The report makes a comparison between the UK construction industry and French construction industry. Data collected reveal that both countries enjoyed rapid growth in the construction sector between 2001 and 2008. However, the global economic crisis also affected both countries between 2008 and 2009 making the countries to record a decline in growth rate between 2008 and 2009, and in 2010, both the economies of the UK and France recovered.The report recommends that France is a good country to invest and an investor could invest in the construction industry based on the fact that the country is the second largest economy in Europe and fifth largest economy globally.
Economics in Construction Industry
Data is very critical in a construction environment, and availability of appropriate statistical data assists policy makers in implementing an effective housing planning and formulates appropriate construction policy for the country. Despite the importance of data for the formulation of construction policy, it is still challenging to source for the appropriate statistical data that could be employed for the formulation of construction policy in many European countries such as France. Unless, there is a way to source for the statistical data, measuring the construction activity in France may be challenging. Typically, there is a need to know the quality output, location activity, and number of skilled and unskilled employees in the construction workforce. It is when the data relating to the construction activity are identified; the social problems such as homelessness, health, and safety, migration, training and other issues can be addressed in France. To address the challenges relating to data source, the study considers a benchmark model based on the UK construction industry. The model is used to set up a database of construction data for France based on the UK construction benchmark. (Department Business Innovative & Skills, 2011). The UK version of Standard Industrial Classification 2007 (SIC) system is in consistence with International Standard Industrial Classification (ISIC) system that could be employed for global comparison.
The objective of this exercise is to set up a database of construction data for France based on the UK construction data. The paper models the UK economic data to set up the database for the France construction data.
Modeling of the UK Construction Data
To set up a database of construction data for France, the study uses Gross Fixed Capital Formation (GFCF) that is assessed from the UK National Accounts. From the data taken from the UK Construction Statistics Annual (CSA), it is possible to establish the breakdown of construction activity of France since the UK national construction activity could be applied to the construction activity of other countries. (Research and Market 2010, Leading Edge (2011).
To set up the database for construction data of France, the data are taken from the UK National Accounts from the Office for Statistics (2011). The Table 1 provides the UK output, Gross Value Added, and Compensation by employee in the UK construction industry. The Table 2 also provides the UK Gross Capital Formation for the whole Economy. Based on the data in the Table 1, it is revealed that there is increase in the UK construction total output from 2002 to 2007. However, between 2007 and 2009 there was a decline in the construction performances. From the table 2, the gross capital formation for the UK economy also showed high performances between 2002 and 2007, however, there was a decline in the performances of the gross capital formation starting 2007 to 2009 with little improvement 2010.
Table 1: UK Output and Capital Formation in Construction Industry (£Millions)
2002
2003
2004
2005
2006
2007
2008
2009
2010
Gross Capital Formation
4 241
Total Output (At Basic Prices)
158,003
170,760
185,724
198,346
212,725
237,036
230,998
209,619
Gross Value Added (At Basic Price by Index )
93.2
97.6
86.5
93.6
Gross value added (At Current basic prices)
66 938
72 619
79 311
82 634
88 287
96 897
97 873
87 373
Compensation by Employee
35 368
37 058
38 910
41 284
44 816
48 071
50 295
47 246
Gross value added by Indices (Education )
98.8
99.5
99.9
Gross value added by Indices (Gas )
95.9
97.7
99.2
98.9
98.7
99.5
95.2
98.6
Source: Office for Statistics (2011).
Table 2: UK Gross Capital Formation for the whole Economy (£ Millions)
2002
2003
2004
2005
2006
2007
2008
2009
2010
New dwellings, excluding land
47 526
49 782
54 746
58 044
59 068
61 630
55 449
44 119
44 450
Other buildings and structures
48503
53167
54188
61158
63979
72388
79433
76045
73818
Transport Equipment
18 548
16 762
14 332
14 009
14 909
14 533
13 721
11 147
14 831
Other machinery, cultivated asset and equipment
49 625
49 150
50 969
48 563
53 717
60 418
59 390
53 488
54 851
Total
Intangible fixed assets
15 032
15 988
16 083
16 388
16 531
16 923
17 417
16 502
16 593
Costs associated with transfer (of ownership of non-produced assets).
22 625
19 587
26 875
25 305
27 141
27 386
15 954
7 750
9 944
Total gross fixed capital formation
Source: Office for Statistics (2011).
Based on the UK data of the construction output and gross capital formation, the study uses the data to set up the database of construction categories for France.
