between 0 to 5%,
and Singapore with no import tariff at all. To some extent, this tends to suggest how
each country intends to protect their domestic industries from foreign competitors
within the short term.
With the coming of 0% import tariff by 2010 (for ASEAN-6 members), this will mean
lower cost of importing materials from within the region. In turn, buyers will have a
wider choice to source their materials, both in terms of price and quality. Table 4.2
indicates the average tariff rates applicable to HS code sections that are relevant to the
construction industry.
Table 4.1: CEPT Tariff for Common Construction Materials for ACF Member
Countries (2003)
HS Code
2516.12.000
2715.00.000
2523.21.000
3917.23.000
4418.20.000
4418.30.000
6904.10.000
6905.10.000
6912.00.000
7008.00.000
7213.10.000
Item
Granite Slabs
Bitumen or asphalt
Portland Cement
(Type I)
PVC pipes
Doors and wood
frames
Parquet panels
Building bricks
Roof tiles
Ceramic tableware,
kitchenware, &
toiletware
Multiple-walled
insulating glass
Reinforcing steel bars
and coils
Indon
5%
2.5%
0%
Msia
5%
5%
5%
Phil
3%
3%
3%
Spore
0%
0%
0%
Thai
5%
5%
5%
Viet
5%
1%
40%(E)
0%
0%
5%
5%
3%
5%
0%
0%
5%
5%
5%
5%
0%
5%
5%
5%
5%
5%
5%
5%
5%
5%
5%
5%
0%
0%
0%
0%
5%
5%
5%
5%
5%
20%
20%
50%(E)
5%
5%
5%
0%
5%
20%
5%
5%
3%
0%
5%
20%
64
(E) indicates the material is temporarily excluded from CEPT scheme. However, the tariff must reach
between 0-5% by 2006, and 0% by 2015.
4.2
Views and Concerns Raised by Construction Firms on AFTA
In general, the contractors in the construction industry feel that there is a minimal
impact of trade liberalization in goods and materials, primarily due to the fact that the
bulky nature of construction materials, logistics constraints at both inland and sea, and
suitability to local condition requirements will continue to demand the use of locallysourced materials. However, several concerns have been raised by construction firms
regarding AFTA:
4.2.1
Too Fast Implementation of Time Table
There is a concern among construction firms that the implementation or enforcement

schedule of AFTA is too fast. Although the general feeling is that the impact will be
neutral (due to the bulky nature of the construction materials), the concern is primarily
rooted in the lack of dialogue or communication between firms from countries in the
region and their governments prior to the development of regional policies.
Furthermore, the industry players also felt that their governments are not doing
enough to educate relevant businesses about the potential impact of AFTA on their
business.
4.2.3
Wide Discrepancy in the Strength and Competitiveness Levels among

ASEAN Countries
Some of the firms from the less developed ACF member countries raised the issue of
uneven playing field that will be created upon full implementation of AFTA. These
firms felt that the big and financially strong construction companies, typically from
the more developed ASEAN countries, will be able to muster their strength and
dominate large scale projects in neighbouring countries, using their ability to mobilize
cheaper funds and efficiency in supply chain management through greater negotiating
power with small material suppliers.
4.2.3
Oversupply of Materials from Foreign Countries
Some of the firms from the less developed ACF member countries are concerned with
the possibility of having an oversupply of construction materials in their country as a
result of the dismantling of trade barriers. Some countries with unsophisticated
production facilities will find that their costs are far higher than those of foreign
producers who employ more advanced technology in their production process.
In the case of steel, countries like Vietnam and Malaysia use a combination of import
tariff and import licenses to control the level of supply of the material, with the main
objective of protecting the local producers. With the lowering and eventual removal of
import tariff and other non-tariff barriers, there is a risk that a glut in the supply of
materials will lead to the demise of local firms, which in turn will increase the
countrys reliance on foreign materials.
65
4.2.4
Higher Cost for Quality / Standards Compliance
Another concern lies with the opening up of the market as producers will be forced to
increase the quality of their materials simply because foreign products of higher
quality will threaten local suppliers. This will result in the need to invest in new
equipment or production facilities, and will increase the cost of production of
construction materials, hence a negative cost effect.
4.2.5
Market Access Not Equal Despite Implementation of AFTA
Many construction firms, notably from the less developed ASEAN countries, felt that
trade liberalization in the form of tariff reduction is not free-lunch. There was a
strong suspicion that other forms of barriers will be put in place in order to protect
local companies, for example, license and permit application, quality accreditation
and professional qualification requirements, financial and technical requirements, and
composition of local staff.
4.3
Degree of Readiness towards AFTA
Despite the concerns raised by the construction firms, there are many among those
interviewed indicated that they are already prepared for AFTA, except for Vietnam.
Singaporean companies said that they have been trained to compete in an open market
due to the nature of its open economy. Malaysian and Thai companies claimed to be
ready as they have had several years of domestic experience to build up their technical
and financial strengths. Indonesian and Filipino companies reported that they have
been exposed to open competition through international-funded projects at home.
4.4
AFAS and the Construction Industry
AFAS will affect trade in professional services in the construction industry. The
commitments made by each ACF member country after the completion of the 2nd
round of negotiation is somewhat diverse although in general they are moving
towards further dismantling of trade barriers within the services sector.
It is important to note that AFAS, which is modeled after GATS, have to be read
within the context of both horizontal and vertical commitments. Under AFAS, a
member country must offer a better deal to its regional neighbours than what it has
offered under GATS. This is the cornerstone of the initial aim of preparing ASEAN
countries for global liberalization of the services sector under GATS.
Commitments made by a country under AFAS are presented in a list of schedules.
These commitments are split into two sections. Horizontal commitments specify
limitations that apply to all of the sectors included in the schedule; these often refer to
a particular mode of supply (discussed below), especially with regard to commercial
presence and the movement of natural persons. Any reference to the sector-specific
commitments must therefore consider the horizontal entries. The second section of the
schedule lists the commitments which apply to trade in services in a particular sector
or subsector.
66
As an example, the commitments made by the Philippines in AFAS will mean a

