Assignment #3

Group1:
Anum
Armeen
Huzefa
Jahanzeb

SWOT and PESTLE analysis of the Construction industry

The growing demand in the year 2021 specially after pandemic in the housing market has served

as the core strength for the construction industry of Pakistan. The construction sector in Pakistan

is predicted to grow by 3% in line with inflation in 2021, following a 6.2 percent drop in 2019.

The construction industry has been designated as an industry. This results in tax cuts for

industrial businesses as a result of modifications to the tax ordinance. Tax policy changes give

various incentives to builders, developers, and contractors which are lower tax rates and the

elimination of various levies that formerly hindered the ease of doing business in the industry.

The raw material in Pakistan is easily accessed which helps in speedy construction. The major

strength that serves best to the sector is ample labor force of about 7.61%, mostly unskilled,

which works in this sector. The construction sector gives a major chunk of about 380 billion

PKR toward GDP.

The pandemic of the Coronavirus (COVID-19) has worsened the vulnerabilities in

Pakistan's construction industry, which had already contracted in 2018 and 2019. The

government limited the activities in the construction industry at initial level because of the

lockdown limitations established to combat the epidemic; however, it permitted the industry to

restart operations in mid-April 2020. There is a lack of government and industry strategy for

development of the Pakistan construction sector. Moreover, Pakistan does not have a lack of

labor, but the easily available labor here does not possess up to date skills. There is some training

in specialized projects, but it is quite minimal. Because of the cheap cost of labor, there is no

emphasis on mechanization or off-site construction methods. Except for major projects with
 Assignment #3
Group1:
Anum
Armeen
Huzefa
Jahanzeb

huge investments, the construction is less likely to be lucrative as investment has to be done in

heavy plant and machinery. A major drawback is that there a minor chance that in this industry

an investor will provide proper health and safety practices on site which will reduce their

incentives. There is a need of strategic plans to be created and most importantly to be

implemented for the development of construction industry. The emphasis on cheapest prices

rather than best quality discourages new and creative ideas. Therefore, the weaknesses outweigh

the strength in the industry.

There is a supposed threat of low barriers to entry for current firms operating in the

construction sector which might result in an increase in competition in this industry. This fact is

better for society but a potential threat to current firms. However, new entrants encounter strain

to obtain license from PEC(Pakistan Engineering Council). License require that engineers should

have experience and degree from HEC(Higher Education Pakistan) recognized institute. Even

after obtaining the license, getting workorder of mega projects requires political connections as

well as immense experience. New entrants can start up with low cost projects which require less

initial capital and less NOCs(No objection certificates). Apparently, there are low barriers but for

formal work in this industry there are strings attached. Exchange rate fluctuations impact this

industry and the main raw material for this industry is Cement. The cement market is subject to

great volatility of exchange rate as this cement industry is powered by coal which is imported.

Inflation also plays a role in this market, as prices of houses, flats, and land increase drastically

with inflation. The prices of residential places are way more than it was ten to fifteen years ago,

this increase tells about the impact of inflation in this industry.

 Assignment #3
Group1:
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Armeen
Huzefa
Jahanzeb

Opportunities have been maximized now as there is a Naya Pakistan housing scheme in the

pipeline, which demands a sufficient amount of construction activity. Not only can new

participants start to act, but existing companies can also benefit from it. Likewise, there is an

amnesty scheme provided to this industry that incentivizes people to invest in this industry and

get exceptions from the accountability of money sources. People who possess money earned

through illegal streams, or the ones who could not possibly show the sources of their money

could invest in this industry, and get a clean chit from the government. This issue encourages

people to invest in our own country and contribute to this sector. To further speed up

construction activity, the provisions of section 113 in the new tax law(minimum tax on annual

turnover) and section 113C (Alternative Corporate Tax applicable on accounting profits) will not

apply on the builders or developers on their turnover, income, profits and gains from eligible

projects, which encourages overall activity in this sector. Finally, technological progress supports

the rapid and complex development of construction sites. Now, with the latest technology, the

speed of construction work has enhanced but could be a possible threat for labor in this sector as

machines are taking places of labor.

The construction industry of Pakistan holds utmost importance for the economic growth of

Pakistan as it contributes a huge percentage to the GDP of Pakistan. Hence the government is

always busy in the efforts of boosting the construction industry. The government introduced the

subsidized markup rates on loans for houses. Moreover, the minimum tenor for housing loans

has also been decreased from 10 years to 5 years for people who prefer shorter financing periods.
 Assignment #3
Group1:
Anum
Armeen
Huzefa
Jahanzeb

After Covid 19, there was a large economic fallout which obviously also took the Construction

industry under the blanket. Therefore, the Government of Pakistan has taken some necessary

steps to alleviate the impact. Investors in the construction sector during the current and the next

fiscal year 2020-21 would not be asked any questions about the source of their wealth and they

will be allowed to bring the investment onto their tax returns. This will act as a de facto Tax

Amnesty Scheme. The Naya Pakistan Housing Scheme also aims to reinvigorate the industry

through Heavy subsidies (Rs 30 billiion). Moreover, During FY 2020 anybody selling his/her

principal residence will not have to pay Capital Gain Tax. Extension to FY 2021 is under

consideration. Government had also decided to bring the construction sector in the fixed-tax

regime under which the rate of tax on land and construction would be levied on the basis of per

square yard and per square foot of property respectively.

