On Tuesday August 21st 2012, the Government of St. Lucia unveiled its Construction Stimulus Package to the media and a select group of individuals representing various organizations. The Association of Professional Engineers received an invitation the day before ( much to the chagrin of some members) and I attended in my capacity as Vice President.
There were some interesting statements made in the addresses that were presented, which can be summarized as follows:
a. Government of St. Lucia is foregoing an estimated $ 45 million dollars in revenue for the Construction Stimulus Programme
b. Bank of St Lucia has set aside $ 100 million for the initiative, with a 5% for 5 yrs and graduating increases to market rates to year 10.
c. CIBC/FCIB has set aside $ 135 million for the initiative, with a 5.9% for 5 years
d. The Bar Association has reduced their fees by 30% for related transactions
e. St. Lucia has the highest delinquency rate of loans in the entire OECS
f. CIBC/FCIB wishes that the legislation relating to Foreclosure be amended
The Construction Stimulus Package thus has some fundamentals for it to be successful. I would liken it to the design of a building. When an engineer is doing a design, he starts at the roof level and then proceeds to the foundation of the building to ensure that it can carry all the loads above.
Similarly, I believe that the roof, the beams, the columns have all been well designed in the Construction Stimulus Package, but there has to be some attention to the design of the foundation.
The Construction Stimulus Package is in effect as of this week, so the prices in the Hardware stores should be reflecting the revised cost for materials. The Customs Department has already completed an inventory of all materials in the various firms and has agreed on the refunds on duties to these establishments. It means therefore that there is a leakage of part of the $ 45.00 million of foregone revenue to existing construction.
It must be understood that there is a gestation period from conceptualization to start of construction. If an investor decides as of today to take advantage of the stimulus package, then he has to get his design team to put together the drawings and submit to the DCA for approval. I looked up St. Lucia in the World Bank Survey – Doing Business under Dealing with Construction Permits, where St. Lucia ranks 13th in Latin America and the Caribbean, and it shows a period of 125 days for DCA approval, say 4 months. Then assuming his design team took 3 months for the design, he will be able to start construction 8 months from today.
One can thus safely assume that the leakage of foregone revenue by the Government will last for a minimum of 8 months or 44% of the time period of the Construction Stimulus package. Assuming even sales throughout the period, this translates into roughly $ 20 million XCD.
Only $ 25.0 million of the foregone revenue will actually go towards the new construction related to the stimulus package. I have discounted renovations that may not require planning approval.
I go back to my analogy of the design of a building and the success of the Construction Stimulus Package, while you design from the top down to the foundation, you build from the foundation to the top. The foundation of the Construction Stimulus Package has to be well built to sustain the policy loads, so because of the leakage we have less “ material’’ for our foundation.
The foundation of new construction is land availability. With no land there is no drawings, there is no construction. Herein lies the major constraint that the Government faces. There is no policy to initiate a significant thrust in the development of service lots tied to the Construction Stimulus package.
St. Lucia at this time has a huge inventory of idle heavy equipment that should be utilized. The Government should have brought in all these equipment owners and created a programme for the development of service lots. An equipment owner who has an excavator sitting in his yard would prefer to have that equipment working with a reduced income to cover fuel and operating costs and a reasonable surplus than nothing at all.
I would therefore recommend that the Government pursue a parallel stimulus package targeting the development of Service Lots. The LAND DEVELOPMENT STIMULUS PACKAGE can be structured as follows:
a. Land owners interested in the programme can place their lands into the programme. The design and DCA approval will be fully funded and managed by the GOSL. The land will be developed by GOSL and will be sold at a reduced agreed rate.
b. Contractors interested in the programme will provide their equipment at reduced rates, be allowed duty free concession on fuels and other consumables, part payment will be during construction and the balance on the sale of each lot.
The National Housing Corporation as presently structured cannot provide the support to the Construction Stimulus Package, and while I am aware that there are steps being taken at institutional strengthening, it will take some time to rebuild.
For a fleeting moment in time earlier this year, I thought about re-entering the public service and chose to submit an application for the post of Managing Director of the National Housing Corporation. My flirtation was short lived and brought to an ignominious end by a letter from the NHC’s Chairman stating that the Board thought I was not qualified even to be interviewed for the position.
In closing, I openly declare to the Minister of Housing that I am willing to share my varied experiences on Housing with him at no cost, because I see the improved access to land as foundational to the success of the Construction Stimulus Package.
I intend to keep the letter in my Bible next to 1 Peter 5: 5 – ‘’ Be clothed with humility”
CONSTRUCTION STIMULUS – WILL IT WORK?