foreigner can only have a maximum of 40% equity in a company that wishes to
provide construction service in a locally-funded project (sector-specific limitation)
and at the same time a foreign civil engineer can only be employed by this company
after it has been determined that no suitable Filipino has the competency to carry out
the same tasks (horizontal limitation).
The schedule of commitments offered by each ACF member country is provided in
Appendix C. These are the sector-specific schedules that are relevant to the
construction industry. Some of the terminologies that are used in the schedules are
clarified below.
4.4.1
Market Access
Unlike goods and materials which have to be physically moved to the point
consumption, the supply of services can be achieved in more ways as it need not
require the presence of the supplier, either in the form of person or company, at the
time when the service is delivered. In other words, there are more ways to gain market
access in the supply of services. AFAS has adopted GATS modes of trade in
services and defines four ways of accessing a market under the four modes of
supply:
4.4.2
The Four Modes of Supply
Cross-border supply the possibility for non-resident service suppliers to supply

services cross-border into the member's territory without the need to have physical
presence. An example would be a developer from Malaysia hiring a Filipino civil
engineer to draft a technical drawing for the formers project at home. The entire
exercise can be done electronically via the internet: the developer could communicate
his requirement and output expectations through email, the engineer could then send
electronic files containing his drawings, and the transaction is finally concluded via
telegraphic transfer of currency to a Filipino bank. Note here that no service supplier
need to move across national borders.
Consumption abroad the freedom for the member's residents to purchase services
in the territory of another member. An example would be a Singaporean company
wishing to set up a plant in Malaysia engages a Malaysian construction firm to build
the factory. In this case, the Singaporean manufacturing firm is importing construction
services for its consumption (ie. building the plant) abroad.
Commercial presence the opportunities for foreign service suppliers to establish,
operate or expand a commercial presence in the Member's territory, such as a branch,
agency, or wholly-owned subsidiary. An example is when a Thai contractor set up a
55:45 joint-venture company in Indonesia to undertake a construction project in the
island of Java. The ratio 55:45 foreign and local ownership is to comply the sectorspecific limitation specified in Indonesian schedule in AFAS.
Presence of natural persons the possibilities offered for the entry and temporary
stay in the Member's territory of foreign individuals in order to supply a service. An
example would be a civil engineer specializing in metal stress and fatigue from
67
Singapore provides an inspection service to a company that is building a bridge in

Vietnam.
4.4.3
Most-Favoured Nation (MFN) Status & National Treatment
Like GATS, AFAS must also be read within the context of what are offered by a
government with regard to the difference in treatments that it will accord to foreigners
when compared against its own citizens and its other preferred trading partners. Both
MFN and National Treatment are also types of market access. The first is MFN
Treatment, which stipulates that any privilege granted by a country to another
(frequently through bilateral agreement) must be extended to other members. The
second is the National Treatment clause, which refers to the obligation of extending
the same treatment enjoyed by domestic companies to those from another AFAS
member country. In other words, there must be non-discriminatory treatment to
foreigners from AFAS countries when doing business in the country.
4.5
Views and Concerns Raised by Construction Firms on AFAS
4.5.1
Lack of Understanding of what AFAS is All About
Many of the construction firms interviewed are aware of the liberalization of the
services sector although the understanding is typically in the form of investment and
employment constraints imposed on foreign companies. There is also a general
feeling that the movement of construction labour is covered under AFAS although the
agreement (as at the completion of 2nd round of negotiation) limits its coverage to
professional service persons.
4.5.2
Supply of Services will be Dominated by Companies from More

Developed ASEAN countries
There was a general feeling that professional service companies from the more
developed countries will dominate the industry upon full implementation of AFAS.
This is due to their ability to recruit locals as they have a better education system, as
well as their ability to attract foreign employees to work in their companies and reside
in the host country. A typical example quoted is Singapore, which has a combination
of excellent education system and attractiveness for foreigners to reside in the
country. Either way, this provides the opportunity for Singaporean companies to hire
better qualified people to provide professional services in the region.
4.5.3
Market Access Not Equal Under AFAS
Just like AFTA, there was a strong suspicion that other forms of barriers will be put in
place in order to protect local companies, for example, license and permit application,
quality accreditation and professional qualification requirements, financial and
technical requirements, and composition of local staff. These requirements will deter
or discourage foreign companies from competing in the local market.
4.6
Degree of Readiness towards AFAS
There was a strong consensus among construction firms in the region that they are
ready for AFAS. In the case of Vietnam, the lack of guidelines and standards has
68
enabled foreign companies to employ whatever standards that is acceptable to the

authority in their construction projects in Vietnam. In a way, this is a form of
liberalization, where foreign companies are allowed to do business without constraints
in the form of compliance to local standards and guidelines. Thus, Vietnamese firms
assert that the impact of AFAS will be neutral to them.
The Singaporean, Malaysian and Thai companies are confident that they will be able
to compete on a strong footing with the liberalization of the service industry. They are
very confident of their project management skills and are well equipped with
technical competencies to compete within ASEAN and Asia.
Indonesian and Filipino companies, to a lesser extent, are confident that they will also
be able to compete with foreigners upon liberalization of the service industry,
especially in local projects. This is based on the belief that their technical skills are at
par with foreign service providers. Coupled with stronger network ties with local
material suppliers, the construction firms in these two countries believe that it will not
be easy for foreigners to compete with the locals in their own country. However, the
threats from foreign service providers will be significant for large-scale projects,
where foreign companies are able to mobilize bigger and cheaper funds to compete
with the locals, who are constrained by the high cost of borrowing.
69
Table 4.2: Tariff Rates for HS Sections that are Relevant to Construction Industry
HS
Section
25
39
44
69
70
72
73
74
76
78
Description
SALT, SULPHUR,
EARTH & STONE,
LIME & CEMENT
PLASTICS &
ARTICLES THEREOF
WOOD & ARTICLES
OF WOOD, WOOD
CHARCOAL
CERAMIC PRODUCTS
GLASS &
GLASSWARE
IRON & STEEL
ARTICLES OF IRON
OR STEEL
COPPER & ARTICLES
THEREOF
ALUMINUM &
ARTICLES THEREOF
LEAD & ARTICLES
THEREOF
Total Items / Avg Rate
for All
Indon
No of Items in the Inclusion List

