Minimising roadblocks for construction progress

September 17, 2021 | 14:49
Several construction contractors such as Delta, Vinaconex, Cienco4, Eurowindow, and Phuc Hung Holdings have been urging the Vietnam Association of Construction Contractors and the prime minister to address their current challenges. Particularly, the outbreak has pushed these contractors to halt their operation, delayed their progress, and caused significant costs.
Tran Nhat Quang, Director of Finance and Research, CT Group
Tran Nhat Quang - Director of Research & Development, CT Group.

Meanwhile, rising construction material prices have also severely affected their expenses, with some corporations also facing fixed bidding prices.

The industry produces buildings and solves one of the basic needs of residents, accommodation. But they are not considered critically important, thus when the pandemic came, all constructions sites were immediately closed.

Now, they do not have any revenues, but suffer under the burden of staff cost, while receiving almost no support from other stakeholders. This is not fair for construction companies.

There are many factors that negatively influence these companies, particularly in the south of Vietnam.

First and foremost, their profit margins are very low (usually around 4-8 per cent). Their assets are vulnerable, and their cash rserves will dry up quickly should the pandemic last much longer. A lot of money has been spent on labour, equipment, materials, and other expenses. If the developers now do not pay, the construction companies would need to cover all these costs on their own.

The majority of builders are from outside Ho Chi Minh City, with many others also coming from the central provinces. The pandemic has shown how fragile the lives of workers are during only a few months of unemployment. They had to return to their hometowns, where they likely earn much less but can survive.

Would they be willing to return to Ho Chi Minh City after the pandemic? I doubt that. At least 20-30 per cent will re-consider. Thus, construction companies will face a tough challenge in re-filling their workforce, if they survive the pandemic.

I have attended several meetings with the authorities and heard numerous requests from other production sectors, such as food, garments and textiles, and also transport, but very few from the real estate and construction sector. They do need a lot, actually.

I believe the mass vaccination rollouts would be key to boost the domestic economy. Construction workers, similar to production workers, need to be vaccinated as quickly as possible, to be able to return to work. I propose that we can apply the stay-at-work model also to construction sites. The companies are willing to arrange any protective measures, as long as they are allowed to resume the work.

For a quicker economic recovery, I recommend that the affected localities could protect and expand the safe areas. Real estate sites in these zones should be prioritised to re-open.

Moreover, it is of utmost importance to swiftly roll out stimulus packages. It does not need to be as large as the one in 2013-2014. A series of smaller ones, but catered to each industry, could be more effective.

In real estate and construction, especially the workers from other provinces should be supported in case of delayed projects, such as with reduced rental fees, essential food, babysitting, and other measures.

The local government should waive or reduce all kinds of insurance fees for employees and employers. I understand that the government has spent a very large amount of money amid this pandemic. But moderate or low-income earners may collapse faster. Helping them means recovering the production ability.

Banks and other financial institutions have already embarked on relief measures by reducing interest rates, cutting fees, and rescheduling debt in accordance with the State Bank of Vietnam.

However, the central bank should lead the collaboration among all relevant financial bodies to help constructors.

For instance, banks could conduct a thorough analysis to evaluate construction projects. If a project is about to finish, financial aid could be applied to complete it. Banks have all necessary tools on hand, but they plead on a jungle of credit regulations to deny sharing profit.

This does not go along well with huge profits while their customers are on the edge of shutting down or even going bankrupt.

Furthermore, banks could provide guarantees for late materials payments of construction companies to their suppliers. Later, when a project finishes and constructors claim their payment, banks can charge fees.

Foreign investment flows into Vietnam also play a crucial part. There is an increasing need to invest in high-return and developing countries that are struggling at the moment. If banks still complicate these processes with their strict regulations, the capital will flow elsewhere.

The Ministry of Finance has already proposed a number of tax reductions and exemptions on late payments of interests of businesses and individuals, which I believe a good gesture.

Many associations have proposed to offset the negative impacts of the outbreak. But as far as I notice, their voices are weak and remain a reference only.

Manufacturers and suppliers are particularly vulnerable. Thus, they need to be flexible and creative to get out of the trouble. If developers fail to pay constructors, constructors will also fail to pay suppliers. So, all parties, together with banks, must seek an agreement.

By Tran Nhat Quang

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