Sri Lanka building costs higher than region due to protectionism

COLOMBO (EconomyNext) – Tax protection given to powerful manufacturers in Sri Lanka by the state to make easy money at the expense of the public is making has pushed up building costs in the island above the region due to overpriced materials.

"There are concerns among the Investors and Developers, that the Construction cost in Sri Lanka is higher than in some of the other Asian Countries," President of Sri Lanka’s Chamber of Construction Industry has said.

"However, if the cost is to be reduced, the negative list issued by the Treasury to the BOI (Board of Investment), with a view to protecting the Local Manufacturers which is now in force, has to be revisited."

"However, the situation today is that some of the major items such as Steel Bars, Ceramic Ware, Aluminium Extrusions, and Carpets etc are cheaper in the Region.

"In this context, if the cess could be removed or reduced, for such materials only, then the building costs can proportionately be reduced, making our Industry more competitive."

He was speaking at the Build SL 2015 International Exhibition on May 29, 2015.

There have been charges that some of the key beneficiary companies of such tax protection which allows them to make easy an unjust profits at the expense of the Sri Lankan consumer with the help of the state may be partly owned by the members of the ousted Rajapaksa regime.

Ousted President Mahinda Rajapaksa had denied reports that the Ceylon Steel Corporation, which was pushing up the building costs of all Sri Lankan citizens who have to use concrete in a house through tax protection given by the rulers, was owned by his him.

Economic analysts have pointed out that freedom robbed from citizens was a key of the reason for Sri Lanka’s lagging economic progress, with all businesses looking for dog-eat-dog support from the state to get ahead without facing competition.

The industry is reeling from charges that it got government contracts without competitive international bidding, in ‘negotiated deals’ with local contractors leading to high prices for high prices for public infrastructure which burdens the ordinary tax paying citizens for decades.

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International competitive bidding allows a government to build infrastructure at the lowest cost, reducing the burdens on the ordinary public.

"Regarding Procurement, one of the major constraints facing the Construction Industry, is due to not following the published Procurement Procedure by the executing Agencies," Wickramasinghe said.

"This is applicable not only for the Road Projects, but, also for other Contracts. For example, the delay of the Northern Expressway, under Construction is reported to be due it not following a proper and appropriate procedure by the relevant Agency."

"The Chamber of Construction Industry (CCI) are in a position to advise the National Procurement Agency regarding an appropriate Procurement Policy, since our Membership includes high calibre Professionals in all Sectors relating to the Construction Industry."

The new administration cancelled deals to build an expressway to the North given to a few domestic contractors, shortly before the last Presidential election.

Wickremasinghe said the selected contractors should be given the deals again, but the profits could be shared among more local contractors through more joint ventures.

"We wish to support the previous Policy decision, to award the Northern Expressway contracts to the Local Contractors, who have proven their capabilities to construct Expressways, and for which Letters of Intent and Awards have also been issued by the RDA.

"Therefore, the new Government in order to "fast track" the urgent Northern Expressway Project should re-constitute the Procurement Strategy to ensure the Contractors’ capabilities to undertake a Project of this magnitude.

"This may be achieved, if the Local Contractors who have been selected for Individual Packages, are requested to form joint ventures (JV) with other Local Contractors.

"It is pertinent to mention that the respective Contractors have invested heavily on Machinery, Equipment and also Manpower Resources, to undertake the Projects.

"Hence, they will suffer financial and other losses if the Project is to be stalled at this stage."

 

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