Msia Phil Spore Thai
Viet
Indon
Average Tariff Rates in 2003

Msia
Phil Spore Thai
Viet
56
55
58
56
70
49
1.7%
1.1%
3.0%
0%
4.9%
3.6%
31
100
33
38
102
29
3.4%
4.1%
4.4%
0%
4.9%
13.5%
67
69
25
28
37
14
0%
4.7%
4.5%
0%
5.0%
4.4%
25
55
33
60
26
49
28
42
34
64
15
36
4.1%
4.5%
3.9%
3.5%
4.8%
4.3%
0%
0%
5.0%
5.0%
8.0%
5.0%
295
133
442
154
179
118
190
99
403
164
223
149
2.0%
2.7%
2.7%
3.8%
3.0%
4.7%
0%
0%
4.3%
4.7%
4.3%
7.3%
72
66
58
70
75
64
0.2%
0.8%
3.5%
0%
4.6%
2.9%
72
46
47
38
52
44
1.3%
4.3%
3.9%
0%
4.7%
5.2%
15
13
10
10
19
10
0%
0.8%
3.4%
0%
4.9%
0%
821
1038
603
599
1020
633
2.0%
3.0%
4.0%
0.0%
4.8%
5.4%
70
Chapter 5:
Impact of AFTA and AFAS on the Construction Industry
5.1
Overview of the Cross-Border Competition in the Construction

Industry
The demand for construction works in the region will be driven by the need to build
infrastructure and basic facilities such as houses, schools, roads and hospitals. With
exception of infrastructure and hospitals, these buildings do not require sophisticated
structural design and finishing. A local contractor with access to local resources
would be able to undertake a project with better control of costs and compliance to
deadlines.
Furthermore, a contractor working in a foreign country will need to source most of the
materials and labour from local source due to the bulk nature of construction
materials. A foreign contractor will only have an edge over the local contractors if he
has the following:
local knowledge
lower cost of funds
ability to import specialized material (not available locally) at a lower price
knowledge, technology and experience in a specialized project
As mentioned earlier, construction projects in ASEAN countries will be dominated by

basic buildings and infrastructures that do not require sophisticated design and
finishing. Local general contractors would therefore be in a stronger position to take
up the tasks of completing those projects.
However, ASEAN countries will also be investing in other infrastructure projects that
require higher technology input, for example airports, marine ports and power plants.
In the past, many of these projects were undertaken by a consortium of construction
companies comprising of locals and foreigners. Frequently, the foreign partners will
be responsible for the more sophisticated portion of the construction works, with little
or no opportunity for technology transfer to the local partners. Unless the situation is
rectified, ASEAN construction firms will not be able to improve their technical
capability to compete with non-ASEAN firms in sophisticated construction projects.
5.2
Issues and Challenges in Cross-Border Movement of

Construction Players
Despite claims of strong foothold in domestic market, there is a consensus among

ACF members on the challenges that need to be overcome if cross-border movement
of construction services within the region were to be encouraged.
71
5.2.1 Finance-Related Issues

5.2.1.1 Financial Restrictions and Lack of Access to Peripheral Services
A common complaint raised by contractors in this region is the lack of and/or access
to funds. This is due to the weak financial strength of local banks as demonstrated by
their low ratings, especially for banks originated from Indonesia, Philippines,
Vietnam and to a lesser extent, Thailand. As a result, contractors will have to pay
higher cost of funds for loans, as observed in the Philippines and Indonesia (see Table
5.1). In other parts of the region, for example Malaysia, banks are no longer keen to
finance construction projects due to high non-performing loans from commercial and
retail space loans (construction and properties sectors account for 43.8% of total NPL
in December 2003).
For regional projects, contractors from countries with smaller or weaker banking
sector raised the issue of difficulty in raising performance bonds that are acceptable to
the project owner in the host country. For example, due to the junk rating of many
Indonesian banks (see Table 5.2), a performance bond raised on behalf of an
Indonesian contractor will not be accepted by another bank acting on behalf of the
project owner in Singapore.
There are also other impediments in discouraging cross-border investment in
construction projects. These include prohibition from opening up foreign currency
account, restricted repatriation of profits and existence of gaps between official and
market exchange rates.
Table 5.1: Sovereign Rating and Indicative Interest Rates for ACF Member Countries
Country
Malaysia
Singapore
Thailand
Philippines
Indonesia
Vietnam
Foreign Currency
Sovereign Rating
A- / stable
AAA / stable
BBB / positive
BB / stable
B / positive
BB- / stable
Local Lending Rates

per annum (May 03)
6-8%
5-6%
6-8%
10-12%
12-16%
10-14%
Sources: Bank Negara Malaysia, Bank of Thailand, Singapore Department of

Statistics, Banko Sentral ng Pilipinas, HSBC Vietnam, Bank Indonesia, Standards &
Poor
5.2.1.2 Restrictions in Projects Financed by Bilateral and Multilateral Financial

