Construction Economics and Procurement
December 19, 2020
Building a Greener Tomorrow: Sustainability in Civil Engineering
December 19, 2020
In our rapidly evolving world, the synergy between engineering and the built environment has assumed unprecedented significance. As we teeter on the brink of the future, it is abundantly evident that the School of Engineering and the built environment are inextricable forces shaping our world. This blog explores the captivating interconnection between these two disciplines and their profound influence on our daily existence.
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Explore More About the Construction Environment
The intricate interplay between engineering and the built environment is more critical today than ever. It is poised to leave an indelible mark on our future trajectory. This blog will uncover the dynamic relationship between these two fields and the remarkable imprint they leave on our everyday lives.
Figure 1: Location of San Miguel (Source: Author )
Influence of Construction on the Economy
The construction sector's significant contribution to sustainable economic growth is widely recognized. This research utilizes advanced computational models to assess the influence of government-led construction projects on various crucial industries, such as oil, transportation, minerals, procurement, and tourism. The analysis incorporates statistical data to underscore historical and anticipated economic patterns, providing insights and suggestions for future development efforts. Given its strategic geographical position and rich resource base, San Miguel emerges as a prime candidate for the implementation of strategies aimed at enhancing economic well-being and promoting regional development.
The Development Plan of the Government
Presently, the government is in the process of launching a comprehensive development plan for the coastal region. This plan revolves around the establishment of a commercialized port, poised to stimulate substantial growth, primarily within the import and export sector. In addition, it includes the expansion of rail and road networks, which will usher in significant progress across employment, manufacturing, and transportation sectors. Furthermore, a key element of this plan is the development of an airport, strategically designed to optimize returns and play a pivotal role in advancing the economic landscape of the state.
Airport Construction
At present, San Miguel state heavily relies on the San Sebastian airstrip, originally designed for the private use of plantation owners. However, the airstrip is predominantly utilized for their personal business operations. Consequently, there is a pressing need for the establishment of an international airport, which can harness the potential benefits of the commercial activities that could be accommodated by the airstrip. This includes tapping into the advantages of transforming this into a tourist attraction. To address this need, the state government has devised plans to construct a single-runway airport, intended for commercial purposes. This airport will operate concurrently with the San Sebastian airstrip, thereby amplifying the region's development prospects. The construction of the Primary Airport in Puerto is currently underway and is expected to yield substantial economic returns, thereby catalyzing the state's economic progress in the years to come.
Transport Network Development Plan
The government has outlined a series of construction initiatives aimed at enhancing both the railway system and the foundational road infrastructure in San Miguel. With San Miguel being a prominent tourist destination, there exists a significant opportunity to derive substantial economic advantages from the establishment of an extensive transportation network that covers the entirety of the state. Extending the railway network, in particular, holds immense potential to positively impact tourism, manufacturing, and commercial activities, thereby contributing to overall economic advancement. These planned endeavours include reinforcing the existing railway system and establishing novel connections between Puerto and Rioja. Additionally, there are plans for a new road link between San Sebastian and Puerto, further bolstering the region's prosperity and facilitating its development.
Seaport Construction
The economic development plan also includes exploiting the area's rich coastal terrain to transform it into a commercial complex by constructing a seaport that will bring about considerable progress in the Mining and Oil industry.
Sources of Funding
This economic development plan for the state of San Miguel will benefit from DFI (Direct Foreign Investment) to implement the planned construction initiatives that will facilitate infrastructural development and economic prosperity. The place will also receive funding from PPP(Public-private partnership).
Methods and Techniques
Research methods and techniques aim to present statistical evidence that is reliable and authentic, providing insight into the feasibility of projects, claims and validity of research facts. Various quantitative and qualitative research modelling techniques are available to provide supporting information. Still, this study employs the Input-Output (I-O) Framework originally developed by the Nobel Peace Prize-winning economist Wassily Leontief. Various world economies employ the framework to evaluate the feasibility of economic variables in terms of consumption and product flow between industries.
It is a quantitative economic modelling technique most apt for socialist planned economies. It uses production factors or physical quantities utilized in industries to define optimal resource allocation accordingly and highlights interdependencies among industries in the economy (Wikipedia, 2015). The modelling technique shows how a production output from one industry can become an input for another related industry, thus depicting inter-dependencies amongst industries in the economy, allowing for productive economic planning and evaluation. This paper also uses the input-output model, thus highlighting to the government and relevant stakeholders the feasibility of the development investment and the productivity probability of the construction initiatives through pivotal data and information collected for research purposes.
