As an industry which relies on large scale investments to fund long-term projects, the construction sector is by nature, a business that relies on confidence, precision, and quality. One of the sector's leading the charge on these fronts is Hayleys Fentons. Since its establishment in 1921 and acquisition, followed by the recent rebranding under the Hayleys Group, the company has been at the centre of some of Sri Lanka's most ambitious feats of in construction, and solar energy. Elaborating on the challenges and opportunities anticipated within the construction sector, Hayleys Fentons Managing Director, Hasith Prematillake shared some unique insights on how the industry is faring and what it requires to progress moving forward.
Q: How has the construction sector performed over the recent past?
A: The construction sector's performance tends to be closely linked to that of GDP. In a growing economy, demand for more infrastructure – be it residential or commercial property – is always likely to rise, even in the midst of economic downturns and political uncertainties. By that measure, 2018 was a challenging but still overall positive year for the construction sector. Ever since the end of the war, our industry has enjoyed robust growth. Renewed confidence in peace at the time helped Sri Lankans and foreign investors alike to feel more secure about their investments in Sri Lanka, leading to more longer-term planning being introduced to the country.
In 2018, tighter macro-economic conditions domestically and unfavourable exchange rate movements resulted in a weaker pace of growth for the domestic economy and the construction sector in general, however, this performance was markedly better than in 2017. A key difference from then to now is that there has been a notable increase in private sector development, and this points to underlying economic strength and resilience in Sri Lanka's economy.
We have also seen notable shifts take place as a result of the rapid development of several large scale projects managed exclusively by foreign firms that tend to operate much larger economies of scale. This had the effect of crowding out investment into the domestic construction sector. The increased pace of development over 2018 also resulted in instances where some construction firms were cutting corners on structural, electrical and fire safety. This is certainly an area which regulators need to pay close attention to. In the interim, customers must look to protect their safety as much as possible and insist on quality above all else.
Overall, however, the majority of domestic firms have maintained a remarkable track record in terms of quality, and just one look at the skyline of most major cities in Sri Lanka will tell a story of rapid development and immense demand for more commercial and residential space at a scale which has not been attempted before.
Unfortunately, while 2019 was off to a promising start, the aftermath of the 4/21 attacks has thrown our entire nation and its economy into a state of deep uncertainty. It is clear that the tourism sector and small businesses have been hardest hit, and severe knock-on impacts are anticipated across every sector of the domestic economy over the short-medium term.
Our hope is that all Sri Lankans – including the corporate sector and private citizens - can all play an effective role in expediting our recovery as much as possible.
Q: What is your outlook for 2019 and beyond?
A: In terms of the challenges related to policy reform, there is encouraging progress being made. As per the last budget, the Government has taken steps to remedy some of the distortions created by foreign firms bidding for large scale projects by compelling local participation. This is an immensely progressive step that will help to conserve and retain foreign exchange reserves while ensuring that local firms, their employees, and their related supply chains are all able to benefit from Sri Lanka's continuing development. Further, it creates opportunities for technology and knowledge transfer, enabling local players to step-up their capabilities. This too, can yield invaluable benefits to our economy over the long-term by helping us to build more sophisticated technical expertise among our people.
Another key challenge is in the enforcement of reliable standards. As a nation, this is an area of serious concern. We all need to be able to trust that the roof over our head and the floors beneath our feet are sturdy; hence, it is vital that the Government strictly enforce quality standards.
In that regard, we all need to do more to change our approach to quality on a cultural level. Sri Lanka is a nation with an ancient past that boasts of a rich culture and extremely sophisticated engineering expertise as evidenced by the monuments and irrigation systems that are still in use today. We must today aspire - at the very least - to exceed those standards to the point that Sri Lankan manufacturing and engineering is more closely associated with countries like Japan and South Korea. We still have a long way to go as a nation and as an industry, but I'm proud to say that here Hayleys Fentons is leading the way on quality.
In terms of an overall outlook, it's clear that our nation faces new and serious challenges in every sector. National security is, of course, the utmost priority, but over the years it has become clear in order to ensure a stable and peaceful future for our nation, economic opportunities have to be enhanced across the board, and all citizens need to be provided with the tools and resources they need to meet their essential needs and enjoy a reasonable standard of living.
We also remain confident that the setbacks we endure as an industry over the coming year will only be temporary. The construction sector of any developing economy can never be completely halted because there is always latent demand. These cycles are inevitable in any economy. When responded to correctly, they help enhance the resilience of firms provided there is a policy environment which ensures an even playing field.
Q: How has Fentons maintained such a strong reputation for quality in the domestic market?