Institutions
Contractors in this region feel that they are at a disadvantage when competing for
local projects that are financed by international institutions like the World Bank and
Asian Development Bank, in the forms of:
Time-frame clause, for example, a bidding company must have the experience
of building an infrastructure of similar size and quality in the last 5 years. This
will discriminate against a local company who might have the experience
completing the same kind of project 8 years ago.
72
Scale clause, for example, a competing company must have the experience of
constructing a 300 km elevated expressway. A company who has the
experience of constructing similar expressway of a smaller scale will be at a
disadvantaged position as it will not meet the requirement stipulated in the
tender.
Price clause: A company with cheaper borrowing cost (frequently those from
developed nations) will have an advantage of lower overall cost. For example,
a Filipino construction company will have a higher cost due to higher interest
rates in the Philippines than a company of Singapore origin.
Similar restrictions are also prevalent in projects that are financed through bilateral
agreement, eg. Japanese Government Loan. For this kind of project, priority will be
given to Japanese construction products and services. Local contractors will only be
able to participate as subcontractors, thus limiting themselves to lower margin
segment of the business.
Table 5.2: Ratings on Selected Banks in ACF Member Countries
Country
Bank
Indonesia
Bank Mandiri
Lippo Bank
Bank Danamon
Bank Negara Indonesia
Bumiputra Commerce Bank
Malayan Banking
RHB Bank
CIMB
Banco de Oro Universal Bank
Rizal Commercial Banking Corp
Metropolitan Bank & Trust
Equitable PCI Bank Inc
Development Bank of Singapore
Overseas Chinese Banking Corp
United Overseas Bank
Krung Thai Bank
Bank of Asia
Bangkok Bank
Bank of Ayudhya
Siam Commercial Bank
Bank of Foreign Trade of Vietnam
Bank of Investment and Development of
Vietnam
Industrial and Commercial Bank of
Vietnam
Vietnam Bank for Agriculture and Rural
Development
Malaysia
Philippines
Singapore
Thailand
Vietnam
Local Currency
Rating
B+ / positive
CCC / stable
B+ / positive
B / stable
BBB / stable
BBB+ / stable
BB+ / positive
BBB / stable
B / stable
B / stable
B+ / stable
B / stable
A+ / stable
A / stable
A+ / stable
BB / positive
BB+ / positive
BB / positive
B+ / positive
BB / positive
B (pi)
B (pi)
Foreign
Currency Rating
B / positive
n.a.
B / positive
B / stable
BBB / stable
BBB+ / stable
BB+ / positive
BBB / stable
B / stable
B / stable
B+ / stable
B / stable
A+ / stable
A / stable
A+ stable
BB / positive
BB / positive
BB / positive
B+ / positive
BB / positive
n.a.
n.a.
B (pi)
n.a.
B (pi)
n.a.
Source: Standard & Poor Rating Agency
5.2.1.3 Inefficiency in Progress Payment by Project Owners
Theoretically, construction service providers require minimal capital. An initial startup of 10% is sufficient to see a project through to its completion. However, there are
73
many instances of inefficiency or slowness in payment by the project owners,

especially projects that are not fully taken up by buyers or financed by municipals or
governments with weak financial standing. For example, a local Filipino newspaper
reported that the Philippine government has an outstanding owings of P6 billion
(USD110 million) to both local and foreign contractors as at November 2003, with
payment due of 8 months regarded as common by the local contractors. This
resulted in the need for higher working capital on the part of contractors, and is a
discouragement for foreign contractors to participate in local projects funded by the
authorities.
5.2.2 Government-Related Issues
5.2.2.1 Limited Spending Capability of the Governments
Philippines and Indonesia face high budget deficits due to sluggish economic
recovery (see Table 5.3). Coupled with high foreign debts, these two governments
have limited power stimulate the construction industry. This leads to lower spending
in infrastructure projects, which in turn will limit business opportunities for
construction players in those countries. An implication of this is that the local
construction players will not have sufficient number of projects to help them build
their profiles when competing for foreign projects.
Table 5.3: Financial Strength Indicators of ACF Member Countries (Year 2003)
Item
Fiscal Balance
(%)
Public Savings to
GDP ratio (%)
Foreign Debt to
GDP ratio (%)
Debt Service
Ratio (%)
Indonesia
-2.1
Malaysia
-5.3
Philippines
-4.6
Singapore
+6.4
Thailand
+0.6
Vietnam*
-4.8
21.1
41.8
19.5
44.7
32.0
28.8
76.3
26.9
68.7
46.1
37.9
26.5
6.1
16.1
2.1
15.0
8.3
* Figures for Vietnam are for 2002. Sources: Economist Intelligence Unit, IMF and ADB
5.2.2.2 Lack of Support from the Governments
There is a general consensus among member countries that their respective

governments are not doing enough to help the local construction players to go abroad.
The Japanese way should be emulated the government assisted in the form of
information gathering, coordination of material and service provider and financing of
a project in a foreign country.
Some forms of training facilities should be provided by the government in building
the capabilities in construction industry. Progressive increase in quality standards
should also be spearheaded by the government in helping the industry to grow and be
competitive to the outside market.
Effort should be made by governments to enable mutual recognition of qualifications
and mutual recognition of banks.
74
Governments could also work together to set up a pilot program where players in the
construction industry from the respective countries could work together to develop a
project in a common growth area like BIMP-EAGA (Brunei-Indonesia-MalaysiaPhilippines-East-ASEAN-Growth-Area).
5.2.2.3 The Need to Balance Social Aspirations and Free Trade
Although partnership and joint-venture with foreign firms could benefit a local
company through cost reduction, some construction companies, especially those that
are majority-owned by the government, will give local service and materials provider
priority over foreigners. This is especially true in Vietnam, a country which practices
socialist-oriented market economy system. Job creation and job security are regarded
as crucial in maintaining social stability of the country.
In the case of Philippines, many of the professional services are still protected, due to
high employment among the graduates. This could be a reason for the lack of foreign
investment in the construction sector.
5.2.2.4 Counter-trade Requirement
Some countries like Indonesia and Malaysia require counter-trade arrangement.

