Impact of the Economy on the Construction Industry
The construction industry plays a significant role, throughout the world, and as a result, holds a given proportion of some countries’ gross domestic product and gross national product. Some scholars argue that the construction industry’s role is beyond this; it also plays a crucial role towards economic growth of a given nation, because it is one of the biggest industries across the world. Although the construction industry is this important, its aspects towards the facilitation of the economy are scarce, as previous researches have not emphasized on the same. At the moment, the aspect of economic growth has been of great concern in the world, and most industries across the world have find it difficult to balance between the two. Therefore, this research seeks to establish the dependence of the economy, and how in influences the construction industry. It provides qualitative analysis of data, and makes comparisons between two countries, a developed and developing nation.
In a broader perspective, the economy is defined as the state of a given country or region, in terms of production of goods and services as produced in the country, and the overall monetary within the assigned area. Furthermore, an economy of a given country can be described using the careful management of the resources possessed within the given state. Whereas some aspects such as productivity, population growth and ease of carrying out business play a significant role towards the betterment of an economy, the part played by industrialization cannot be underestimated. Also, an increase in the industrial sector, there is an increase in the supply of goods and services, for internal and external markets (Anaman & Osei, 2007, pp.951-957).
With industrialization, whereby the construction industry happens to be one of the constituents, there is sufficient production of goods and services, and the generation of new employment opportunities. With the increase in the industrial production, as past studies reveal, exports and revenues of a given country are likely to increase.
Research indicates that there is a very close link between aspects of the construction industry and the growth of the economy of a particular country or nation. Such is because of the diversification of the construction industry. The construction industry, according to credible sources, is significant, as well as responsive. Furthermore, the construction has a powerful connection with other sectors, which depend on it either directly or indirectly for their survival (Anaman & Osei, 2007, pp.951-957).
Other scholars argue that although the construction industry has some impacts on the economy, the vice versa of the same can also be achieved, hence creating the notion that the economy holds some given aspects of influence on the construction industry (Bielsa & Duarte, 2017, pp.314-321). Therefore is the reason why there is a significant disparity regarding growth aspect in the construction industry, between developed and developing nations.
Previous studies, as mentioned at the beginning have established a very close and positive relationship between construction output and the aspects of economic growth, especially in developing nations across the world. Therefore, it is essential to understand the contribution of the economy towards the growth of the construction industry. As a result, this results seeks to establish the role played by the impact of the economy in the construction industry. Several aspects, ranging from the construction industry in developed nations, whose economies are stable, and in developing countries, whose economies are unstable are analyzed with this research. Such will provide a clear understanding of the sector and its related factors.
This literature review discusses findings of what other studies have reported on the aspects of the role of the economy towards the construction industry. This section covers two aspects, construction industry in developed nations and construction industry in developing countries. Such is an essential aspect because economies of the said countries differ in many aspects. Furthermore, it discusses the role of the construction industry in the economy and economic development.
Industrialization in developing nations.
Several attributes characterize developing nations across the world. Some of them are low per capita real income, which results in small savings and low investments. On the other hand, they are also characterized by high population growth, which is due to free planning options (Dlamini, 2012, p30). Furthermore, such countries suffer from high rates of unemployment, and as a result, their economies depend on the primary sector. Past researchers indicate that almost 75% of populations in these nations are rural based. Lastly, such countries depend on the exports of primary commodities since much of the input depends on the primary sector.
Lukunami(2013), sought to identify the rate of industrial development in African nations, considering small and medium scale enterprises(SMEs). From his study, he identified several aspects that made it difficult for the growth of the industries from a general perspective. As such, lack of essential social amenities, poor infrastructure concerning good roads, rails and other aspects that could facilitate easy transportation of construction materials from the ports to final destinations were also unavailable. The results from his research indicated that there lacked special techniques employed to manage the situation, to record profitability. He recommended that respective governments should ensure that they create a positive atmosphere that would facilitate industrial and business development (p5). Furthermore, he urged the government to provide necessary infrastructural facilities that would promote active industrial growth.
Characteristic aspects of Industries in Developed Nations.
One of the most significant differences between developed and developing nations lies in the aspect of the economy. As mentioned at the beginning, Industrialisation and economic development are related to different elements. Therefore they are interdependent. Europe, America and other developed nations across the world are characterized by less corruption, adequate infrastructure, economic stability and effective transportation mechanisms, factors that promote industrialization.
Also, developed nations are characterized by the presence of technological innovations and experienced workforce that facilitate efficient industrial growth. Data obtained from an industrial development report indicated that technology played a crucial role in the effectiveness and development of industries across the world. A surprising aspect of this revelation is that unlike developed nations, developing nations are characterized by inferior technologies, which does not create a right environment that facilitates industrialization.
The aspect of technological requirements remains relevant in this aspect since it’s one of the elements which is shaping up the construction industry. Comparing its availability in developing versus developed nations, technological innovation is well supported and embraced in developed countries as compared to developing countries across the world like Kenya, Tanzania, and Uganda.
In contrast to developing nations, industrialization is much useful in developed countries that developing nations. The developed countries have been known to set sound strategies that promote manufacturing, innovation, and related aspects. Furthermore, their societies are characterized by the presence of suitable infrastructure, encompassing roads. Railways, seaports, and airports. Therefore, movement of goods and services either for the manufacture or sale is done effectively and efficiently. Furthermore, as previous results indicate, their governments thrive to minimize any obstacles that might deter the aspect of industrial growth.
