Committee Reports > List of Committees > Joint > 1986 > Committee on Small Businesses > Report No. 04 - Construction

Appendix 1

The State and Construction

Introduction

In this Appendix we examine the impact of the State on the Construction Sector through the Public Capital Programme.

While the present proportion of Construction investment channelled through State sources is artifically high at 70% and largely explained by the collapse in demand from the commercial sector, it is unlikely that the State will ever account for less than 50% of total investment in Construction. This investment takes place through the Public Capital Programme.

Against this background we examine, in general terms, the long term outlook for the various components of the Public Capital Programme, indicating where future re-allocation is likely to occur.

Public Capital Programe expenditure is made under three broad headings:

Capital expenditure projections for 1984/1987 are extracted from the National Plan.

1. PCP - Sectoral Economic Investment

Considerable capital investment has taken place in Agriculture, particularly in the Dairy Sector since EEC accession in 1973. To help counter the effects of the milk super levy there will be a switch in emphasis to beef.

Capital investment will focus on the Farm Modernisation Scheme with special emphasis on livestock housing, on the Western Drainage Scheme and on the Western Package.

However there will be a decline in reals terms in PCP investment in agriculture during 1985-87.

With the major emphasis on improving farm management and productivity, agricultural marketing, restructuring of the advisory services, and developing the leasing of land, it is difficult to see significantly increased capital investment of interest to the Construction Sector taking place in Agriculture over the medium to long term.

(ii)Industry

During the 1970’s the State, through Agencies such as IDA, SFADCO and Udaras na Gaeltachta, was responsible for a substantial programme of factory construction. The onset of recession resulted in considerable overcapacity and by the end of 1984 the situation with regard to State provided vacant factory space was as follows:

Progress is being made in reducing this surplus but there is likely to be a considerable amount of empty factory space overhanging the market for the foreseeable future.

The IDA building programme has been considerably reduced in recent years:

For the period 1985/87 the IDA building programme is being confined to its 1984 level in nominal terms, to be funded by the sale of existing IDA lands and factories. New construction will be confined to small cluster units, special factories and extensions to existing factories.

The White Paper on Industrial Policy states that the involvement of IDA in funding the construction of custom built factories will be phased out as far as possible. The emphasis will be on the industrialist making his own arrangements with the contractor. The IDA has also been directed to investigate the possibility of reducing construction costs by building less elaborate units.

The White Paper projects a doubling of manufactured output between now and the mid-1990’s with an increase in manufacturing employment of not more than 60,000. Even if these projections are achieved the requirement for additional new factory space could be limited.

There will be some additional requirement in the major urban areas, scope for extensions to existing buildings, and special units. However, overall changes in demand will probably be met to a large extent by utilisation of existing space, probably involving building modifications.

This expenditure will be mainly on Bord Failte grants for tourist accommodation and holiday facilities.

While the projected capital investment in Tourism is relatively low the Committee is of the opinion, having already published a comprehensive Report on Tourism, Catering, and Leisure, that there is considerable scope for investment in the area of Tourism and Leisure which would benefit smaller construction firms in particular.

Balanced Tourism development requires a much greater investment in all-weather leisure facilities and, also, in restoration of historical buildings including old churches, houses, millwheels and other industrial architecture.

Much of this work could be done on a joint venture basis between Public and Private interests.

The Committee welcomes the recent announcements of a grants scheme to refurbish tourist hotels and guesthouses, and to make £5m. available for community and leisure facilties.

Most of this expenditure will be spent on harbour development grants, the modernisation and improvement of fishing vessels and mariculture.

Some major harbour development programmes are coming to an end but there should be a continuing need for investment in fishery infrastructure.

However the main problems of Irish fishing are the related problems of marketing and lack of value added processing. The resolution of these problems are of limited interest to PCP funded Construction.

Forestry, although a major raw material source for the Construction Sector, has less to offer Construction, as a customer. However, there will be some scope for the construction of forest roads.

2. PCP - Productive Infrastructure

(i)Energy

There will be a dramatic fall in this area as most of this expenditure is accounted for by the ESB capital development which will provide us with enough generating capacity to meet requirements until the mid-1990’s.

