Construction Economics and Procurement

Introduction

The Construction Industry has pivotal role to play in the sustainable prosperity of any economy and with its diversified influence in the procurement, labor, income and Transport sectors, construction economies today have become the influential bridge to state development and economic growth (Russel Lawson, 2013).This study attempts at evaluating and analyzing through refined computational models, the particular impact of the construction projects and development efforts planned by the government illustrating how they would support the growth of contributing industries like the Oil, Roads and other transport networks, Minerals, Procurement and Tourism. The paper further elaborates the distinguishing aspects of the past and prospective economic growth trends through statistical evidence providing recommendations for the execution of development initiatives as defined in the five year economic development plan (2011-2016)and highlighting the consequential trends for the first two years of operations (2017-2018).

The state of San Miguel is a hub of commercial activities primarily due to its geo-strategically viable location, rich and diverse coastal terrain, resource intensive stratosphere and visually stunning locales that are a featured attraction for tourists. As per researches and study findings, the state is in prime condition for implementation of development strategies that will result in economic prosperity and state development in parallel. The figure below illustrates the map of the San Miguel;

The Influence of Construction on the Economy

The Development Plan of the Government

The government currently plans to initiate the construction and development of the area along the coastal region through a commercialized port that will spark massive growth, mainly in the import and exports industry, rails and roads network that will bring about a major progressive trend in the employment, manufacturing and transport sectors and lastly, an airport development project that is projected to maximize returns and play a key role in the economic development of the state.

• Airport Construction

The San Miguel state currently relies on the San Sebastian airstrip specifically designed by the plantation owners. In fact, the airstrip is generally used by the owners for their own business and hence there is a dire need for an international airport to reap the benefits of those commercial activities that can specifically employ the airstrip including the advantages provided by this tourist attracting hub. The state government has planned for the construction of a single runway airport that is to be commercialized and utilized in parallel with the San Sebastian air strip to provide leverage to the area’s development. This Primary Airport located in Puerto is under construction currently and will provide considerable returns contributing to economic development in its years of operations.  

Transport Network Development Plan

The government has planned construction projects for the railway network and underlying roads infrastructure. The state of San Miguel is a major tourist attraction and the economy can significantly benefit from a comprehensive transport network that spans the entire state. The place can extract potential benefits from an extended railway network that would in turn positively influence the tourism, manufacturing and business sectors contributing to economic growth. Planned endeavors include strengthening the existing railway network and establishing new links between Puerto and Rioja. New road linkage is planned between San Sebastian and Puerto to further assist in the prosperity and developmental execution of the area.

Seaport Construction

The economic development plan also includes exploiting the area's rich coastal terrain to transform it into a commercial complex through construction of a sea port that will bring about considerable progress in the Mining and Oil industry.

Funding Sources

This economic development plan for the state of San Miguel will benefit from DFI (Direct Foreign Investment) for the implementation of 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 at presenting statistical evidence that is reliable and authentic providing an insight into the feasibility of projects, claims and validity of research facts. There are various quantitative and qualitative research modeling techniques available to provide supporting information but this particular study employs the use of the Input-Output (I-O) Framework originally developed by the Nobel peace prize winning economist Wassily Leontief (1906-1999).The framework is employed by various world economies to evaluate feasibility of economic variables in terms of consumption and product flow between industries.

It is a quantitative economic modeling technique most apt for socialist planned economies, that makes use of production factors or physical quantities utilized in industries to define optimal resource allocation accordingly and highlights interdependencies amongst industries in the economy (Jeff Gavin, 2015).The modeling 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 makes use of the highlighted 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 purpose.

The Influence of the Construction Project of the Government on the Economy

As depicted by the tabulated statistics highlighted below, the construction project will have a significant impact on 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
Construction	67,985,835
Income	5,181,286	3,406.42	1,113.43	0	-2,976.48	-2,321.66
Construction	28,856,050
Employment	1,436,224	944.24	308.64	0	-825.07	-643.55
Construction	1,831,850
Imports	78,136	51.37	16.79	0	-44.89	-35.01
Construction	27,878,600
Exports	1,319,443	867.46	283.54	0	-757.98	-591.22

Table 1: The Impact of Construction on the Economy (Source: extracted/processed by the author)

Cost of Development

These development projects require a considerable amount of investment and as reflected by the graphical analysis, the cost of development is expected to reach its 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 the figure 0 by 2017, as illustrated in the figure below, which is the time when development on these projects would have finished and 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 the development of the road and rail network, seaport and the international airport.