Foreign suppliers tendering for government procurement are subject to counter-trade
obligations, requiring them to purchase, or export, selected local goods of an
equivalent value (minus local charges incurred in executing the contract). Countertrade obligations may also be attached to some large government-funded contracts,
such as construction projects.
5.2.3 Knowledge and Cultural-Related Issues
5.2.3.1 Lack of Training & Qualifications
The lack of trained workers in the industry is an issue to many contractors in this
region. An unskilled worker raises the cost of construction through higher material
wastage and longer time required to complete a task. Many contracting companies
require the intake of highly skilled worker as they themselves are not profitable
enough to train their own workers.
On the professional side, there is a need to mutually recognize qualifications issued by
member countries to enable mobility of services in the region. Alternatively, the
relevant professional bodies should begin discussion on the streamlining of syllabus
that must be covered by anyone who wishes to pursue the qualification.
5.2.3.2 Language & Cultural Barrier
Some countries, notably Indonesia, Vietnam and Thailand, mentioned the lack of
ability to speak English fluently as a major detriment to their ability in exporting their
services beyond the domestic border.
75
5.2.3.3 Lack of Information on Other Countries
The existing lack of cooperation among members or interest in expanding beyond the
domestic border can be attributed to the lack of information on other countries. Most
members rely on occasional meeting or gathering via conference or exhibitions to
learn about potential partners and opportunities in other countries.
Lack of understanding of laws and procedures in doing business in other countries is
also another reason why there has been lack of cross-border investment and trade of
services in this region.
5.3.3 Standards-Related Issues
5.3.3.1 Adoption of Different Material Standards
Due to historical reasons, countries in the ASEAN region adopt different standards.
For example, Philippines adopt American standards, whereas Malaysia and Singapore
adopt British standards. In the case of Vietnam, the country has thus far allowed
adoption of whatever standard that is deemed safe while deciding on which standard
to follow.
5.3.3.2 Compliance to Different Levels of Quality Standards
Many of our interviewees claimed that countries which proclaim to practice open
market system install barriers to entry by requiring foreign competitors to comply to
the requirements of the host country, for example ISO certification and compliance to
safety and environmental standards.
Contractors from the less developed countries feel that although getting the quality
accreditations will help to raise the quality standards of the industry as a whole, the
different level of economic development in ACF countries poses a question of
whether the customers do differentiate between those that have quality accreditation
versus those who do not. It is suspected that most contracts are given based on price
rather than quality accreditation of a company.
5.3.4 Other Issues
5.3.4.1 Oligopolistic Dominance in the Production of Construction Materials
It has been alleged that some segments in the construction industry are controlled by
oligopolists. For example, in the case of cement, companies like Cemex, Holcim,
Lafarge and Taiheiyo are controlling more than 70% of trade in cement in the region,
thus indirectly influence the cost of construction in the region.
Steel is another sector that is controlled by oligopolists, albeit at national level. For
example, PT Krakatau Steel and Siam Construction Steel Company dominate the
production of steel products in Indonesia and Thailand respectively. In Malaysia, Lion
Industries, Southern Steel and Malayawata together control 65% of Malaysias steel
rods and bars production capacity.
76
5.3.4.1 Price & Licence Control
Malaysia categorised steel products as controlled items. The government set the prices
for steel billets, bars and coils with an aim to control price fluctuations for all other
industries that consume steel. Recent increase in the price of steel products in the
world market was not accompanied by increase in the local price, thus causing
shortages in the domestic market. The governments first attempt was to issue new
licences for the import of steel into the country and imposing temporary ban on steel
exports. However, the low price of steel in Malaysia made it impossible for anyone to
supply any kind of steel products at the stipulated prices, unless if the government
raised the official prices of all steel products.
Vietnam, despite importing most of its steel requirement, only allow companies under
the umbrella of Vietnam Steel Corporation to import steel into the country. In
addition, tariff will be applied to imported steel, whose quantum is decided on the
basis of controlling the amount of steel into the country in order to protect local
producers. During shortfall of steel, import tariff is removed, while tariff between 10
to 20% is common during other times.
5.3
Current Strengths and Weaknesses of ACF Member Countries
There was a consensus in the perception of strengths among the players in the region.
Almost all of the players that we interviewed claimed to have an advantage over
foreign competitor in terms of technology requirement for local projects. Ignoring the
financial constraints faced by some of the ACF member countries, all players were
also confident of being able to compete on price due to their knowledge of where to
source construction materials locally.
5.3.1 Indonesia
The most pronounced advantage of this country is the ample supply of labour. Despite
low educational background, Indonesian workers are capable of completing basic
tasks in construction works, which are sufficient to cater for the need of construction
projects in Indonesia, where the building of schools, houses and roads does not
require high technology. The lower standard of living in Indonesia also makes
Indonesia workers an attractive source of labour for neighbouring countries,
especially Malaysia.
Indonesia is still recuperating sluggishly from the financial crisis. The government is
in a weak position to kick-start the economy through new construction projects as it is
constrained by three factors: (1) IMF requirement of a balanced budget, (2) high
foreign debt to GDP ratio, at 76.3%, and (3) high debt service-ratio, at 20.5%. At the
same time, the market interest rate in Indonesia is also very high (12-16%) when
compared to its more prosperous neighbours. These contribute to the lack of
government funded projects and high cost of funds in the country.
77
5.3.2 Philippines
A key issue in the Philippines is the lack of financial strengths for many of its small
contractors. The Philippine Contractors Accreditation Board is now cleaning up its list
of contractors by requiring all members to prove their financial standing, technical
capability and all previous works undertaken through resubmission of company
profile to the Board. It is suspected that many small contractors are technically
bankrupt or act as middlemen in allowing other people to make use of their licences.
Philippine is also facing the issue of lack of capital for new construction projects. The
high budget deficit and high debt-service ration put a constraint to how much the
government is able to stimulate the construction industry via expansionary fiscal
policy. International projects financed by Asian Development Bank and World Bank
do provide opportunities for local contractors, although these projects are opened to
international competitors.
On the other hand, Philippines have an ample supply of workers that are literate and
fluent in English. This explains why Filipino workers are popular in the Middle-East
and command higher wages than say, Indonesian workers.
5.3.3 Singapore
Due to the nature of the open economy of the island state, Singapore construction
companies have long been exposed to open competition. As a result, Singapore
companies are well equipped with quality accreditations both for their products and
services. Singapore companies have attracted many non-ASEAN companies for tieups and joint-ventures, especially for projects in China.
However, Singapore has a higher cost due to its higher standard of living. A typical
concern raised by Singaporean contractors is that customers in other parts of the
region do not appreciate the quality standing of their companies, hence unwilling to
pay a premium for higher standards.
There was a view that Singaporean companies face disadvantages due to the small
size of the island. It is difficult for a Singapore company with an experience of
constructing a 10 km highway to compete for an ADB-financed project in India that
requires a bidder to have some experience in building a 50 km highway. Another
difficulty is that since Singapore government has been able to finance major public
infrastructure projects by itself, no Singapore company has the experience of
undertaking a BOT project. This scheme, which is becoming popular in India and
China, is putting Singaporean companies at a disadvantage.
5.3.4 Malaysia
In general, Malaysian construction firms recognize the need to seek business
opportunities outside the country. The country has completed most of its mega
infrastructure projects in the 1990s, with only very few infrastructure projects left to
pursued over the next couple of years. Several Malaysian construction companies
78
have secured jobs in India and Middle East, either through open competition or G-toG arrangements.
Due to its small population, Malaysian companies have long relied on foreign labour.
Shortage of labour is a common problem in Malaysia, where constant training need to
be given to new workers as they arrive in Malaysia to replace the ones that are
required to return due to stringent immigration rules.
5.3.5 Thailand
Our interview with key players from Thailand construction industry revealed
optimistic view on the outlook of the construction industry in the country. The Thai
government is expected to spend around 1 trillion Baht over the next 3 to 5 years,
allowing the construction players to have enough jobs at hand without any worry for
the need to seek business elsewhere.
5.3.6 Vietnam
Vietnam needs to restructure many of its state-owned companies before it can truly
compete with foreign companies. Here, the state-owned companies employ huge
number of workers, typically in tens of thousand at all levels including unskilled
labours. In addition, Vietnamese factories employ old technology which is a cause for
higher production costs.
On the human side, Vietnam faces the challenge to improve their education, as there
is a shortage of skilled workers, especially for professional services.
Lack of capital is also a major problem in Vietnam. This is partly due to its junk
status (sovereign rating of BB-) which prohibits many institutional investors from
investing in the country, as well as its high foreign debt (US$13 billion debt as
compared to its GDP of US$35 billion).
5.4
Possible Impact of Trade Liberalization to ACF Member Countries
5.4.1 Market and Demand Growth Effects

