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The impact sustained by the construction sector businesses in Nepal has far-reaching repercussions which need to be analyzed to support the ongoing reconstruction efforts as well as to prepare for future disaster situations. Nepal was heavily impacted by M 7.6 earthquake and a major aftershock of M 6.8 on 25th April and 12th May of 2015 respectively.
Post Disaster Needs Assessment (PDNA) published by the National Planning Commission, Government of Nepal estimates that the total damages and losses caused by the Gorkha Earthquake is NPR 706 billion (US$ 7.0 billion) which is about one third of the country’s Gross Domestic Product (GDP) in FY 2013-2014. The private sectors sustained over three times in damages and losses compared to the public sectors. The Housing & Human Settlements alone sustained about 50 percent of the total damages and losses.
Out of over 100 brick chimneys inside the Kathmandu valley, almost all collapsed in the wake of the Gorkha Earthquake while most of the iron and cement industries outside the valley were structurally intact and suffered no significant downtime during the earthquake. Businesses which suffered fewer damages and reduced downtime had better probability of continuing their business. Besides, high prices of construction materials and even higher rate of migrating labors out of the country would be another major bottleneck to consider during the reconstruction phase.
The Gorkha Earthquake had an extensive impact on private sector businesses nationwide and in coming days/years this would inevitably show up in construction businesses as well. As per the Federation of Construction Materials Business Association of Nepal (FCMBAN), consumers will face a price hike of around10 to 15 percent on cement, 10 percent on reinforcement steel bars and 40 percent on sand & aggregates. The price of bricks is expected to increase arbitrarily in the next fiscal year with around 25 percent hike in wages of workers.
Immediately after the disaster, the demand for bricks came to a complete halt while the demand for other construction materials such as cement and steel rods have been confined to 30 percent as compared to the same period in previous fiscal year. It is predicted that although there will be sufficient capacity to fulfil the demand for cement, there will be significant crisis for iron rods and bricks. There could also be artificial scarcity and price hike for bricks, sand, aggregates as well as construction labor. (The Himalayan Times, June 2015)
The Federation of Nepal Brick Industries (FNBI) predicted the damage loss to be around NPR 1.2 billion while around 90 percent brick kilns came to a complete halt following the earthquake. Around 70 percent of them were in need of complete renovation. The government stated that there was a need of at least 12 billion brick to raise the damaged buildings. FNBI claimed that Nepal produced around 3 billion bricks every year prior to the quake. With the four-fold increase in the demand of bricks during reconstruction phase, meeting the demand remains a challenge for the entire brick industry today. There were around 850 brick kilns across the nation operating before the earthquake. With over 100 damaged brick kilns within Kathmandu valley alone and a total of around 350 damaged kilns across the country, meeting the construction needs remains a major challenge for this industry. (My Republica, July, 2015)
As per Cement Manufacturers Association of Nepal (CMAN), the immediate ban on construction after the earthquake had induced an estimated 85 percent dip in the demand for cement. As the cement factories were operating only at 50 percent of installed capacity at the time, they could fulfill an extra 50 percent demand in the coming days when reconstruction would be in full swing. According to CMAN, the annual consumption of cement totals 4.5 million Metric Tons and there are 45 cement factories operating across the country. (The Himalayan Times, June 2015)
Iron & Steel Industries
Nepal Steel and Iron Rolling Mills Association (NSIRMA) assured that although post-earthquake Nepalese steel and iron industry were utilizing only around 48% of its production capacity, it would still be sufficient to meet the reconstruction demand. There are around 20 steel and iron factories operating across Nepal. This sector consists of industries like the rebar industry, corrugated iron industry, and wire industry, among others. The steel rod industry, under normal conditions has an estimated annual production capacity of 1.5million tons. Likewise, the corrugated iron industry and wire industry has an annual production capacity of around 300,000 tons and around 200,000 tons respectively. (New Business Age, July 2015)
(NOTE: A detailed account of the Gorkha Earthquake impacts, related to employee casualty, damage/revenue losses, employment loss including business recovery time, production capacity, nationwide demand and market price fluctuations of various construction material businesses such as Brick, Cement, Reinforcement steel bars, CGI sheets GI wire, has been analyzed and presented in a research study carried out following the disaster. Please refer the links below.)
(Part 1 of 3) Impact on construction sector businesses in Nepal due to the Gorkha Earthquake 2015 and its potential implications on reconstruction
(Part 2 of 3) Impact on construction sector businesses in Nepal due to the Gorkha Earthquake 2015 and its potential implications on reconstruction
(Part 3 of 3) Impact on construction sector businesses in Nepal due to the Gorkha Earthquake 2015 and its potential implications on reconstruction
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