Construction is the major steel consuming sector in each of the ASEAN-6 country. Share of steel demand in construction sector in Philippines and Vietnam is more than 80%, while in Indonesia and Malaysia, where the steel used in construction sector is around 60%; for Thailand, the figure is slightly below 60%.
Indonesia, Malaysia and Thailand have other steel consuming sectors such as automotive, electrical appliances and ship building and others, which also have significant contribution to steel demand.
Apart from monetary and fiscal policies to support the economies during crises, ASEAN Governments typically pump prime the construction sector to stimulate the economies. As ASEAN is a developing region, there is still room for further infrastructure development in the region. Let us take a look at the status of mega projects in the ASEAN-6 countries.
In recent years, the ASEAN Governments in the region have kicked off plans for their mega projects to boost construction activities in the country before the pandemic coronavirus. Some projects have to be paused or delayed due to the various lockdowns during the COVID-19 pandemic. However, many countries in ASEAN have partially lifted the lockdown and allowed construction activities to carry on.
The Indonesian Government has firmed up plans to heavily invest in urbanization and infrastructure across the country till 2025. Its mega projects in Java island and other inhabited islands will continue to take place. From such projects, there will be many construction activities going on, including MRT, toll-road networks, port upgrades, residential and commercial real estate development. Apart from this, the development on energy and utilities infrastructure will be sped up to serve new demand.
Malaysia’s construction sector is somewhat stagnant when compared to the other ASEAN countries in the region (Indonesia, Philippines, Thailand and Vietnam). However, in view of the recent change in Government and the fall in oil prices affecting much of the Government’s revenues, many mega projects are expected to be further delayed. With the announcements on fiscal stimulus to support the economy during the COVID-19 pandemic, it will take time before Government is able to embark on more new mega projects.
The ongoing projects such as, East Coast Rail Link (ECRL) and Bandar Malaysia projects are expected to continue. Other sizeable projects that are progressing as planned are the Light Rail Transit Line 3 (LRT 3), MRT2, West Coast Expressway and the Pan Borneo Highway.
The Philippine Government kicked off a infrastructure building programme called ‘Build Build Build’ a few years ago. Although the various projects in this programme have been delayed and revised due to financial difficulties and the impact of COVID-19, the project has successfully boosted up steel demand for construction since 2018. Government’s total spending on infrastructure along the project grew 50% in 2018.
The ‘Build Build Build’ programme covers many areas, including infrastructure, schools, power, energy and water supply, airports, seaports, railways and residential houses. Construction of nearly 10,000 km of roads have been completed, as well as renovation, widening work and upgrading work for existing roads, bridges etc.
Although some projects have been cancelled, most of which being small projects and difficult projects, including Bohol-Leyte bridges, Cebu-Bohol and Cebu-Negro bridges and 10 bridge projects within Metro Manila, there are still many more to be completed in the future. These include the upgrade and new airports, power and energy supply infrastructure project, information and communication technology and urban development and renewal city.
The Government is currently reviewing the long list of projects under the “Build Build Build”programme to prioritize the flagship projects that will yield the biggest impact to revitalize the domestic economy after the COVID-19 pandemic.
The Singapore Construction sector remains weak, given the slowdown in private sector construction. However, Government investment in infrastructure and civil engineering works remain high. Several megaprojects are currently underway or in the pipeline, including the Thomson-East Coast MRT Line, the new Tuas Mega Port and Changi Airport Terminal 5. Public sector projects are expected to account for 60% of overall construction demand in 2020.
In Thailand, the Government launched several projects related to infrastructure development at the Eastern Economic Corridor (EEC), including the expansion of U-Tapao airport in Rayong province, development of ports in Eastern part of Thailand, high speed train, double track train railway, motor way/express way and sky train railways. Moreover, the government also kicked off other projects apart from the development in East Coast, such as phase 2 of Suvarnabhumi airport and high speed train from Bangkok to Korat (gateway to north east of Thailand).
During the control over COVID-19, although the Government allowed construction activities to carry on, it is not easy for the operations due to the curfew and isolation measures. It is expected that construction projects in the private sector would drop by at least 30% due to economic slowdown, suspension of many businesses, a severe shortage in labour and the obstruction on industry’s supply chain.
Vietnam is ranked no.2 high in infrastructure spending within the 6 ASEAN countries, following Philippines. Major investment is to focus on roads and railway developments. Government’s financial difficulties has made the Government’s working on improving PPP scheme to attract more foreign investors and to openly encourage Japanese firms to participate in PPP schemes.
The government is pushing for more construction activities after the lifting of lockdown for COVID-19. It is expected that the market for new buildings in Vietnam to grow on average 7.2% a year between 2021 and 2029. This is mainly due to the government’s rapid urbanization and an influx of foreign investment. Moreover, the shift of production lines of many companies into Vietnam, such as South Korea’s Samsung, Japan’s Panasonic and Sharp, Denmark’s Sonion and other big companies including Microsoft, Nintendo, Ricoh and Dell. With this development, the Government will have to rapidly boost up its infrastructure plans to serve the demand. Vietnam would be one of a few countries in the region that will have a strong growth in construction sector.
In view of the high number of mega projects in the pipeline in the ASEAN-6 countries, these are potential economic stimulus areas where the Governments can invest in, so to revive the domestic economy. How fast this sector can be re-started, would depend very much on the fiscal capabilities of the country.