Easier market entry will be accompanied by increased supply and demand for all
players in the construction industry within the region. For example, easier market
entry into Indonesia will encourage some Malaysian developers to seek opportunities
to construct mass units of low-cost houses which they are experienced at, either in the
domestic market or in international projects promoted by Malaysian government (eg.
in Bosnia and South Africa). However, the extent to which the barrier to entry is
lowered will not just be dependent upon commitments made by the member states
within the CEPT or AFAS agreements, but also on the hidden procedural barriers that
comes in the form of licence applications, regulations and by-laws and adherence to
guidelines stipulated by the local authorities.
79
Trade liberalisation will encourage investment flows into the country that has the
potential for the highest return. Investment flows will create job opportunities and
encourage greater spending within an economy. In turn, this will create bigger
demand for goods and services, which include demand for houses and commercial
buildings. Greater production of goods and services leads to higher income for the
country and will improve the government financial position. A government with
healthier financial position will then be able to spend more money in developing
infrastructure for its people, and this will lead to higher demand for construction
works, both from the public and private sectors.
5.4.2 Supply and Suppliers Effect
Heavier competition will be experienced by all players as freer market access
encourages inward and outward movement of construction firms. The liberalisation of
trade will encourage greater mobility of suppliers and workers, which in turn will
encourage alliances and joint-ventures among companies who share similar views on
business opportunities and who can complement each others skills in pursuing a
construction project.
5.4.2.1 Investment Capital
The effect on investment flows within the region is dependent on the extent of
liberalisation of capital movement within the region. At the moment, the AIA is still
in its infancy stage, with many details have yet to be sorted out. Currently, various
forms of barriers are in place in most ASEAN countries, for example, limitations on
foreign equities, limitations on loans that can be sourced from local banks and
limitations on land ownerships.
Although the target for AIA is far away from now, there is a need for construction
players to learn the investment procedures of other member countries.
5.4.2.2 Labour
AFAS strictly covers professional services. The construction labours, either skilled or
unskilled, are not covered within the tenet of AFAS or GATS. Instead, they are
covered under the immigration laws of member states. Unless the 3rd round of AFAS
negotiations extends to construction and household labours, the impact of AFAS on
construction workers will be minimal.
5.4.2.3 Professional Services
To facilitate free-flow of professional services in the ASEAN region, the member

states agreed to commence negotiations on Mutual Recognition Arrangements (MRA)
for professional services for all service sectors. The Coordinating Committee on
Services (CCS) will adopt a sectoral approach to develop MRAs for each professional
service, and will work together with professional bodies in ASEAN member countries
to come up with appropriate scope and standards that are agreeable to all members.
This will increase mobility of professional service providers in the region.
80
5.4.2.4 Materials
Free movement of goods will enable suppliers of materials to seek opportunities

beyond domestic borders. At the very least, the buyers of materials, will be encourage
to consider buying from foreign suppliers to seek cheaper, higher quality materials.
5.4.2 Trade Effects

