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2.2.

1 The Growth Between Gross Domestic Product (GDP) and Construction Industry
(CI)

Even by casual observer, it would seem likely that there is some sort of fairly direct
relationship between the level of activity in the construction and in the economy as a whole.
When the construction sector is booming, so do the economy; when the economy is down,
construction also going down (Timothy Michael Lewis, 2004). However, it is not clear
whether this is coincidence or a causal relationship. So, if it a causal relationship, which is
the driver an which the follower? This is clearly important in policy terms if the objective is to
achieve economic growth and development. In the same way, it is clear that the
development status of the country has some sort of relationship with the role and size of the
construction industry.

In the late 1960s and early 1970s, Duccio Turin (1969) and Paul Strassmann (1970) were
independently, focusing on the role and status of the construction industry in national
economic development. Both were interested in examining the relationship between the level
of output of the economy as a whole and activity in construction, as well as the relationship
between the nature of the construction industry and the economic development of the
country concerned.

Recent study in Taiwan (Chang et al., 2004) examined the relationship between construction
activity and economy growth and particularly the direction of causality. Their figures, one of
the tools used to analyse the relationship between industries in an economy is the input-
output table, indicate that there is unidirectional causality running from construction activity
to economic growth. In other words, construction activity stimulates the economy rather than
the other way round, so, in policy terms, if a country wants to boost its economy then one
effective means is through construction activity.

Purpose of this report is to show and describe the relationship between Gross Development
Product (GDP) and Construction Industry in Malaysia for 1982-2017. Construction activities
catalyses demand in other economic sectors, where it is estimated construction commands
the utilisation of 96 products from other sectors whilst employing 9.3% of our national
workforce through its various linkages. Hence, the construction sector is capable of
assuming the role of an expeditious and effective economic driver particularly in times of a
slowdown. It is irrefutable that the high construction sector expenditure has become one of
the contributors towards the positive development of the manufacturing and services
sectors.
2.2.2 CI growth

The statistics presented in this report refer to construction work done by registered
contractors. Construction mainly includes new construction, alteration, repair and demolition.
Installation of any machinery or equipment which is built-in at the time of the original
construction is included. It also included installation of machinery or equipment after the
original construction but which requires structural alteration in order to install. The own
account construction is not included. Source of data is primarily from the census/biennial
survey of construction (since reference year 1996). Data for reference years 1963 to 1970
refer to the principal statistics of the construction industries in Peninsular Malaysia while data
since reference year 1971 refer to Malaysia. In the reference year 1998 to 2009, this survey
covers establishment with the value of construction work done RM500,000 and above. Since
in 2012, this survey covers all establishments and the methodology adopted a stratified
random sampling. There was no survey carried out for reference years 1980, 1997, 1999,
2001, 2003, 2006, 2008 and 2011. Since reference year 2007, cost of input includes
payments for non-industrial services (including payments for carriage outwards of goods,
travelling, management, legal, information technology, advertising, bank charges, post,
telecommunication, etc.).
Table 1.0
Table 1.2

Source: Department of Statistic Malaysia


2.2.3 GDP growth vs CI growth

As figures and data collection shown above, we have combined both data of GDP and CI
into one graph, and now we will show and explain on the graph and data of the relationship
between GDP versus CI and CI contribution in GDP in Malaysia from 1982 to 2016.