The Influence of the Construction Project of the Government on the Economy
As depicted by the tabulated statistics highlighted below, the construction project will significantly impact the employment, income, GDP and imports/exports in the state of San Miguel. The development and infrastructural changes in the transport network and the railways will bring about a positive growth trend in the economic domain.
| Output | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 67,985,835 | ||||||
| Construction | 5,181,286 | 3,406.42 | 1,113.43 | 0 | -2,976.48 | -2,321.66 | |
| Income | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 28,856,050 | ||||||
| Construction | 1,436,224 | 944.24 | 308.64 | 0 | -825.07 | -643.55 | |
| Employment | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 1,831,850 | ||||||
| Construction | 78,136 | 51.37 | 16.79 | 0 | -44.89 | -35.01 | |
| Imports | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 27,878,600 | ||||||
| Construction | 1,319,443 | 867.46 | 283.54 | 0 | -757.98 | -591.22 | |
| Exports | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 29,573,460 | ||||||
| Construction | 0.00 | 0.00 | 0.00 | 0 | 0.00 | 0.00 | |
Table 1: The Impact of Construction on the Economy (Source: created by the author)
Cost of Development
These development projects require a large chunk of investment, and as reflected by the graphical analysis, the development cost is expected to peak by the year 2014. This is primarily the investment related to the construction of the seaport and the international airport in Puerto which would gradually edge towards figure 0 by 2017, which is the time when development on these projects would have finished. Returns would start pouring in relative to the project's operational years. The rise in economic trends, as depicted by the upward curve between 2011 and 2014, is attributed to the influx of capital for developing the road and rail network, seaport and international airport.
Figure 2: Estimated cost of development from 2011-2017 (Source: created by the author)
Direct Effects
The tabulated data highlights the direct effects of the construction project on the Income, employment, imports and GDP between the five years of the development plan (2011-2016). The year 2011 experienced an increase of 36% in the GDP and related sectors, while 2012 and 2013 witnessed an increase of 23.3% and 7.63%, respectively, due to the influx of capital at the project's initiation.
| Year | Income-Employment-GDP-Imports (%) |
| 2011 | 35.51 (%) |
| 2012 | 23.34 (%) |
| 2013 | 7.63 (%) |
| 2014 | 0 (%) |
| 2015 | -20.40 (%) |
| 2016 | -15.91 (%) |
Table 2: Direct effects of a construction project (Source: created by the author)
Indirect Effects (Type 1)
The highlighted statistics below reflect the indirect effects of the San Miguel Construction project on the GDP, employment, income and imports. The research evaluates the estimates based on a second-level assumption. In this particular evaluation, the outputs from the direct effects are transformed into inputs for the various sectors of the economy. As is depicted from the statistics, there has been a 38.8% increase in the GDP and related sectors in the year 2011, while 2912 and 2913 have experienced an increase of 25.5% and 8.35%, respectively (source?)
| Year | Income-Employment-GDP-Imports (%) |
| 2011 | 38.87 (%) |
| 2012 | 25.56 (%) |
| 2013 | 8.35 (%) |
| 2014 | 0 (%) |
| 2015 | -22.33 (%) |
| 2016 | -17.42 (%) |
Indirect and Induced Effects (Type II)
This evaluation of indirect and induced effects of the construction projects considers the consumption patterns and trends of each industry in the economy as reflected by the I-O framework. The consumption pattern is based on the spending trends relative to individuals and households. The years 2011, 2012, and 2013 have witnessed major increases in GDP and related sectors.
| Year | Income-Employment-GDP-Imports (%) |
| 2011 | 39.05 (%) |
| 2012 | 25.67 (%) |
| 2013 | 8.39 (%) |
| 2014 | 0 (%) |
| 2015 | -22.43 (%) |
| 2016 | -17.50 (%) |
Table 4: Indirect and Induced Effects (Type II) (Source: created by the author)
Summary
The tabulated results reflect a positive impact of the development initiatives by the government, especially in the areas of employment, income, imports and GDP. The construction project will further result in a steady rise in the oil extraction and import of minerals, which will greatly influence the GDP and economy. Future development endeavours are also a huge boon for economic growth and sustainability as the San Sebastian seaport, international airport, and transport network can be further refined to enhance economic stability. Building new schools, healthcare institutions, and universities for human resources training will further augment the area's development. Development projects will raise the employment rate and the income level amongst households, leading to new jobs, while hiring local professionals and existing contractors relevant to the PPT model would further facilitate economic prosperity.