There will be greater stimulus for trade to take place between member countries upon
liberalisation of goods and services, as well as investment flows. Removal of tariff
will enable buyers to have greater choice of suppliers, both within and outside the
country. Greater market size created from trade liberalisation will enable suppliers to
expand their business horizon beyond the domestic border, in search for customers
who are willing to pay higher premium for their products.
5.4.3 Effects on Government Policies
Apart from progressive liberalisation, AFAS also requires member countries to be
transparent in the guidelines of doing business, including incentives and application
for licences, to other member states. An implication of this requirement is that a
foreign investor will be able to compare the relative difficulties of doing business in
each of the country in the region. This will help him decide which country will
provide the best environment for him to seek business opportunities in the region,
hence the destination of his investment.
From the perspective of national governments, the need to attract foreign investment
into a country will require them to adopt more stable, predictable and attractive
national policies. This is important as it will create an environment with greater
certainty of doing business and mitigating losses related to procedural complexities,
uneven playing field or regulatory loopholes.
Governments will also be encouraged to develop policies that will promote a more
efficient resource allocation based on the strengths of their industries, and this should
lead to greater competitiveness and more efficient output.
81
Chapter 6:
Conclusions and Recommendation
6.1
The Need for Action
The progressive movement towards the creation of ASEAN Economic Community, as

envisaged in the ASEAN Vision 2020, in the form of three-pronged approach via
CEPT, AFAS and AIA, leaves very little choice for ACF members. At the very least,
construction firms must be prepared for the arrival of foreigners in the domestic
market. However, the opening up market will not just present a threat to domestic
players, but also opportunities for expansion beyond the domestic border.
6.1.1 Imperatives for Member Firms
ACF members must start looking at ways to tackle four areas in their business in
order to enhance their competitiveness:
Reduction in the overall cost of production

Enhancement in skills and competencies
Employment of new technology for production efficiency and consistency in
service delivery
Development of business network in expanding job opportunities through
alliance and joint-venture
ACF representative associations could facilitate in the above efforts by providing

education, training and forum for discussion among its members, as this will allow
cross learning and awareness of best practices within their associations.
6.1.2 Imperatives for Associations
Associations are created for the purpose of protecting the interests of members.
Associations under the umbrella of ACF need to work together in identifying the
common needs of their members, and to establish a database where members can refer
to prior to exploring opportunities to work together in securing or completing a job.
Associations must also seek to develop relationship with government agencies and
ministries. Only through continuous contacts, dialogues and feedback will the
government be aware of the issues and problems surrounding the domestic
construction industry.
6.1.3 Imperatives for Governments
While the pursuit of trade and economic liberalization will bring in higher investment
flows and increase in the production of goods and services, there is a need for
governments to understand the level of development and readiness of local firms to
compete in an open market.
82
It has been alleged that governments often devise policies without proper consultation
with the domestic industry players. Thus, it is important for government to set up a
mechanism for seeking opinions and feedback before committing to liberalize an
industry at regional and international level.
6.2
Further Work
This report will conclude by recommending some form of cooperation between

members of ACF in preparing themselves for the gradual liberalization of
construction industry. The study team will discuss key issues that need to be
addressed at firm, national, regional and global levels. From there, areas that need to
be prioritized will be identified, followed by the kind of cooperation that can best
address those problems.
6.2.1 Cooperation at Firm Level
Generally, ASEAN contractors share similar set of expertise in construction. It is
difficult therefore to promote cooperation unless if the one party can offer skills or
opportunities that the other is unable to do.
Having said this, firms must continue to improve their cost structure, enhance
knowledge and skills and develop network with suppliers and potential customers as
part of their preparation for the opening up of the market.
6.2.2 Cooperation at National Level
A general concern raised by contractors in all member countries is that there had been
very little consultation or opinion sought by the governments from the industry
players prior to developing policies with regard to liberalization of trade and services.
Furthermore, little effort has been done by the national governments to inform or to
educate the impact of those liberalizations to the affected industries. This gap could be
reduced if representatives from the constructor associations are included in the
ASEAN working group in developing policies that could ensure fairness and
equitable benefits to member states.
The first initiative required is to conduct broad education on the impact of trade
liberalization to the construction firms. Understanding of how the agreements work
and what they mean is the first step towards preparing for the change in competitive
dynamics of the industry.
There is a need for firms, through their associations, to participate and influence the
leadership role played by the authority. Only through continuous engagement will the
government understand the issues and problems faced by the construction industry. A
very important step that must be undertaken is to identify and prioritize construction
sub-sectors that require help from the government to compete in an open market. This
will then help the government to develop policies that help to protect the interest of
the local firms in competing with foreign players.
83
6.2.3 Cooperation at Regional Level

Associations must continue to engage their governments in all matters pertaining to
the construction industry. Several initiatives could be initiated at the regional level to
help the region build its competitiveness in light of the trade liberalization at the
global level.
The governments, through ASEAN Secretariat, could set up a coordination unit to
help identify potential companies that can work together to develop a project in a
country within ASEAN region. This can be tied to a financial arrangement packaged
by one of the banks in the region and guaranteed by the host government. This kind of
initiative could help stimulate construction industry in the region.
A key area that needs to be addressed is the harmonization of standards within the
region. A common standard is important in facilitating movement of goods from one
member country to another. By complying to one standard that is applicable to the
region, suppliers are able to explore new markets beyond their border.
Similarly for professional services, there need to be a streamlining of standards with
regards to professional qualifications. This is where the association of construction
firms, professional bodies and the governments must work together to develop a
common professional qualifications that can be accepted by all member countries.
There is also a suggestion that governments should assist their construction
companies by becoming guarantor for a private company-led project. Apart from
stimulating private investment in the construction sector, this would promote crossborder movement of services within the region.
It is also suggested that ACF takes the initiative to develop a database that contain
information on members as well as the relevant industry information on each member
countries. Availability of information will facilitate alliance and joint-venture among
members in competing jobs both within and outside the region.
6.2.4 Cooperation at Global Level
With the signing of FTAs with China, India and ANZ, construction players in this
region will be exposed to stronger competitors, both in terms of material and labour
costs (India & China), and technology (ANZ). Unless there is any serious attempt by
the construction players to work together, ASEAN construction industry will face
serious downhill battle to compete with low-cost producers and technologically
superior service providers from outside the region.
There is a need for both industry players and the governments in this region to
identify business opportunities outside the region. Apart from that, the ASEAN
governments, through ASEAN Secretariat, must work together to identify critical subsectors within construction industry that must be helped in elevating their
competitiveness at global level. Perhaps there should also be an initiative to create
several ASEAN-wide construction companies through cross-ownership, alliances
84
through sharing of business and operational facilities, or joint-venture in bidding for