Setting up a Database for France Construction Data
The study set up a database for the France construction categories based on the UK benchmark. Moreover, the study assesses data from the United Nations database to set up the database for France, and the 10-year data are used to set up the database for construction categories for France. Based on the data on the construction categories in Table 3, there is a general increase construction output in France from 2001 to 2008. For example, the Gross Capital Formation for construction activities for France based on the UN data reveals that France recorded $393.1 billion in 2001 and the Gross Capital Formation increased to $473.6 billion in 2008. However, the GCFC declined to $405.3 billion in 2009 with a slight improvement in 2010. Similar results are revealed in France database set up from the UK benchmark. The data in the Table 4 are set up for French construction activities based on the UK benchmark. Similarly, the construction output increased from 2001 to 2008 and there was a decrease in construction output between 2008 and 2009. For example, the GCFC for France was $383.6 billion in 2001, and the GCFC increased to $459.2 billion in 2008. However, from 2008 and 2010, the France GCFC declined from $459.2 billion to $412.6 billion.
Table 3: UN Database for France Gross Fixed Capital Formation ($ Billion)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Gross Capital Formation
Gross Fixed Capital Formation
Construction
Fig 1: UN Gross Fixed Capital Formation for France ($ Billion).
Table 4: GCFC for France Based on the UK Benchmark
Year
GFCF
construction Gross Capital Formation ( 51.7% of GFCF
Construction Output ( Construction x GCF100/62.2)
Estimate Total Repair & Maintenance for Public and Private Sector
Fig 2: GFCF for France based on the UK Benchmark
Based on the chart in Fig 1 and the chart in Fig 2, it is revealed that there are similarities in the two charts meaning that there is no difference between the French data modeled from the UK benchmark and French data retrieved from the UN database. Both set of data reveal that the output of the construction activities increases from 2001 to 2008. Both set of data also shows that there are decline in the construction activities between 2008 and 2010 as being revealed in the fig 1 and the fig 2. There are several factors leading to the decline in the construction activities between 2008 and 2010. First, the economic downturn that affects many countries in Europe and many advanced countries also affect construction sector in France. Additionally, the present economic crisis triggered by the subprime lending makes many banks in France to restrict bank loans for mortgage activities, and overall effect is the reduction of the construction output in France. With economic crisis, several construction companies reduced their temporary staff by -19%, and the economic crisis makes France to record -2.5% in GDP in 2009. However, the country recovered with 1.5% growth in GDP in 2010. Owing to the poor economic performances between 2009 and 2010, the French construction sector deteriorated from 4.7% in 2009 to 4.5% in 2010, and the real growth of construction sector declined from 8.2% in 2007 to 0.9% in 2010 with little improvement in the real growth rate in 2011 and 2012. Despite the global economic crisis, the construction sector maintains 6.4% increase in the GDP between 2010 and 2011.
Report provided by Kelly and Herring (2012) also reveals that there is an increase in the growth rate in the construction activities in France before 2007. The data provided by Kelly et al. (2012) indicates that there is a decline in the growth rate in the construction sector starting from 2007. In 2007, the growth rate in construction industry in France was 8.2%, however, the growth rate declined to 0.9% in 2010. (The growth rate in France construction activities is revealed in Table 5 and Fig 3). Typically, the data provided by Kelly et al. (2012) is similar to the data provided by the United Nation and model data formed from the UK benchmark.
Table 5: France Construction Sector Metrics
2007
2008
2009
2010
2011
2012
Construction Industry Value (£Billion)
Construction Industry Real Growth (%)
8.2%
6.1%
3.2%
0.9%
2.0%
2.4%
Construction industry Percentage GDP
5.9%
6.2%
6.3%
6.4%
6.4%
6.4%
Source: Kelly, Herring (2012).
Fig 3: France Construction Growth Rate (%)
Source: Kelly and Herring (2012)
Economic theory points out the factors leading to the decline in the construction output in France. Economic theory argues that the changes in demand for construction activities may be due to several economic factors such as changes in Gross National Product, and changes in interest rates. (Finkel, 1997). Akintola and Martin (1994) argue that the level of a national economy is a primary factor that could affect the construction demand in a given economy. Typically, "there is a relationship between construction demand and the growth in GNP, as a measure of the economic well being of a nation." (Akintola, and Martin 1994 P. 9). During the period of economic prosperity, there is a general increase in demand for consumer goods which triggers up the demand for construction activities.
In France, there are construction activities in both private and public sectors. Generally, France enjoyed economic prosperity between 2001 and 2007 making the country to enjoy a significant increase in demand for construction activities during the period. However, with global economic crisis that affects France from 2008, the demand for construction activities declines making many private construction companies to reduce their workers in order to cut costs. To improve the economy, and increase the construction output,
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