The Role of Local Expertise in Construction Costs

When I first looked at construction costs, I looked exclusively at developed countries. Eventually I realized that the difference in average costs between rich and poor countries is small. But then I noticed a different pattern in the third world: some places, like India, Bangladesh, Nigeria, and Indonesia, spend much more than China does. Why is that? While I’ve had a bunch of different explanations over the years, I believe today that the difference concerns local expertise versus reliance on first-world consultants.

The facts, as far as I can tell, are as follows:

  • Construction costs in China are about $250 million per km, a little more than the average for Continental Europe.
  • Construction costs in post-communist Europe are all over, but are the same range as in Western Europe. Bulgaria is pretty cheap; in this post I bring up a line that costs around $200 million/km in today’s money but other extensions built this decade are cheaper, including one outer one at $50 million/km. In contrast, Warsaw’s Line 2 is quite expensive.
  • Latin American construction costs have the same range as Europe, but it seems more compressed – I can’t find either $50 million/km lines or $500 million/km ones.
  • Africa and the parts of Asia that used to be colonies have high construction costs: India and Egypt are expensive, and here I give two expensive examples from Bangladesh and Indonesia. The Lagos Metro is spending subway money on an el in the middle of a wide road and is reminiscent of American costs.
  • When the first world had comparable income levels to those of the third world today, in the early 20th century, its construction costs were far lower, around $30-50 million per underground km. First-world cost growth in the last 100 years has mostly tracked income growth – it’s been somewhat faster in New York and somewhat slower in Paris, but on average it’s been similar.

For a while, I had to contend with the possibility that Chinese autocracy is just better at infrastructure than Indian (or Bangladeshi, or Indonesian, or Nigerian) democracy. The nepotism and corruption in India are globally infamous, and it’s still well-governed compared with Indonesia and Nigeria, which have personality-based politics. But then, in the developed world, authoritarian states aren’t more efficient at construction (Singapore’s construction costs are high); moreover, post-communist democracies like Bulgaria and Romania manage low construction costs.

What I instead think the issue is is where the state’s infrastructure planning comes from. China learned from the USSR and subsequently added a lot of domestic content (such as the use of cut-and-cover in some situations) fitting its particular needs; as a result, its construction costs are reasonable. The post-communist world learned from the USSR in general. There’s a wide range, with Romania near one end and Poland near the other, but the range is comparable to that of Western Europe today. Overall it seems that Eastern Europe can competently execute methods geared to the middle-income world (as the second world was in the Cold War) as well as, thanks to assistance from the EU, the high-income world.

Latin America, too, uses domestically-developed methods. The entire region is infamous in the economic development literature for having begun an inward economic turn in the Great Depression, cutting itself off from global markets and generally stagnating. Government functions are likewise done domestically or maybe outsourced to domestic contractors (and if international ones are involved, it’s in construction, not planning). Evidently, Latin America developed bus rapid transit, a mode of transportation optimally designed for countries with low incomes (so paying armies of bus drivers is cheaper than building rail tracks) and relatively strong currencies (so importing buses from richer countries isn’t ruinously expensive).

The situation in the ex-colonies is completely different. Even relatively protectionist ones outsource much of their planning to the developed world or increasingly to China, out of a combination of cultural cringe and shortage of domestic capital. The metro lines I have data for in India, Bangladesh, and Indonesia all involve Japanese technology and planning, with no attempt to adapt the technology to local conditions. So insistent is Japan on following its domestic recipe exactly that India’s high-speed rail construction is using standard gauge rather than broad gauge and Shinaknsen-size trains rather than larger Indian trains (which are 3.7 meters wide and can fit people 6-abreast). Elsewhere, China contributes capital and planning as part of the Belt and Road Initiative, and then its methods are geared toward middle income and not low income.

The correct way for countries in the per capita income range of Nigeria, India, and Bangladesh to build subways is to open up their main roads, which are often very wide, and put in four tracks in a cut-and-cover scheme similar to that of early-20th century New York. If they can elevate the tracks instead, they should use the same methods used to build Lines 2 and 6 in Paris in the early 20th century, which use concrete columns and are quiet enough that, unlike in New York, people can carry a conversation under the viaduct while a train passes. If the line needs to deviate from roads, then the city should buy property and carve up a new street (as New York did with Seventh Avenue South and Sixth Avenue in the Village) or else learn to implement late Victorian and Edwardian London’s techniques of deep boring.