projects in selected markets, eg. Middle East, China or India.
85
SWOT Analysis of COUNTRIES (Before AFTA & Current Situation)

Indonesia
Malaysia
Strengths
Abundance of land
areas
Young & growing

population
Availability of
labour
Technology
Professionals &
skilled workers
Good track record
& experience in
large project i.e.
highways, highrise buidings,etc
Strengths
Lack of research &

information
Dependency on
foreign workforce
Weaknesses
Lack of research &

information
Not many big

players
Philippines
Singapore
Weaknesses
Lack of good
infrastructure
Weak financial
capability
Technology not as
advanced as other
countries
Lack of research &

information
Professionals &
skilled workers
Finance
Lack of research &

information
Lack of track
record &
experience in large
infrastructure
projects i.e.
highways,
airports,etc
86
Opportunities
Undeveloped
land
Expansion of
infrastructure
Cheaper
industrial
land &
housing
development
land
Industrial
sites for
small-scale &
specialized
materials
Need for skill

training
Government
recognition
of the sector
as an
important
engine for
growth
Now, major
players look
at
construction
opportunities
in India,
infrastructure
Facilitating
recruitment
of local
labour
Higher
chances of
getting local
project due to
who you
know
culture
Opportunities
Venture into
other
countries
because have
the financial
capabilities
Threats
Restrictive
government
rulings &
regulations
Slow economic
growth
Threats
Too many small

players (87%)
High costs of
land
Thailand
Finance
Lack of research &

information
Vietnam
Availability of
labour
Resistance to
change
Lack of research &
information
Lack of technology
Lack of finance
Patronage-client
relationship
87
Local
infrastructure
projects
common people
do not have
enough money to
spend since they
are unemployed

Impact of AFTA On Construction Sector

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Impact of AFTA On Construction Sector

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IMPACT OF AFTA ON ACF

Shamsul Majid, CFA, MBA(Finance), BSc (Imperial College) Project Leader

Prof Sieh Lee Mei Ling, PhD (Sheffield) Project Advisor

Analysis of the Construction Industry

Liberalization of the Construction Industry

Conclusions and Recommendations

companies that can compete with other established construction companies in

in ACF countries, whether for semi-finished materials or finished materials, are

Table 1 also shows that investment of telecommunications in Indonesia increased

Construction investment in Indonesia is strongly linked to economic growth (Refer

Table 2: Indonesia Growth of Construction sector

Real growth of output, annual changes (%)

Source : Asian Development Bank, 2003

Indonesia :Construction and GDP, 1999-2002

Source : Asian Development Bank, 2003

Malaysia : Construction and GDP, 1999-2002

In Malaysia, the government shapes the direction of the nation towards an

In Philippines, construction demand sagged in 1998-1999 due to the postponement of

Source : Asian Development Bank, 2003

Philippines : Construction and GDP, 1999-2002

ASEAN Secretariat (www.moc.og.th/thai/dbe/afta_net.html)

Source : Asian Development Bank, 2003

Singapore : Construction and GDP, 1999-2002

Table 6: Thailand Growth of Construction sector

Source : Asian Development Bank, 2003

Thailand : Construction and GDP, 1999-2002

telecommunication infrastructure. Thus, this would be one area of opportunity that

Source : Asian Development Bank, 2003

Vietnam : Construction and GDP, 1999-2002

Vietnamese government has engaged in a number of measures to establish a good

Source : Vietnam Association of Construction Contractors, 2004

Table 9 : Production of Construction materials

Source : Vietnam Association of Construction Contractors, 2004

Analysis of Construction Materials

Past shortages of construction materials have resulted in the accelerated liberalization

industry should take advantage of its strength in advanced wood manufacturing

Supply & Supply Conditions on Labour

Source: Malaysia, Department of Migration (January 2002)

Source : ILO Labour Statistics, 2001

As a result of rapid development of projects, the construction industry in Malaysia

Source: Kassim (2001) in Hayase (2002).

Mobility of the Indonesian migrant workers to Malaysia has been an on-going

Average Construction Employment

Source : Philippines Construction Association, 2004

Source :Department of Statistics, Singapore, 2004

Note: * January to November 1997.

Source : Vietnam Association of Construction Contractors, 2004

AFTA and the Construction Industry

AFTA, which is implemented through CEPT scheme, is expected to facilitate

Views and Concerns Raised by Construction Firms on AFTA

Too Fast Implementation of Time Table

There is a concern among construction firms that the implementation or enforcement

Wide Discrepancy in the Strength and Competitiveness Levels among

Oversupply of Materials from Foreign Countries

Higher Cost for Quality / Standards Compliance

Market Access Not Equal Despite Implementation of AFTA

Degree of Readiness towards AFTA

AFAS and the Construction Industry

As an example, the commitments made by the Philippines in AFAS will mean a

The Four Modes of Supply

Cross-border supply the possibility for non-resident service suppliers to supply

Singapore provides an inspection service to a company that is building a bridge in

Most-Favoured Nation (MFN) Status & National Treatment