Direct Effects:

The tabulated data highlights the direct effects of the construction project with regards to 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 if 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 construction project (Source: extracted/processed 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 2012 and 2013 have experienced an increase of 25.5% and 8.35% respectively (Table 3)

Year	Income-Employment-GDP-Imports (%)
2011	38.87 (%)
2012	25.56 (%)
2013	8.35 (%)
2014	0 (%)
2015	-22.33 (%)
2016	-17.42 (%)

Table 3: Indirect Effects (Type 1) (Source:  processed by the author)

Indirect and Induced Effects (Type II):

This evaluation of indirect and induced effects of the construction projects takes into consideration the consumption patterns and trends of each industry in the economy and as reflected by the I-O framework. The pattern of consumption is based on the spending trends relative to. Individuals and households. Years 2011, 2012 and 2013 have witnessed major increase 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: processed 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 endeavors are also a huge boon for economic growth and sustainability as the San Sebastian seaport, international airport and the transport network can be further refined to enhance economic stability. Construction of new schools, healthcare institutions and universities for human resources training will further augment the area's development. Development projects will raise employment rate and the income level amongst households leading to new jobs while hiring of local professionals and existing contractors relevant to the PPT model would further facilitate economic prosperity.

Impact of the Increased Exports of Minerals and Oil

Introduction:

The development projects will lead to an increase in the oil and mineral exports due to the development of rails and transport network including population growth. The demand of 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.

Minerals and Oil Exports Estimations and expected Increase:

Since the state will greatly benefit from the seaport and airport construction with special regards 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 also from the production site to the port in quick time. For this purpose refined construction projects like under sea pipes and effective procedures for shipping oil through tankers across 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 export will bring about a significant change in the overall GDP. Typical output value of oil exports would be 540.3 by 2017.

10% increase in oil exports x 5403 = 540.3

The Direct Impact of Oil export:

The tabulated statistics reveal the direct impact of the oil export increase as a result of construction endeavors and as can be 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 witness an increase of 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: Estimated direct impact of oil exports in 2017 in San Miguel. (Source: processed by the author).

The Indirect Impact of Oil Exports:

The indirect impact of the oil export and oil production as a consequence of the direct effects highlighted above can be analyzed by the estimates below. The demand in oil production by 2016 will lead to more oil exports which will greatly facilitate economic development and prosperity.  The indirect output is expected to be around 589.9 while the employment will see an increase of 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: processed by the author)

Indirect and Induced Impacts of Oil Exports

The indirect and induced effects of the oil export raise 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 Plus 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: processed 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: processed 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 which is calculated by subtraction of 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 import 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: processed by the author)

The Estimated Returns 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 attributes to a 15% increase. This is highlighted in the data below and the accompanying spreadsheet.                                                                                     15% x 5555.6 = 833.274

Direct Impacts of the Exports of Minerals:

The direct impact of the increase in the minerals industry is exhibited in the tabulated statistics below. 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: processed 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 raise 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 mineral in 2017 in San Miguel (Source: processed 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 1043.5The increase in mineral export is almost twice as that of the oil exports which is great for the state's economy.

Indirect Plus induced effects	Increase in output	Increase in GDP	Increase in income	Increase In employments (%)
Value	1466.706	1043.538	376.843	18.910

Table 12:  Estimated indirect and induced impacts of the exports of minerals in 2017 in San Miguel

(Source: processed by the author)

The data below shows the impact of each of the direct, indirect and induced effects on GDP, income, employment and output for the industry.

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 mineral and the estimated increase in output, GDP, income and employments in 2017 in San Miguel (Source: processed by the author)

Effects of the import and export of minerals on the trade balance

The increase in minerals export will have a higher impact in the trade balance as compared to 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 balance of trade. (Source: created by the author).

Increased Tourism and its influence

The construction endeavors will result in increased 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 raise.

The impact of the development project on San Miguel's Tourism

The development of the international airport, extended roads and railway network and the San Sebastian seaport will have a huge impact on 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)

Economic Impact of Increased Tourism

The economic development plan is expected to lead to an overall 25% increase in tourism by 2017 as the development initiatives would have been successfully completed by then. As can be analyzed from the tabulated statistics highlighted below, tourism sector will start churning returns and have a positive impact on GDP and supporting sectors by 2017.

Table 15: the effects of the increase in tourism on the economy of San Miguel (Source: processed by the author)

The tourism industry will also have a significant impact on the trade balance reflecting a positive change vital to the economic stability of San Miguel.

 Table 16: Trade balance. (Source: processed by the author)

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 favorable economic growth majorly contributing to the state's overall GDP (Gross Domestic Product). As highlighted in the tabulated statistics below development endeavors in the oil and minerals sector through the construction of San Miguel‘s international Airport and the seaport will witness an unprecedented growth in the overall GDP. The investment in these sectors is therefore feasible ensuring positive returns, primarily in the first two years of the operations (2017-2018) and sustainable economic prosperity. The construction projects will have a direct influence on the Manufacturing and procurement sector raising the income levels amongst households and bringing about a significant hike in the employment rate of the state.

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 endeavors 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 have a significant impact on the GDP, income, employment, imports and exports of the state leading to a positive increase in estimated output of these areas by 2017. 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.

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