Public and private spending to drive the construction sector growth in Malaysia

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The macroeconomic factors, including the hike in interest rates, are having an impact on the bottom line of construction firms. This coupled with the prolonged foreign labor shortage has stifled the growth of the construction industry in Malaysia. Due to the slow progress at construction sites, the cash flows have been severely impacted for contractors across the country. To ease the labor shortage problem, the Master Builders Association Malaysia has urged the government to intervene and simplify the entry of foreign workers into Malaysia.

ConsTrack360 expects the labor shortage problem to ease out from the short to medium-term perspective, which will lead to faster completion of the construction activities. This along with the increasing public and private spending on infrastructure and commercial construction projects is expected to support the growth of the industry over the next three to four years. For instance,

• In July 2022, Ekovest Construction announced that the firm had received a US$447 million high-speed railway construction project. Notably, the infrastructure construction project will connect Malaysia and Singapore. The construction project will connect Bukit Chagar of Johor Bahru in Malaysia and Woodlands in Singapore. The 4-kilometer project is expected to be completed by 2026. Furthermore, it will carry 10,000 commuters per hour in each direction. In addition to the railway infrastructure construction, the project also includes construction activities of quarantine, immigration, and customs complex.

In the commercial construction space, several multinational companies are investing to build new facilities such as manufacturing plants, as they look to expand manufacturing capabilities to capitalize on the growing demand. For instance,

• In July 2022, Samsung SDI, the South Korea-based battery manufacturer, announced that the firm had begun construction activities of the new battery cell manufacturing plant in Malaysia. As of July 2022, the firm had invested US$630 million in Malaysia and is projected to make a cumulative investment of US$1.3 billion by the end of 2025.
• In July 2022, Samsung Engineering, the construction arm of Samsung, announced that the firm had received a US$680 million gas plant construction project from Sarawak Shell Bhd, the subsidiary of energy giant Shell plc. Samsung Engineering is projected to complete the construction of the gas plant by 2022. As of July 2022, the firm had carried out 10 projects in Malaysia, which also includes the development of clean hydrogen and methanol plant in Sarawak.

Along with global firms, domestic players are also investing in the Malaysian construction market to boost the logistics and supply chain capabilities in the country. For instance,

• In August 2022, IJM Corporation, the Malaysian conglomerate, announced that the firm had entered into a strategic partnership with China Harbour Engineering Company, the subsidiary of China Communications Constructions, to develop a 260-ha business park and logistics hub. Notably, the park aims to leverage the increased activity, enabled by the development of the East Coast Economic Region in Malaysia, which consists of the construction of the East Coast Rail Link, fiber-optic infrastructure, and upgraded roads. This construction project is expected to boost the logistics and supply chain capabilities in the region.

These private construction projects, along with several other big and small development activities, including the construction of a new purpose-built MRO facility of ExecuJet MRO Services Malaysia, will boost the spending in the commercial and infrastructure construction sector, thereby supporting the growth of the industry over the next three to four years.

To further accelerate the growth of the construction industry in Malaysia, the Master Builders Association Malaysia (MBAM) also announced its wish list for the 2023 budget. Notably, the association has urged the government to increase its spending on the construction sector by launching more projects. To drive the sustainable growth of the Malaysian construction industry, the association is expecting that the government will deploy capital to implement planned public projects, including affordable housing. The association is also expecting that the government will offer additional incentives to developers and constructors under the 2023 budget to support the digital transformation of the sector, which will also make up for the shortage of labor.

While the industry is expected to struggle due to the current macroeconomic environment from the short-term perspective, ConsTrack360 expects that the increased private and public spending toward planned infrastructure and commercial construction projects will keep supporting the growth of the industry over the next three to four years.

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