Year Growth of GDP (%) Growth of Contribution of


construction industry construction industry
(%) to GDP (%)
1982 5.90 9.80 5.15
1983 6.30 10.40 5.35
1984 7.80 4.20 5.17
1985 -1.10 -8.40 4.79
1986 1.20 -14.00 4.07
1987 5.40 -11.80 3.41
1988 8.90 2.70 3.22
1989 9.20 11.60 3.29
1990 9.70 19.00 3.57
1991 8.70 14.40 3.78
1992 7.80 11.70 3.89
1993 8.30 11.20 3.99
1994 9.20 14.10 4.18
1995 9.50 17.30 4.47
1996 8.60 14.20 4.79
1997 7.70 10.60 4.84
1998 -4.80 -23.00 4.02
1999 5.40 -4.40 3.58
2000 8.30 0.60 3.34
2001 7.90 2.10 3.44
2002 4.10 2.00 3.38
2003 5.20 1.50 3.20
2004 6.00 -1.50 2.90
2005 5.30 -1.60 2.70
2006 6.00 -0.90 2.60
2007 6.00 3.00 2.00
2008 4.70 4.20 1.12
2009 -1.70 5.80 3.32
2010 7.20 5.10 3.26
2011 5.10 3.50 3.21
2012 5.60 18.50 3.53
2013 4.70 10.90 3.73
2014 6.00 11.60 3.95
2015 5.00 8.20 4.40
2016 4.20 7.40 4.52
Table 3.0

40

30

20

10

Contribution
of
-10
construction
industry to
GDP (%)
-20 Growth of
Construction
Industry (RM
-30 Million)

Growth of
GDP (%)
-40

Graph 1.0

From the graph above, it shown that at 1982 till 1985 percentage of GDP and CI was going
down simultaneously from 5.9% to -1.1% for growth of GDP and from 9.8% to -8.4% for
growth of CI. Starting at 1986 till 1990, it start to rising up from 1.2% to 9.7% for growth of
GDP and from -14% to 19%. However, it seems the economic growth started to stable at
1990 till 1994 before it fell vigorously at 1998, the percentage of GDP fell to -4.8% and the
percentage of CI fell to -23%. At 1999, Malaysias had took action to do come back and
develop the economy where the percentage of both GDP and CI had risen each of to 5.4%
and -4.4%, and then the economy had reached slow and steady form from 2000 to 2010
before it reached an economy robust growth of CI at 2012 from 5.1% to 18.5%, but
percentage of GDP was decreased from 7.2% to 5.6%. During 2013 to 2016, economy
growth is unstable and roughly it can says that the form in the graph was falling steadily
where the percentage of GDP changed from 4.7% to 4.2% and the percentage of CI
declined from 10.9% to 7.4%. As a result, it can be concluded that roughly, CI has positive
relationship with GDP where it stimulated the growth of GDP.

2.2.4 Development (investment made by government and public sector) during 1990 to
2017 cycle

During period of 1982 to 2016, lot of development had been made by government and
private sector to stimulate the growth of economy by development of construction industry.
In Fourth Malaysia Plan (1982-1990, 1982), the government is undertaking a study for the
development of the countrys water resources to meet the energy needs. In its efforts to
develop an overall energy plan, emphasis will be placed on the development and
exploitation of alternative energy sources, conservation and efficiency in the use of energy
through realistic pricing policy and research and development. Value added in the
construction sector is projected to increase at 9.5% per annum during 1981-90, slightly lower
than the rate of 9.6% per annum achieved during 1971-80. The major source of growth for
the construction sector will be related to the demand for non-residential buildings as a result
of the expansion of the manufacturing and services sectors as well as demand for housing.
Private investment is expected to play a major role in the domestic economic expansion and
in the attainment of the NEP. Out of the total investment of RM102.64 Million projected for
the FMP period, RM74.11 Million is expected to be met by the private sector. This implies a
target growth of private investment (excluded in oil industry) of 11% per annum in real terms
or 16.6% per annum in current prices. This is including purchases of aircrafts and ships by
MAS and MISC. It was the objective of the Government provided a major role for the private
sector in building up productive capacity in the economy and to contribute towards the
attainment of NEPs objectives. The bulk of the public sector investment was directed
towards poverty eradication and restructuring of equity and asset ownership and to expand
social facilities such as education, health and housing. Till now, Malaysia Plan is reached at
eleventh series, The Eleventh Malaysia Plan, 2016-2020 is the final leg in the journey
towards realising Vision 2020 which created by Tun Dr. Mahathir in 2000s.
1981-1885
FOURTH MALAYSIA PLAN (NEP)
11986-199
FIFTH MALAYSIA PLAN
1991-1995
SIXTH MALAYSIA PLAN
1996-2000
SEVENTH MALAYSIA PLAN
2001-2005
EIGHTH MALAYSIA PLAN (Vision of 2020)
2006-2010
NINTH MALAYSIA PLAN
2011-2015
TENTH MALAYSIA PLAN
2016-2020
ELEVENTH MALAYSIA PLAN

