HomeNewsConstruction recovery needs value-chain intervention

Construction recovery needs value-chain intervention

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The recovery of the construction industry requires a value-chain approach to deal with demand issues at every part of the chain, from suppliers to property dealers, an expert has said, calling on stakeholders to explore and agree a cost competitiveness intervention strategy.
The industry is widely seen as a barometer for measuring underlying economic activity, particularly for an economy fighting a recession, falling to show a downturn and rising to show a boom.
Ignatius Chivasa, a property market expert, says policy debate should go beyond the issue of long-term funding and also tackle contracting policies and cost-push factors that are also weighing down construction and property demand.
Chivasa argues that government should prioritise local contracting companies to bring them back to business. He also noted that prices tend to increase on a build-up basis across the supply and value chains, from the suppliers of building materials to the agent selling a finished building, hurting demand across the board. “Costs tend to increase from suppliers to those that do the actual construction,” Chivasa said. “By the time estate agents are offered a house or building to sell, the price will be so high that very few will be willing or able to buy.”
The cost of construction, he said, is still too high on a regional comparison because the price of building materials such as bricks, cement and timber and has remained sticky downwards. Although the demand for cement and bricks has improved since last year, construction activity and sales at the tail-end of the market are still too low to drive any significant economic recovery.
Real estate agencies blame poor sales on high property values that largely reflect a high cost of construction materials. But manufacturers of construction materials and equipment say the cost shocks start with utilities and lenders.
“If the cost of capital was reasonably priced, prices would correct on their own. But this is not the case. Interest rates are too high and the cost of utilities is choking. This has an impact on the costs of production and prices,” an official at for Zimbabwe’s largest manufacturer of building materials said.
At present, nearly every firm in the country is relying on debt to finance a recovery from a decade-long recession driven by hyperinflation, which mauled balance sheets. The facilities are mostly short-term but expensive, sometimes costing as much as 30% for tenor of six months.
Chivasa contends that a value chain approach would reduce prices and stimulate demand across the board.

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