The construction industry is responsible for providing the main physical investments in human settlements. It is also a significant contributor to overall socio-economic development in every country. Construction accounts for a large share of total capital formation and it is often second only to agriculture as a direct source of employment. It is, therefore, a primary tool for raising the low level of development and a major generator of employment through its economic multiplier effects. The poor performance of the construction sector affects the entire population, and the most disadvantaged are the low-income population in developing countries. The sheer magnitude of the input requirements for the construction industry to provide shelter and basic infrastructure for the majority of the low-income population has caused the problem to persist and, in may cases, to get worse.
The construction industry is known for its multisectoral and fragmented nature, the coordination and management of which requires sound planning and decision-making. The major problems facing the sector, apart from not viewing it in an integrated manner, are related to deficiencies in the specific inputs required and to the unfavourable demand characteristics. A review of the various ways and means of constructing low-income housing and infrastructure suggests that the unsatisfactory performance of the industry is due to several related factors. These are: (1) an inadequate supply of durable and affordable building materials and technological backwardness; (2) lack of adequate and favourable financing mechanisms for pre-financing low-income housing and infrastructure; (3) unfavourable regulatory mechanisms; and (4) lack of maintenance and upgrading strategies.
A number of countries experience difficulties in the execution of construction projects. This is due to factors such as inadequate capacity for the planning and design of projects, difficulty in obtaining tenders for small projects in which international contractors are not interested or for projects which are too large for local contractors to handle, inefficiency in planning, design and construction, and difficulties in obtaining materials and other crucial inputs. Delays are common and represent a physical constraint on development.
In many countries, public policies and regulatory frameworks do not encourage the development of the construction sector. Policies that negatively affect the growth of the industry are often related to technology imports, government subsidies for certain materials, and distribution and pricing control of the industry. Other constraints include barriers for small firms to register, prejudices against the participation of small-scale firms in competitive tendering, and monopolistic trends in the large scale sector.
Governments can indirectly stimulate construction in the public as well as private sector through fiscal and monetary policies. Such policies may include the protection of local industry through the imposition of restrictions on imported machinery, plant, equipment and building materials industry, provision of tax relief to the local contracting and building materials industry, the stimulation of employment through the provision of subsidies and the promotion of apprenticeship training through the operation of a grant/levy system involving local and international contracting firms.
Governments can also have a more direct influence on the construction process through their role as "clients" of the construction industry. Central and local government programmes account for a variable, but generally large, proportion of total construction output. Responsibility for the commissioning of construction projects is often widely diffused throughout the public sector of the economy. Those most directly concerned are the agencies responsible for transport and communications, defence, education, health, housing, local authorities and parastatal organizations.
Most countries have one central government department, often referred to as "public works", which is responsible not only for a large part of the central government's building programme but also for the main network of infrastructure (roads, bridges, harbours, airports etc). As "clients", governments are in a position to exercise a great deal of control over the type, standards, technology and methods of execution of construction projects. This is so even if governments merely commission the services of the private construction industry for the design and execution of their construction programme. In order to boost local production of building materials, government agencies responsible for construction works could insist on the use of locally produced materials. In the selection of consultants, preference should be given to those who have a proven record of thinking low-cost.
In many countries, the public sector can exercise even a greater degree of control by assuming direct responsibility for the design of their project. Many Public Works ministries have "in-house" designers and construction, maintenance and repair teams. In some cases, specialized ministries or departments of central government may have the mandate for the design, construction and maintenance of their facilities. Such "in-house" teams may even be found at the local government level.
To foster this strategy at a national level the World Bank recommends the following actions. Do: eliminate monopoly practices; encourage small-firm entry; reduce import controls; support building research. Don't: allow long permit delays; institute regulations inhibiting competition; continue public monopolies.
The United Nations Centre for Human Settlements – UNCHS (Habitat) recommends: (1) improving the efficiency of investments and stimulating private sector investment in the sector through fiscal policies; (2) restructuring the industry with increased vertical and horizontal integration through such mechasmism as sub-contracting, industrial estates, etc; (3) provision of industrial extension serves to small construction firms in the following areas: (a) credit support; (b) marketing support through industrial cooperatives, producers associations, etc; (c) technical advice in feasibility studies, tendering, construction management and quality control; (d) procurement of raw materials, equipment etc.