Chart 1.0 : Malaysia Plan 1980-2020

The construction industry is considered to be a major productive sector in Malaysia, for


example output for the construction sector hovered around RM 7248 million, RM 7168
million, and RM 7350 million in year 2004, 2005, and the estimate for 2006, respectively,
(Budget Report 2006). This sector is essential for development of the nation. It is among the
top three of the major economic sectors. The other two sectors being manufacturing and
agriculture, which contribute to the national output. For instance, the contribution to gross
domestic product (GDP) in 2004 by manufacturing, agriculture and construction sector is
57.1, 8.3, and 2.9 per cent, respectively, (Construction Industry Master Plan (CIMP), 2005).
The construction industrys output is relatively small when compared to the other sectors in
Malaysia. For example, the construction sector contribution accounts 1.8 per cent in first
quarter 2006 and 2.9 per cent in 2004 to GDP. Its contribution to the GDP is less than 15
times smaller than that of the services sector and less than eight times smaller than that of
the manufacturing sector (Malaysian Economic Report 1999-2004). Although, it accounted
for less than 3.3 per cent of GDP from 1999 to 2004, the industry is a strong growth push
because of its extensive backward and forward linkages with the rest of the economy (Ofori,
1990).
However, the construction industry is crucial because the role that it plays as a major
indicator and determinant of domestic performance in the economy. As Malaysia is in the
process of industrialisation, the construction industry is important because it provides the
economic and social infrastructure for industrial production and reproduction. Basic
amenities and also infrastructure for example residential space, roads, airports, railways,
ports, power electricity, communication utilities, and also the other basic infrastructure
needed in a country are just some of the basic developments required for the society to
improve in social living standards and also for all other sectors to develop and grow. The
Malaysian Government has realised the importance of building up the construction sector to
benefit other sectors along the way. Therefore, the government has initiated some mega
projects in the hope of propelling the economy to a better level. Since 1991, Malaysia has
spent well over US $15 billion on infrastructure projects such as the Kuala Lumpur
International Airport (KLIA). The KLIA that cost $2.4 billion was built to resemble a cluster of
Arabian tents and the $2.9 billion Petronas Twin Towers in Kuala Lumpur, which consist of
Islamic motifs with the soaring lines of New Yorks Chrysler building, are the worlds tallest
twin skyscrapers. The new capital, Putrajaya was built at a cost of $5.3 billion some. 30
kilometres from central Kuala Lumpur, parking lots are landscaped like golf courses, and
domed government office buildings are modelled after mosques. The city was built to relieve
overcrowding in Kuala Lumpur.
The construction boom in Malaysia started in the early 1990s in conjunction with the
development of mammoth projects. The Government has launched Vision 2020 to envision
that Malaysia will be a fully industrialised country by the year 2020. Towards this goal, the
government has invested heavily in modernising the infrastructure of the Kuala Lumpur
metropolitan area. The modernisation is designed to propel Malaysia into the digital age and
position it as a hub for high technology businesses in Southeast Asia.

The Malaysian economy faced an environmentally challenging year in 2015 as a


consequence of weak global momentum, low prices in major national commodity,
diminishing value of the Ringgit against major world currencies and the rise in consumer
good prices. Construction activities catalyses demand in other economic sectors, where it is
estimated construction commands the utilisation of 96 products from other sectors whilst
employing 9.3% of our national workforce through its various linkages. Hence, the
construction sector is capable of assuming the role of an expeditious and effective economic
driver particularly in times of a slowdown. It is irrefutable that the high construction sector
expenditure has become one of the contributors towards the positive development of the
manufacturing and services sectors.