The Research Methodology
This section aims to collect relevant information and data which is needed to make research decisions and relevant conclusions inferred from the research. Therefore, this section explains the procedures involved in the data collection processes of this research. This research is emphasized on the impact of the economy within the construction industry. For this research, the output from the statistical analysis in the construction industry of South Africa is considered. Emphasis was given to South Africa due to certain aspects owned by the country, which could facilitate useful comparison. Although it is supposed to be a developed nation, some argue that it’s still a developing nation due to the vast social gap between the rich and the poor. Furthermore, to facilitate the effectiveness of this research, data obtained from this research is compared with data from the United Kingdom, since it is a developed nation.
The Research Design
The researcher, in this aspect, employed the use of descriptive research design. This method involves observation and describing of the subject without making any influence to it. Such was the most appropriate method for this research since it was nearly impossible to have data from different countries tested, as measuring large numbers of samples was required In the process. In this regard, this research employs the application and use of secondary information and data.
This research facilitated secondary data collection technique, and this was enhanced by the analysis of data obtained from the electronic archives of Statistics South Africa. Also, more data was sourced from the South Africa reserve bank. This data included GDP details. The data obtained included annual, quarterly and monthly output reports that reflected real and nominal figures.
The data obtained from South Africa was compared against similar data from the United Kingdom. Such was to ensure the facilitation of balanced analysis. As mentioned at the beginning, both countries have different developmental aspects, with South Africa being a developing nation, whereas is a developed nation.
Research Findings and Results.
One of the notable aspects that would facilitate the effectiveness of this research is the realization of the political character of South Africa in 1990. Due to the political change that took place, the country experienced remarkable political stability, and the uplifting of the sanctions meant that the economy was expected to grow.
The Construction Sector of South Africa
According to the facts gathered, the construction sector in the Republic of South Africa responded positively to the developments associated with the political changes explained at the beginning. Such facilitated the growth in the overall economy of the republic of South Africa. The facts revealed that the construction output increased from the beginning of 1990, up to 1994, when the country held its first ever elections. Such increase in the construction output, as some economists argue, was due to the confidence the investors had over the economy of South Africa.
Since the country was under the colonial rule years before 1990, there are no credible data sources that could ascertain the condition of the construction industry. Although such was happening, there is a common belief that the construction industry has suffered significantly, just like other sectors of the economy (Baloyi & Bekker, 2010, pp51-57). Such was due to the trade sanctions imposed on it. The worst of the construction industry as some sources claim, happened between 1986 and 1988 when the economic sector was declining. Below is a chart that represents the same.
On the same note, the construction industry increased significantly as an increased construction output was recorded from 1990 through to 1994 to 2010. This is as shown in the figure below. At this period, the country had a new president who had promised significant political reforms, instilling confidence among the citizens. As a result, the nation experienced an annual change in the construction output, positively. Furthermore, the release of Nelson Mandela from prison led to a gained momentum in economic growth(Baloyi & Bekker, 2010, pp51-57).
Figure : Total Construction output 1986-2010, for South Africa
After the ANC was elected to power in 1994, the country‘s economy grew significantly. Data indicates that at this time, the construction output grew at 0.7%, in 1994. The following year, the new government embarked on the improvement of the economy and other developmental projects, which saw the annual construction rate growing at 1.6% as indicated in the figure below(Aibinu & Jabboro, 2002, pp.593-599 ).
Figure : Change in construction output per year in South Africa, 1986-2010
However, there was a stall in the construction growth in the year 1997 and 1998 because the overall economic growth of the country decreased significantly. Such was characterized by dwindling exports and a drop in the price of gold, which is one of the commercial pillars of the country. Furthermore, at this period, the nation was regaining from the initial state of financial crisis, when the world experienced a massive economic deterioration (Pollin et al., 2009, pp. 227-240). At this period, furthermore, the GDP of the country grew at 3.5 percent, although the economy failed to pick up.
Furthermore, the data obtained indicate that there has been recorded a sharp decline in the annual change in the construction industry as from 2008 to 2010. Much of this is attributed to the financial crisis experienced across the world at this time. Since the economy of this country is beyond the maturity rate, this is expected to continue.
The United Kingdom Construction Sector
The figures below represent the annual change in the construction output, as observed in the United Kingdom. Explanations follow.
Figure : Total construction output for the United Kingdom, 1955-2010
Figure :Change in construction output per year, United Kingdom
From the figure above, it can be concluded that there was an annual change in the construction output, recorded between 1955 and 2010. Such is entirely different from what is expected in South Africa between 1986 and 2010. Information from such comparisons seems to be right when supported by Bon (2010)’s views. According to him, the contribution of construction is expected to increase with a developing economy, and at the same time, decline when the economy reaches its maturity level.
Information Analysis and Synthesis.
The relationship between construction output and the GDP has been studied, and its impact on economic growth observed. According to researchers, busts in the economy do not have a long-term relationship on the construction output and financial aspect regarding growth. Furthermore, it can be concluded from the above data comparison, that there exists a healthy relationship between construction output and the GDP of the mentioned nations. As such, in the South African perspective, construction output has a significant production towards growth.
Discussion and Conclusion
From the above observations, there is a very close relationship between construction activities and economic growth. Construction, therefore, impacts on a certain measure of short-run growth, hence it is regarded to be one of the components of investment programs. Furthermore, development, although being an important sector that facilitates economic growth, stimulates economic growth, primarily when spending on the same is increased. Some of the key factors that enable construction like infrastructure promote economic growth, because the provision of infrastructure leads to employment opportunities, and therefore impacting on the economy positively.
Lastly, as observed from the above sectors observations, the construction industry thrives well in stable economies, unlike unstable ones. Hence is the reason why there was recorded an increase in the construction output when the Republic of South Africa seemed to gain economic stability. On the other hand, contrary to the same was recorded when the country experienced a financial crisis, and when the state experienced political instability.
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Program of Work