After the hotel industry, it is the construction sector that is going through a crisis. Roughly 70 percent of contractors are reportedly without work and going through major financial difficulties. This is worrying. The grim situation is a reflection of the state of the country’s economy.
If what the Construction Association of Bhutan (CAB) say is true, the plight of the contractors is severe. Many contractors are on the brink of financial collapse. Some are already facing the burden of non-performing loans, while others have secured loan deferments until June next year.
Post-pandemic, many contractors have been finding it difficult to access crucial funding, such as working capital and bank guarantees. This has led to liquidity problems for many companies.
While the government is reviewing the Procurement Rules and Regulations to streamline the process and offer more equitable conditions, it is clear that the underlying issues are much deeper. Actually, the construction sector’s struggles are symptomatic of broader inefficiencies in the country’s economic model.
One of the major issues is the saturation of contractors in the market. Bhutan currently has over 2,800 registered contractors, with only a fraction of them classified as large or medium-sized businesses. The sheer number of players in the field has led to unhealthy competition, where contractors are vying for fewer and fewer contracts, often driving down prices and compromising on the quality of work.
While competition is generally seen as beneficial in any market, the current state of the construction industry, with an oversupply of contractors, can lead to undercutting, lowering industry standards, and ultimately eroding trust in the sector. For contractors, particularly small and medium-sized ones, this intense competition has led to financial strain and lower margins, with the risk of businesses failing or struggling to maintain viability.
Given the current challenges, Bhutan’s construction sector needs more than just temporary solutions. A comprehensive overhaul is necessary, particularly focusing on market consolidation, regulatory reform, and capacity-building for local contractors.
The government must carefully assess the number of contractors operating in the market to ensure that only qualified and capable contractors are awarded the projects. This can be done through performance-based qualifications rather than merely relying on the number of registered contractors. And by focusing on quality over quantity, the market can be better managed to avoid saturation and ensure that only those with the capacity to deliver quality work are participating.
The government must introduce standardised procurement procedures to ensure fairness, reduce confusion, and improve transparency in the awarding of contracts. And in light of the ongoing concerns about low-quality work, it is essential that the government introduce third-party monitoring of construction projects. This would help ensure that contractors meet the necessary standards and follow proper safety protocols.
The construction industry also needs robust capacity-building initiatives to improve skills, knowledge, and overall operational efficiency. This is particularly critical in the context of the upcoming Gelephu Mindfulness City. The government must focus on providing opportunities for local contractors to participate in large-scale projects, with mentorship and technical support. By doing so, the sector will see a more sustainable and robust pool of skilled contractors capable of handling complex projects.
Finally, the government must aim for long-term strategic planning in its infrastructure projects. Rather than short-term, reactive investments, the government must align its construction efforts with sustainable growth objectives.