Adding on to this, the Withholding tax on materials and services has been abolished and only

formal sectors like Cement and Steel etc. would be subject to deduction of tax.

Following coordination with the provincial governments of Punjab, Khyber Pakhtunkhwa and

Sindh it has also been decided to bring down the sales tax in the construction sector to 2%

through the consolidation of all taxes.

The construction Industry, being a major contributor of GDP in Pakistan, as well as being an

essential industry supporting many other industries, have been given adequate legal concessions

and compensations especially after Covid 19 to be able to facilitate its growth and nourish it for

the years to come. Pakistan being a populated country creates a huge demand for the construction

industry. Also, the increasing population indicates the availability of labor force for the
 Assignment #3
Group1:
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Armeen
Huzefa
Jahanzeb

construction industry. Furthermore, the construction industry contributed about 794billion to the

GDP in FY20. The contribution to GDP fell from 2.05% to 2.04% from FY19 to FY20. In the

year 2020 the activity of the construction industry increased by 8.1% due the support of the

government and the investment from the private sector. The construction industry employs

about 7.6% of the total labor force and is connected with many other industries such as the

cables, cement, brick, paint, tiles etc.

The construction industry of Pakistan provides great employment opportunities. And a huge

portion of the labor force is involved in the industry. The major contributor to the construction

expenditure is the Public Sector Development Program (PSDP). Most of the revenue that the

industry get is from the PSDP that includes the building of infrastructure, highways offices,

airports etc. the introduction of CEPEC increased the construction activity and the support of the

government through subsidies and relief packages further supported the industry. Moreover, with

the increasing population there is increased demand for houses and residential buildings

especially in the rural areas. The government was sensible enough to introduce a 100billion

package in April 2020 to keep the industry up in the pandemic as they realized how important

the sector is for the employment of both skilled and unskilled labor.

The Construction Industry in Pakistan mostly operates on conventional lines and is not much

dependent on technological equipment like the ones abroad. For example, the world is moving

towards affordable micro homes and DIY homes that are not only energy efficient but takes only

a day to build. However, because of the family structures in Pakistan, the beaurocracy in the

property market, and lack of technological advancement, we have a long way to go. Currently,
 Assignment #3
Group1:
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some of the major problems faced by the CI is due to the lack of proper technological equipment

that adds to the cost burden. This includes design of problems in design of building facilities

with focus on ease of use and construction, incomplete drawings done manually etc. However

there are some technological innovations that play a role in boosting the efficiency of the

construction process as well as mitigating some of the construction safety hazards. Moreover,

technological advancements can also help the construction process run more smoothly by easing

out the communication and architecture. For example, The Augmented Reality technology

especially for commercial construction, helps to create a digital copy of the building model

where some elements and actions are supplemented by computer-generated sensory input. In the

construction industry, Augmented Reality is starting to be used for taking snapshots of the real-

world project sites and relaying critical information about the project. This can help builders

communicate the entire project better to prospective clients and reduce the risk of frauds that are

also very common. Moreover Internet of Things (IoT), is another tool that is now being used

which connects different devices used in construction such as construction equipment, tools, and

gear worn by construction workers. This connectivity can help with the live monitoring of

construction activities to plan a construction project more efficiently. Connected devices can also

track the performance of construction workers and the equipment used to build the site.

Moreover IoT can also be used to make smart homes, buildings and offices.

Furthermore, Information Technology is another powerful tool that can give an advantage to the

Construction Industry in Pakistan. Computer soft wares are a vital part of the entire process in

the Construction Industry and are used by engineers especially in larger construction projects
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Group1:
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like Roads, Dams, flyovers etc. Quantity Survey (QS) a major function of Engineer in public

engineering departments it includes rough cost estimates, detailed estimates, bill of quantity

formation, tendering and evaluation of the work done etc.

The construction Industry and climate change or environment have two-way mutual

consequences on each other. On one side, the construction industry contributes a lot to

environmental change, based on the techniques used in construction. On the other side, the

environment also has a substantial role to play in affecting the output of this industry. With a

growing population, construction in Pakistan keeps expanding which is changing the topographic

landscape in Pakistan by evicting large chunks of natural forests and fields for urbanization

leading to environmental problems like Land erosion, desertification and dereliction. Most of the

construction activities in Pakistan are unplanned owing to the real estate mafias and tycoons,

leading to destruction of natural habitats for wildlife, hence disturbing the overall ecological

order. Provision of basic raw material like cement, bricks, gravel, iron, steel, other metals and

wood necessarily take the toll on natural resources. Production and processing of these materials

require huge amounts of energy for which fuels like coal, gas and oil are used, which emit

greenhouse and acidifying gases into the atmosphere. The construction sector is highly energy

and carbon-intensive, currently producing between 25% and 40% of global carbon emissions.

Around 8% of the overall global CO2 emissions come from the production of steel and concrete,

for example. Therefore, it is necessary that private and public builders are educated about the

detrimental environmental impact they are having through their activities and construction sites

must thus be chosen that have the minimum effect on forestry and agriculture.
 Assignment #3
Group1:
Anum
Armeen
Huzefa
Jahanzeb

References

https://www.rsm.global/pakistan/insights/special-reports/covid-19-special-package-construction-

sector

https://www.pacra.com/sector_research/Construction%20-%20PACRA%20Research%20-

%20Mar'21.pdf