The construction industry is a vital sector that contributes directly to national GDP, while ensuring socio-economic development through delivering basic infrastructure. The industry is largely dependent on government spending on infrastructure development and capacity expansions in the tourism sector. The Maldives' heavy reliance on imports of building and construction materials, such as wood, aggregates, metal, and cement, makes the industry highly vulnerable to fluctuations in global commodity prices and exchange rates.
The labor-intensive nature of the activities in the industry contributes to a high rate of industrial employment. According to the 2019 Household Income and Expenditure Survey, the construction industry employed 3.4 percent of the local labor force in 2019, while expatriate workers employed in the sector accounted for a staggering 92 percent. This large percentage indicates that the construction industry is the single largest employer of expatriate workers in the Maldives, accounting for 43 percent of total expatriate workers in 2019. A majority of the local population employed in the industry fill positions such as that of associate professionals and managers.
An economic survey carried out in 2007 indicated that the industry is characterised by a number of small and medium enterprises (SMEs) with a total of 1,638 establishments. Although most of the firms in the industry were categorised as SMEs, 70 percent of the industry’s workforce was employed by the largest firms that generate 90 percent of the industry’s turnover and value-add. The number of SMEs in the construction industry has been rising due to the industry boom over the past five years.
Between 2015 and 2018, the industry registered robust growth in its annual contributions to GDP. A number of key infrastructural projects including the China-Maldives Friendship Bridge, expansion of Velana International Airport, the Malé redevelopment project, and the Hulhumale development project commenced during the period, which contributed to the staggering growth. The growth trend was also due to additional projects such as land reclamation and revetment of Thilafushi, construction of Dharumavantha Hospital, construction of regional airports, construction of harbors in atolls and social housing projects initiated in Hulhumalé.
According to statistics published by Maldives Monetary Authority (MMA), construction related imports grew by 35 percent in 2018 compared to 24 percent in 2017. Commercial bank credit to the construction sector also recorded an annual growth of 21 percent in 2018 and accounted for 52 percent of total private sector credit, a rise from 47 percent in 2017. The construction sector as a share of GDP grew by 21 percent at the end of 2018 from the 14 percent growth recorded in 2017.
The growth in construction related loans was due to increases in loans for residential housing projects and credit for new resort developments. However, after three consecutive years of strong growth, the construction industry listed a decline in growth as large-scale construction projects such as the China-Maldives Friendship Bridge and Dharumavantha Hospital were completed in 2018. Statistics by MMA showed a 17 percent decline in construction related imports in the year 2019 while commercial credit to the industry recorded moderate levels.
Due to the pandemic in 2020, the construction sector was further weakened as the majority of construction projects and several infrastructural projects came to halt during the Male’ Region lockdown period. The sector weakened in 2020, registering contractions of 49.7 percent and 42.6 percent in the second and third quarters respectively. The contraction, however, improved significantly to 16.1 percent in the last quarter of 2020. Meanwhile, commercial bank credit to the sector recorded an annual growth of 11 percent from 6 percent in 2019.
Revamping the Industry Post COVID-19
As the year 2021 began, the COVID-19 situation in the Maldives worsened, with an alarming surge of cases across the country. With new restrictive measures imposed in the Greater Male' Region, most construction projects have been disrupted once again. Government funded public sector investment programs are also expected to be low, as reduced revenues and limited fiscal space may not allow for investment in additional infrastructure developmental projects during the year.
However, with the industry being a key contributor to the country's GDP, it requires support post COVID-19 in order to maintain the momentum of growth seen between 2015 and 2018. The government may need to provide a boost to the industry by addressing ways to resume halted projects along with initiating new infrastructure programs. The government may also consider playing an active role in ensuring that the industry attracts the much needed financial credit through the domestic financial sector, or when required, through external sources. A boost in the construction industry will assist the economy in picking up its pace after the staggering shock of the global COVID-19 pandemic.