Issue link: https://maltatoday.uberflip.com/i/1418273
8 maltatoday | SUNDAY • 10 OCTOBER 2021 INTERVIEW The unquantifiable cost of construction to our society Recently, Finance Minister Clyde Caruana indicated that he want- ed to steer Malta's economic model away from its depend- ence on the construction indus- try. What do you think brought about this realisation? And how reliant is our economy, in real terms, on construction to begin with? Let's start by talking about how much construction actually contributes to our GDP. We've heard a lot of different estimates over the years – the industry it- self claims anywhere between 6 and 8%, for instance. However, it works out at around 4.2%. Now: that is not a small amount. Our total GDP is around €12 bil- lion… and half a billion of that is produced directly by construc- tion. However, a country's GDP is only measured by the income that is generated in that country through the production of goods and services. It does not include imports: even though you some- times still hear people arguing that it does. Our GDP is what we add on imports and from what we add, we earn our wages and profits. So the contribution of construction to GDP does not in- clude imported products such as cement. However, the transfor- mation of cement into concrete is value added by the construction sector and contributes to GDP. So the construction sector di- rectly adds about 5% of our GDP. There is also an indirect contri- bution in that the sector gener- ates demand from other indus- tries: like quarrying, for instance; or tiling; or plumbing; or instal- lation of doors and windows… and many, many more. That all counts as 'indirect' contribution. So if the direct contribution is just under 5%: including all those other industries, it becomes clos- er to 10%. In other words, €1 bil- lion. So we are not talking about a 'small' industry, by any means. At the same time, however: it's not as 'big' as, say, the Malta Devel- opment Association claims. Thus the main contribution of the sec- tor is that it generates directly about a billion euros. But one has to juxtapose the cost, against this benefit. We do not normally factor the costs into this equation: even if everybody knows what they are… because they complain about them, all the time. Let us start with the effect of construction on our quality of life… In fact, Minister Caruana seemed to acknowledge that: when he said that 'people are fed up of all the noise and dust, etc'. Are you suggesting, however, that those factors should also be consid- ered, when calculating the val- ue of the construction industry to the Maltese economy? In a nutshell: yes. And so, I think, was Clyde Caruana. Af- ter all, he is a former student of mine: so I know he understands – because I taught him myself - that economics is not just about the 'quantifiable'. It is also about giving value to things which are intrinsically hard to quantify. So even if he didn't specify what 'val- uation techniques' mean, he him- self may have used the concept of valuation techniques, to arrive at the conclusion that the disadvan- tages associated with construc- tion, are a cost for the country. And he's right. Those factors he mentioned are having a direct impact on our quality of life. Dust is already a well-known contributor to air-pollution: but the industry also uses old, pol- luting vehicles that should re- ally have been scrapped years ago. Not to mention the damage caused by construction itself – the broken pavements, pot-holes, and so on – that later have to be fixed… at a cost. Then there's also the disruption caused by blocked roads. Because when a construction site occu- pies a space… it occupies all the space around it, too. It takes up all the surrounding pavements; and often forces pedestrian to walk in the middle of the street… without a care in the world. And all too often, without a permit from the local council, either. All of that, too, has to be fac- tored into the question of how much construction really con- tributes to the economy… But… how? Can such a cost even be quantified at all, in terms of money? Some of the damage caused by construction is actually quite easy to quantify. How much does it cost to fix a pavement? How much more petrol does your car consume, because of all the de- tours you've had to take? And so on… But others are, admittedly, much harder. Certainly, how- ever, the final bill would have to include all the medical expenses, when people get ill… because a lot of people die from asthma, and other respiratory diseases, in Malta: due to the fine particles emitted during construction, and the diesel fumes from old vehi- cles. People have also died as a direct result of construction it- self: and as we all saw last week – when an injured construction worker was dumped in the mid- dle of the road in Selmun – there are accidents, injuries, and God- knows what else happening, that we don't even know about. Obvi- ously life has a price, even though it is difficult to quantify. How much is all that worth, in the end? Half a billion? I would say that, if you added it all up together… it would come to a lot more than that. I can't prove it, naturally; but I suspect that just the quantifiable parts alone – all the direct expenses to fix those pavements; all the health costs; all the petrol and work hours wasted on traffic, etc. – is likely toamount to a hefty sum of money. But add to it also the unquan- tifiable parts: the cost of our quality of life, our peace of mind, our blocked views, our uglified skyline… my guess is that the costs, including those that are easily quantifiable and those that are not, would be more than the 1 billion generated by the con- struction industry: meaning that the industry would be operating at a loss. As any accountant will tell you, the value of a company is measured by its 'assets versus liabilities'. But Prof. LINO BRIGUGLIO, of the University of Malta's Economics Department, argues that a different model is used when calculating value of the construction sector: one which disregards all the 'hidden costs' Raphael Vassallo rvassallo@mediatoday.com.mt JAMES BIANCHI