Influence of the Increased Exports of Minerals and Oil
Introduction
The development projects will increase oil and mineral exports due to the development of rails and transport networks, including population growth. The demand for oil in both local and international markets will increase, which can be exploited by the government of San Miguel to enhance economic progress. As per estimates, the development efforts will lead to an overall increase of 10% in oil exports by the year 2017, which will lead to a higher GDP.
Expectations and Estimations for Minerals and Oil Exports
Since the state will greatly benefit from the seaport and airport construction with special regard to a huge demand for oil export, it is recommended that the government plan and devise strategies for efficient oil export across the globe and from the production site to the port quickly. For this purpose, refined construction projects like undersea pipes and effective procedures for shipping oil through tankers across the sea and by road need to be planned. These methods would help reduce operational expenses, transportation costs and undue taxation, including sea and water pollution.
Estimated Income from the Oil Exports
As can be seen from the tabulated results, the 10% increase in oil exports will bring about a significant change in the overall GDP. The typical output value of oil exports would be 540.3 by 2017.
The Direct Impact of Oil Export
The tabulated statistics reveal the direct impact of the oil export increase due to construction endeavours. As seen from the data below, the output will experience an increase in 2017 after the seaport and airport are constructed. The GDP is expected to increase by 0.65%, while employment will increase by 1.13%. The income, as evaluated, would also increase by 0.15%.
| Direct effect | Increase in output | Increase in employment (%) | Increase in employment | Increase in income (%) | Increase in income | Increase in GDP (%) | Increase in GDP |
| Value | 540.30 | 1.1396 | 1831.8 | 0.15% | 43.946 | 0.65% | 439.461 |
Table 5: The estimated direct impact of oil exports in 2017 in San Miguel. (Source: created by the author).
The Indirect Impact of Oil Exports
The indirect impact of oil export and production due to the direct effects highlighted above can be analyzed by the estimates below. The demand for oil production by 2016 will lead to more oil exports, greatly facilitating economic development and prosperity. The indirect output is expected to be around 589.9, while employment will increase by 2.1% in 2017. More detailed estimates are available in the accompanying spreadsheet.
| Indirect impact | Increase in output | Increase in income | Increase in GDP | Increase in employment (%) |
| Value | 589.909 | 57.527 | 470.098 | 2.116 |
Table 6: Estimated Indirect Impacts of Oil Exports in 2017 in San Miguel
(Source: created by the author)
Indirect and Induced Impacts of Oil Exports
The indirect and induced effects of the oil export rise will experience a peak in 2017, where the expected GDP increase would be 540.5 while the estimated output is expected to be 726.063. This increase in the economic trends will enable the government to initiate further development in the tourism and mining sectors specifically.
| Indirect-induced effects | Increase in output | Increase in income | Increase in GDP | Increase in employments% |
| Value | 726.063 | 94.640 | 540.523 | 4.656 |
Table 7: Estimated Indirect and induced impacts of Oil Exports in San Miguel (Source: created by the author)
The tabulated data below shows the direct, indirect and induced effects of oil exports on the GDP, employment, income and imports.
| Oil Exports | Increase in output | Increase in income | Increase in GDP | Increase in Employment (%) |
| Direct impact | 540.30 | 43.946 | 439.461 | 1.1396 |
| Indirect impact | 589.909 | 57.527 | 470.098 | 2.116 |
| indirect plus induced impacts | 726.063 | 94.640 | 540.523 | 4.656 |
Table 8: Total Estimated Effects of Oil Exports and the Estimated Increase in Income, Employment and GDP in 2017 (Source: created by the author)
Effects of Imports and Exports of Oil on Trade
The increase in oil exports will bring about an increase in the trade sector, too, as depicted by the estimates below. The trade balance in 2011 was around 7,075.849, calculated by subtracting total RoR imports from the total RoR exports. In 2017, the trade balance will experience a positive change due to the increase in total RoR imports and RoR exports. Hence, in 2017, the estimated RoR exports will be 30,133.760, while the estimated RoR imports will be 36,695.232.
| Oil exports, imports and total balance of trade | Before the increase in oil exports to 10% | After the increase in oil exports to 10% |
Total exports (RoR + RoW) | 29,573.460 | 30,133.760 |
| Total Imports (RoR + RoW) | 36,649.309 | 36,695.232 |
| Total Trade Balance | -7,075.849 | -6,581.472 |
Table 9: The overall impact of exports and imports of oil and the total balance of trade
(Source: created by the author)
The Estimated Income from Mineral Exports
The construction projects will lead to an increase in the mining sector, and the output value is expected to be around 5555.16 by 2017, which is attributed to a 15% increase. This is highlighted in the data below and the accompanying spreadsheet.