2.2.4.1 Government development project

The 11MP commenced in 2016 with an estimated development allocation of RM260.0 billion.
Themed Anchoring Growth on People, the five year 11MP is the final phase towards
becoming a developed and inclusive nation by 2020. In line with the importance placed on a
people-centric economy, the government has set multi-dimensional goals; encompassing
targeted macroeconomics, as well as socio-economics such as income distribution and
peoples welfare.

The government has been making large investments in enhancing the peoples welfare with
a commitment towards achieving a Peoples Wellbeing Index Level of 1.7% in comparison to
1.1% during the 10MP. Welfare is generally related to the status and quality of life that
encompass aspects of economy, social, physical and psychological that benefits society
such as quality healthcare; affordable housing; improvement in safety and public order;
easier mobility of population and product; upgrading of emergency services; intensification of
social integration and unity; and a wider participation in sporting activities.

Under the peoples wellbeing enhancement programme, opportunities in construction works


have been identified. Listed below are the various nationwide construction project
development programmes which have been planned for the next 5 years to improve the
peoples wellbeing:

a) 165 1Malaysia clinics;

b) Care centres for children with special disabilities;

c) 7 self-contained life centres for the disabled (OKU);

d) 6 new hospitals and 3 hospitals for upgrading;

e) Repair of 400,000 houses;

f) 80 new schools (primary and secondary schools);

g) 2 new MARA Junior Science Colleges (MRSM); and


h) Several residential schools.

The main agenda of the 11MP continues on priorities of rural dwellers and low-income
households. Efforts are being made to ensure everyone would enjoy the national
development and economic wealth. The government is dedicated in achieving Vision 2020
via strategies that would strengthen the national economy to ensure sustainable growth.

2.2.4.2 Semi-gov or private development project

Besides, various infrastructure projects had been identified to attain the desired targets and
objectives. Amongst the infrastructure projects to be developed and constructed are:

a) Construction of 4 new highways;

b) Construction of 52.2km MRT2 line from Sungai Buloh-Kajang-Putrajaya;

c) LRT3 line linking major cities to Klang, a distance of 36km;

d) Electrified double tracking involving construction of 197km parallel tracks from Gemas to
Johor Bahru;

e) Upgrading of road from North Port to Pulau Indah Expressway;

f) Expansion of international broadband (bandwidth) capacity and coverage;

g) Wider coverage of High Speed Broadband (HSBB2) and Suburban Broadband (SUBB) for
all state capitals and high-impact growth zones;

h) Construction of new plants and upgrading of existing water treatment plants to increase
supply reserves in excess of 10.0% at all plants;

i) Construction of centralised and regional sewerage treatment plants, and also


enhancement of small plants efficiency and effectiveness as well as discharge efficiency;

j) Gas pipeline from the Malaysia-Thailand Joint

Development Territory;

k) Construction of new and upgrading of power plants to generate 7,626MW of electricity


and a power distribution system;

l) Construction of 3,000km surfaced rural roads;

m) Port expansion; and


n) Construction of new and extension of existing airports.

The Malaysian economy sustained an annual growth of 5.3% since the implementation of
the 10MP in 2010, driven by an increase in private investment. From 2011 to 2015, every
sector of the economy recorded encouraging average growth with the construction sector
registered the highest growth, fuelled by the governments socio-economic development
projects and private investment, especially in Entry Point Projects (EPP). The value of
construction projects awarded during the 10MP period amounted to RM680.0 billion
compared to RM407.0 billion during the 9MP. In the 11MP, the government will continue to
build the resilience and competitiveness of the Malaysian economy in the face of uncertain
external economic landscape. The government is committed to continue building basic
infrastructure and social projects to improve competitiveness in attracting and encouraging
implementation of new and quality investment. The implementation of these projects will
contribute towards a high demand for construction works.

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