Indeed the outlook for Construction here is probably even worse than the figures would indicate, as expenditure is more likely on equipment rather than civil work.

However, the recently announced decision to extend the gas grid to Limerick and to Waterford, involving a capital investment of £35/£40m. should result in some benefit to Construction next year.

(ii)Transport

Expenditure in the 1984-87 period relates mainly to buses and rolling stock, and is of little interest to Construction.

In the medium to longer term there should be further construction requirements in harbour and airport development.

Funding for improvements to national and regional routes is being substantially increased.

A modern system of trunk roads, which meet EEC requirements is a basic infrastructural and economic necessity. Yet this need was not acknowledged until the publication of the Road Plan in 1979.

In its earlier Reports the Committee has accepted as justified the complaints of private hauliers and coach operators with regard to the poor state of our roads.

A high level of spending on road improvement will be required for the foreseeable future to bring Irish trunk routes up to European standards.

In order to bring forward infrastructural projects the Committee feels that a further range of incentives should be introduced to encourage private sector involvement.

There is also scope for the reconstruction of County roads on a selective basis. The lack of funds in this area has resulted in repair cycles of thirty five years or so.

(iv)Sanitary Services

There has been heavy investment in sanitary services in recent years and there will be a modest decline in real terms during 1985-87. However the growing long term housing requirement should mean a continuing high level of investment under this heading.

With regard to overall planning for sanitary services the Committee feels that there is a need for a National Sanitary Services Plan, similar to the National Roads Plan.

While water supply arrangements are generally satisfactory there is no systematic plan to treat sewage, which is regarded as a local rather than a national issue.

(v)Telecommunications, Broadcasting and Postal Services

Most of this expenditure is accounted for by Telecom Eireann. The five year accelerated telephone development programme is drawing to a close and the future level of investment, while large, will be reduced substantially. However this expenditure will favour equipment rather than buildings.

There will be some expenditure on improving Post Office Accommodation.

The longer term outlook is for a lower level of investment than in recent years.

3. PCP - Social Infrastructure

(i)Housing

In view of the importance of housebuilding to smaller construction firms a separate Appendix (No. 2) has been prepared on this subject.

(ii)Education

While projected capital expenditure here shows a real increase the longer term outlook is less hopeful from the Construction aspect.

The substantial growth in student numbers, seen in recent years is now levelling off. Over the next three years the annual projected percentage increase is:

The fall in the birth rate since 1981 is such that the primary school population will peak in 1987/88. There will be a reduction in numbers of 6,000 by 1990/91 and of 60,000 by 1995/96. The reduction in student numbers should then start to affect second level, with third level being affected by the turn of the Century.

The post 1987 outlook for school and college buildings is, for the second and third level requirement to balance a decline in primary school building.

(iii)Health

In line with the recommendations of the National Hospital Plan real expenditure on county hospitals increased by 66%, on regional hospitals by 40% and on voluntary hospitals by 34% between 1977 and 1982.

The outlook after 1987 is for no increase and perhaps an overall decline in hospital building in view of the developments that will already have taken place and reducing population pressures.

(iv)Government Construction

Expenditure under this heading includes the provision of office accommodation for the Public Service, Garda Stations, Employment Exchanges and special jobs such as the restoration of the Royal Hospital, Kilmainham and the Custom House.

There has been a decline of over 8% in the Non-Industrial Civil Service, since the recruitment embargo was introduced in 1981.

Similar declines are taking place in other parts of the Public Sector.

The outlook for construction arising from future demand for Public Sector accommodation is not bright.

Conclusion

In the medium to long term there should be an increased PCP construction investment requirement for roads, sanitary services, transport, leisure and tourism services and housing.

The investment PCP requirement for Construction in agriculture, fisheries, forestry, health, and education should remain broadly at present levels.

PCP led Construction investment should be generally lower than at present or in the recent past for industry, energy, telecommunications and Government construction.

With regard to the Sectoral Economic Investment more private investment may emerge over time. This Appendix is concerned only with PCP investment.