Direct Impacts of the Exports of Minerals
The tabulated statistics below show the direct impact of the mineral industry increase. After the construction projects have been executed, there will be an increase of 7.1% in the employment sector in 2017, while the GDP will witness an increase of 1.04%.
| Direct impact | Increase in output | Increase in employment (%) | Increase in employment
| Increase in income (%) | Increase in income | Increase in GDP (%) | Increase in GDP |
| Value | 833.27 | 7.1561 | 1831.8 | 0.72% | 207.185 | 1.04% | 703.908 |
Table 10: Estimated direct Impacts of the exports of minerals in the economy of San Miguel in 2017
(Source: created by the author)
Indirect Impacts of the Exports of Minerals
The indirect output for the mineral exports is tabulated in the statistics below. As can be seen, there will be a significant increase in the GDP in 2017, followed by a rise in the income and employment sectors.
| Indirect impact | Increase in output | Increase in income | Increase in GDP | Increase in employment % |
| Value | 920.241 | 230.889 | 760.881 | 8.716 |
Table 11: Estimated indirect impact of the exports of minerals in 2017 in San Miguel (Source: created by the author)
Indirect and induced impacts of the exports of mineral
The mining industry will greatly benefit from the Construction of the airport and seaport as funds from these sectors will help the government to focus on the mining industry. The output in 2017 is estimated at 1466.706, while the GDP will experience a growth of 1043.5. The increase in mineral exports is almost twice that of oil exports, which is great for the state's economy.
| Indirect-induced effects | Increase in output | Increase in GDP | Increase in income | Increase In employment (%) |
| Value | 1466.706 | 1043.538 | 376.843 | 18.911 |
Table 12: Estimated indirect and induced impacts of the exports of minerals in 2017 in San Miguel
(Source: created by the author)
The data below shows the impact of each direct, indirect and induced effect on the industry's GDP, income, employment and output.
| Exports of the minerals | Increase in output | Increase in GDP
| Increase in income | Increase In employment (%) |
| Direct impact | 833.27 | 703.908 | 207.185 | 7.1561 |
| Indirect impact | 920.241 | 760.881 | 230.889 | 8.716 |
| Indirect plus induced impact | 1466.706 | 1043.538 | 376.843 | 18.911 |
Table 13: The total estimated effects of increased exports of minerals and the estimated increase in output, GDP, income and employment in 2017 in San Miguel
(Source: created by the author)
Effects of the Import and Export of Minerals on the Trade Balance
The increase in mineral exports will have a higher impact on the trade balance than the increase in oil exports. The year 2017 will witness a major hike in the total RoR imports and RoR exports for mining. In the year 2011, the total trade balance was equal to -7,075.849, while in 2017, it is estimated to be -6,278.027.
| Mineral exports, imports and total balance of trade | Before the increase in mineral exports to 15% | After the increase in mineral exports to 15% |
Total exports (RoR + RoW) | 29,573.460 | 30,406.734 |
| Total Imports (RoR + RoW) | 36,649.309 | 36,684.761 |
| Total Trade Balance | -7,075.849 | -6,278.027 |
Table 14: Total effects of the exports and imports of minerals and the total trade balance. (Source: created by the author).
Impact of Increased Tourism
The construction endeavours will increase investment in the tourism sector after 2016, thus positively contributing to the economy. Because of the influx of tourists, foreign investment will also witness a rise.
The effects of the development plan on the Tourism sector of San Miguel
The development of the international airport, extended roads and railway network and the San Sebastian seaport will greatly impact the tourism industry. With the planned infrastructural changes in San Miguel, the economy will get a boost from increased tourist activities.
Figure 3: The Economic Importance of Tourism, 2015 (Cool Geography, 2015)
Impact of Increase in Tourism on San Miguel’s Economy
The economic development plan is expected to lead to an overall 25% increase in tourism by 2017, as the development initiatives would have been completed by then. As can be analyzed from the tabulated statistics highlighted below, the tourism sector will start churning returns and positively impact GDP and supporting sectors by 2017.