A: We have almost a century of experience to our name, and from the very outset, we have always stood for quality. This is a direct result of our emphasis on people and relationships. Our employees are the primary force driving quality, so naturally, we invest in making sure we have the best people and provide them with training and skills development to make sure that their skills are always improving.
Since the Hayleys acquisition, we have also been provided with additional training at a managerial level, which has helped to enhance leadership ability – promoting a top-down approach to quality. I also mentioned relationships, and we do a great deal to ensure that our people are motivated, incentivized and well looked after – but it also includes our partnerships with some of the best international brands like Nipon Electrical Company, Japan. We are their oldest partner in Asia, and we also work with leading brands like Bosch, Cisco, HP, Dell, Honeywell, Philips, Nexans, Simplex, Samsung, Carrier, ABB, GE, Tescom, JA Solar and Longi Solar.
Our industry is all about precision, so we have to make sure that the solutions we provide are among the very best available internationally. It is partnerships like this that further sets Fentons apart and we hope to leverage them to gain international business over the medium-term.
In that regard, our commitment to quality can also be showcased by our performance at the National Awards for Construction Excellence 2018, where Hayleys Fentons was presented with two awards for National Excellence Award for Building Projects and the Excellence Award for Electro-Mechanical Construction in recognition of our outstanding work installing the entire electrical and fire detection and protection systems at the Weligama Bay Marriott Resort and Spa.
Q: How effectively do you think Sri Lankan can compete in overseas markets?
A: In terms of technical knowledge and expertise, Sri Lankan firms have a unique set of skills that we have to offer. We are also faced with some setbacks in terms of lack of resources to compete relative to larger firms in regional markets. However, this does not have to be a limitation, and if we play to our strengths, I believe that Sri Lankan firms like Fentons can make their presence felt when competing for even a portion of international projects. Already we have started planning to capture business in Cambodia, Bangladesh, Maldives, and Myanmar.
The rationale driving this strategy is built around understanding that when we diversify our operations, we also diversify our opportunities and reduce our risk to shocks in any single market. As a construction company, you don't necessarily want to only be where the capital is, but it is often better to focus on being where growth is.
Sri Lankan companies have a lot to offer in terms of technical expertise. Combined with the kind of resources we see being channelled into projects overseas, this is a sector which has immense potential to bring back much needed foreign exchange earnings to Sri Lanka through what are essentially exports of high-skilled services, but it also gives our engineers the opportunity to gain experience on large scale projects, and bring that knowledge to apply back into domestic developments.
Q: With the acquisition of Fentons by Hayleys back in 2015, how has your strategy changed?
A: We have gotten a great deal more ambitious since then. Where in the past, we had to always contend with somewhat limited resources. Hayleys has expanded our ability to take on larger work, while the synergies generated by the group help us to amplify our contributions back to the group. For example, Fentons has already benefited immensely from our relationship with Hayleys Advantis, leveraging on their unmatched expertise in logistics to supply our projects for mutual benefit.
As a result, we have successfully taken on some extremely high profile projects domestically, including Marriot Weligama, the Lotus Tower, Colombo City Centre, the Capital Twin Peak, Prime Grand, and Luna Tower apartment complexes, while several others are in the pipeline.
Hayleys has also encouraged us to pursue business verticals that can have a positive impact on important national goals and this has been the basis of our continuing efforts to expand the uptake of renewable energy and energy-efficient technology and facilities management.
While there is a strong business case to be made for such investments, they also offer environmental benefits. Particularly at a time when the world is making a much more concerted effort to adopt renewable energy technologies in the face of climate change, the expertise that Hayleys Fentons has developed in these fields holds tremendous potential moving forward.
Q: Has the Sri Lankan market shown much enthusiasm for renewable energy and energy efficiency?
A: When we look at emissions, China and India have two of the world's largest carbon footprints and generally speaking our emissions are not of a scale that is significant enough by itself to contribute to climate change. Hence whatever we do on climate change, our fates will always be in the hands of the largest emitters and the steps that they take. And to make sure that we don't end that point on a sour note, it is extremely encouraging to see China and India lead the world in solar and other renewable energy technology investments over the recent past. We must always keep in mind that protecting our natural environment is not simply about mitigating climate change. It's about moving to an economy of abundance. By being more efficient with energy usage, and utilizing freely available renewable energy sources, we can potentially reduce our total consumption as a nation. This is important, albeit small contribution to the global battle on climate change, but it also makes business sense, and that is why we have some prominent Sri Lankan corporates investing in this direction. Over the recent past, Fentons has developed large scale solar projects for MAS, Brandix, Coca Cola, Laugfs, and Load Star, and we have many more large scale projects in the pipeline.
