Friday, October 29, 2010

Construction project: the economy locomotive?

Many countries have, during the economy downturn, trying to stimulate its economy by ways of funding large construction projects.

The theory is relatively simple:

Construction projects involves many aspects of economy and therefore funding construction projects will help to create jobs and tickle down money to eventually everyone, hence helping to accelerate economy activities.

In the 80s when the Malaysia Government started massive construction projects such and North South Expressway, building new townships like Putrajaya and erecting towers like the Twin Towers and KL Towers, the Government was planning with the same intention, ie to fuel economy with public spending.

In the 90s, editor of economic desk of several print media of whom i know shared the same view, ie to reverse economy downturn, massive construction projects are inevitable and often produce desirable results.

This have generally 2 fundamental flaws as of our economic structure:

1. For these projects to be beneficial, it must be carried out by these people, and not relying on foreigners;

2. Even if it has to rely on foreigners for some part of work, it needs to ensure that money earned from this country by the foreigners are also spend here, atleast most part of it should be retained somehow.

The example in the past did not have these 2 factors, or these are insignificant as compare to nowadays, thus it can be relatively successful in the past but it is no longer the magical formula.

Even I other countries, for example, China. Public funded projects work as expected just because the fund is not leaked to the outside world. It is the government who are releasing its reserve back to the economy and these projects can really be economic multiplier since fund is not leaked out.

The Obama administration initiated mega construction projects such as railway, bridge, and highway constructions with intention to both create jobs and channeling funding back to the economy, hopefully it can be the pusher to revive the already weak US economy.

In Malaysia, projects are generally awarded to foreign companies with local partners, and down to the very bottom, the workers or laborer are generally foreigners.

What does this implies? This means the Malaysia government is putting its taxpayers' money into the foreign hand. This
Money will eventually be shipped back to their respective countries, and we are left with just infrastructure and nothing else.

Mega projects no longer serve as planned: stimulating economy, what we have is no different than buying luxury goods from overseas and stuck with the goods.

- Posted using BlogPress from my iPhone

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