Table 15: the effects of the increase in tourism on the economy of San Miguel
(Source: created by the author)
The tourism industry will also significantly impact the trade balance, reflecting a positive change vital to the economic stability of San Miguel.
| 18,456 | 108,350 |
Table 16: Trade balance. (Source: created by the author).
5.0 Summary
The statistical analysis above reflecting significant growth in the Construction sector with high-level impact on contributing sectors like Mining, Manufacturing, Oil, Transportation and Tourism is testimony to the fact that the state of San Miguel will experience a vital growth phase with proven economic development as per the strategic planning of the government in the coming years. The five-year plan will lead to a critical phase of construction planning and execution that will yield favourable economic growth, contributing to the state's overall GDP (Gross Domestic Product). As highlighted in the tabulated statistics below, development endeavours in the oil and minerals sector through the construction of San Miguel‘s international Airport and the seaport will witness unprecedented growth in the overall GDP. Therefore, the investment in these sectors is feasible, ensuring positive returns, primarily in the first two years of the operations(2017-2018) and sustainable economic prosperity. The construction projects will directly influence the Manufacturing and procurement sector, raising the income levels amongst households and bringing about a significant hike in the state's employment rate.
| Output | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 67,985,835 | ||||||
| Construction | 5,181,286 | 3,406.42 | 1,113.43 | 0 | -2,976.48 | -2,321.66 | 5,181,286 |
| Minerals | 0 | 0 | 0 | 0 | 0 | 0 | 1466.706 |
| Tourism | 0 | 0 | 0 | 0 | 0 | 47,762 | 229,261 |
| Oil | 0 | 0 | 0 | 0 | 0 | 0 | 726.063 |
| Total | 73,167,121 | 3,406 | 1,113 | 0 | -2,976 | 45,440 | 5,412,740 |
| Income | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 28,856,050 | ||||||
| Construction | 1,436,224 | 944.241 | 308.635 | 0 | -825.065 | -643.55 | |
| Tourism | 0 | 0 | 0 | 0 | 0 | 12,894 | 61,892 |
| Minerals | 0 | 0 | 0 | 0 | 0 | 0 | 379.843 |
| Oil | 0 | 0 | 0 | 0 | 0 | 0 | 94.64 |
| Total | 30,292,274 | 944 | 309 | 0 | -825 | 12,250 | 62,366 |
| |||||||
| Employment | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 1,831,850 | ||||||
| Construction | 78,136 | 51.37 | 16.791 | 0 | -44.887 | -35.011 | |
| Tourism | 0 | 0 | 0 | 0 | 0 | 989 | 4,749 |
| Minerals | 0 | 0 | 0 | 0 | 0 | 0 | 18.911 |
| Oil | 0 | 0 | 0 | 0 | 0 | 0 | 4.654 |
| Total | 1,909,986 | 51 | 17 | 0 | -45 | 954 | 4,773 |
| Imports | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 27,878,600 | ||||||
| Construction | 1,319,443 | 867.464 | 283.54 | 0 | -757.978 | -591.223 | |
| Minerals | 0 | 0 | 0 | 0 | 0 | 0 | 36,684.76 |
| Tourism | 0 | 0 | 0 | 0 | 0 | 11,958 | 57,397 |
| Oil | 0 | 0 | 0 | 0 | 0 | 0 | 36,695.23 |
| Total | 29,198,043 | 867 | 284 | 0 | -758 | 11,367 | 130,777 |
| Exports | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Base | 29,573,460 | ||||||
| Construction | 0 | 0 | 0 | 0 | 0 | 0 | |
| Minerals | 0 | 0 | 0 | 0 | 0 | 0 | 30,406.73 |
| Oil | 0 | 0 | 0 | 0 | 0 | 0 | 30,133.76 |
| Tourism | 0 | 0 | 0 | 0 | 0 | 1,213 | 84,852 |
| Total | 29,573,460 | 0 | 0 | 0 | 0 | 1,213 | 145,392 |
As can be observed from the statistical analysis featured above and in the accompanying spreadsheet, the construction endeavours are expected to result in an increase of 10% in the oil industry by raising the imports from 29,573.460 as recorded in the year 2011 to a projected figure of 30,133.760 by 2017. The construction projects will significantly impact the state's GDP, income, employment, imports and exports, leading to a positive increase in the estimated output of these areas by 2017. A considerable amount of investment is required for the execution of this economic development plan, which encompasses positive risks as suggested by the 2017/2018 figures and estimated returns exhibiting a feasible and productive economic development strategy.
Reference List
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