Malaysia: New year looks bright for construction industry

While 2013 will produce a number of challenges for Malaysia’s construction sector, including a degree of uncertainty surrounding the approaching election and a shortage of workers, the industry is still expected to post a decent performance this year.

Malaysia goes to the polls in June at the latest, with most pundits predicting a win for Prime Minister Najib Razik’s ruling Barisan Nasional and his coalition allies, although there have been suggestions that the race could be close.

Analysts remain divided, however, about whether nerves among investors prompted by the forthcoming election will produce knock-on effects of any significance across the construction industry.

In an advisory note to investors issued in mid-December, market analyst Nomura International said it remained bullish on construction, energy and banking. The firm’s confidence was shared by Alliance Research, which on December 17 gave a buy recommendation to construction shares.

JP Morgan Securities, however, was more cautious, placing a neutral buy advisory on Malaysia, due to what the firm’s executive director of equity research, Mak Hoy Kit, called election overhang. “Investors will be worried if the opposition wins. When there is uncertainty, investors typically act negatively,” Mak said on December 12. An opposition victory could leave question marks hanging over the current government’s infrastructure programmes, he said, which would likely go ahead as planned if the Barisan Nasional is returned to power.

A similar muted warning was also sounded by the government, when, at the end of November, Deputy Finance Minister Datuk Donald Lim said that although the construction sector’s contribution to the economy would remain significant, the new year would bring a slight reduction in activity.

Construction’s contribution to GDP is expected to fall to 13.5% in 2013 from 15% in 2012, with tourism and the services industry earmarked for a bigger role. “In 2013, we believe domestic demand will still be there but we expect the construction sector to slow down a little. Other industries would contribute to our growth,” Lim said.

The minister said that the slight drop in construction activity could be attributed to the completion of key, large-scale projects, which the government drove through to help the economy recover from a flat patch caused by the global financial crisis.

The industry is set to receive a further boost from a wave of new developments earmarked for 2013, including rail projects worth an estimated $52bn that should be launched in the coming year, prompting some analysts to suggest that while growth in other sectors will largely drive Malaysia’s economy, the construction sector’s contribution to GDP could still remain stable. Malaysia’s GDP is forecast to grow by at least 4.5% this year.

However, while the construction sector is expected to have a solid 2013, it remains hampered by a shortage of skilled labourers, with rapid growth in recent years triggering a drain on its workforce. In late November, the Master Builders Association Malaysia (MBAM) called on the government to do more to facilitate the training of building workers or run the risk of supply-side bottlenecks delaying new projects.

MBAM’s president, Matthew Tee, said that with over a third of the industry’s existing workforce approaching the age of 50, measures needed to be taken to replenish the ranks of the sector. Suggestions include the association’s proposal that the government set up vocational schools that would train construction workers. However, a programme will take time to produce results, and cooperation with the private sector would also be essential for providing work experience and training to students.

In the short term, the government is acting on a proposal floated by MBAM and other industry groups to bring in foreign workers to bolster the ranks of Malaysia’s construction sector workforce. At the beginning of December, the government announced the signing a memorandum of understanding (MOU) with Dhaka that set out the terms for Bangladeshi workers to be employed in Malaysia. The first wave of foreign labourers is due to arrive in February.

If, as is widely expected, Malaysia’s current government wins the forthcoming election, the country’s construction firms should benefit from a wave of new, state-backed infrastructure projects which, combined with rising demand for residential properties, suggests that predictions of a bright 2013 for the sector appear to be well founded.

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