However, actually implementing Belle Epoque construction methods requires particular knowledge that international consultants don’t have. Most of these consultants’ income comes from the first world, where wages are so high that the optimal construction methods involve extensive automation, using machinery rather than battalions of navvies with shovels. The technical support required for a tunnel boring machine is relatively easy in a rich country with a deep pool of qualified engineers and mechanics and a nightmare in a poor one where all such expertise has to be imported or trained from scratch. Thus, the consultants are likely to recommend the first-world methods they are familiar with, and if they do try to adapt to low wages, they may make mistakes since they have to reinvent ideas or read historical sources (which they are typically not trained to do – they’re consultants, not historians).

The result is that even though open economies tend to grow faster overall, economies with a history of closure tend to do better on this specific topic, where international consultants are not very useful for the needs of the developing world. India in particular needs to get better at indigenizing its construction and avoid mindlessly copying the first world out of cultural cringe, because even though it is almost a middle-income country by now, its wages remain a fraction of those of North America, Western Europe, and Japan, and its future growth trajectory is very different, requiring extensive adaptations. Both the overall extent of planning and the specific construction methods must be tailored to local conditions, and so far India seems bad at both (hence the undersized, expensive high-speed trains).

20 comments

  1. Martin

    While cut-and-cover would be ideal for large parts of the world for subway construction, I don’t think there is any country in the world that still shuts down major roads to dig them up like that in already central and urban parts of the city (except for stations). Poor giant metropolises are even more beheld to car driving elites than the rest of the world and have very severe congestion already before tearing up streets, so I dont think it will really happen. If it would be feasible to shut down the main road for such a long time, they would also perhaps also be better off by putting heavy rail there on the surface instead if they are poor on cash.

    Japanese and Taiwanese subways often used to create pretty shallow cut-and-cover lines and build parks just on top of it, but they have stopped doing that in busy parts of the city. It seems like a good model to emulate though.

    My impression was also that dynamite in solid rock (such as in Stockholm) is in practice cheaper than cut-and-cover also (and should be technically simple), but that depends heavily of the local geology of course.

    • Diego Beghin

      You have a good point about driving elites capturing third world metropolises. But the fact that those cities are already suffering from congestion will make even those elites more willing to look for solutions. Rio is going through a lot of pain to build BRT on Avenida Brasil, and construction is slow because the RJ state is bankrupt.

  2. SCC

    How are construction costs affected by the legal status of real property in communist and post-communist states, where all real property was once legally owned by the state?

  3. Diego Beghin

    In Brazil, while transit construction costs may be somewhat under control*, the planning seems to be getting steadily worse. In Rio, the northern metro line was meant to reach the CBD core at Carioca, there’s even an extra undergound level there to accomodate a second line, but they’ve abandoned that in favour of interlining it with a branch coming from the West (Tijuca). There are only two rail tracks through Rio’s CBD, which isn’t nearly enough capacity for a city of this size. The suburban rail is also shamefully neglected, with some lines still unelectrified and running loco-hauled diesel trainsets. The city would rather invest in BRT, which just cannot handle Rio’s crowds. It also doesn’t save all that much in construction costs since they’re using concrete lanes and building lots of viaducts and everything is almost completely grade separated. With bus driver wages increasing, BRT is becoming even less of a good idea.

    In São Paulo, the rail system is also extremely undersized. People I know there usually loiter in the city centre for 1-2 hours after work before they’re willing to take a metro home, so they can avoid the worst of the crowds. The lines going to the eastern neighbourhoods (the poorest part of the city) are horrifically overcrowded, peaking at 7-8 people/m2. Relieving this overcrowding should be the top priority but they’re still investing in a circumferential line in a richer southern area…

    (I’ve probably ranted about this before. I’m back visiting Brazil right now, and I despair at the poor choices being made here.)

    *Though one of the many corruption scandals right now involve São Paulo metro procurement.

    • johndmuller

      I was in Washington, DC for a lot of their Metro construction, much of which, especially downtown, was predominantly cut and cover, and while it was quite messy, especially for pedestrians, went on for quite a long while and was very disruptive for everyone, it was not really that bad. Regarding automobile traffic, there were lane closures and lots of timbers and steel plates in the street (or instead of the street), rush hour traffic was slow before this construction already, so you could say that the difference was really more noticeable in non rush hour, when these obstacles had to be slowed down for than it was in rush hour, where it was just the crappy road surface and bad bumps and land shifts. Much of the congestion was not really relevant because there were other bottlenecks elsewhere that had nothing to do with the Metro construction.

      Obviously, traffic was severely curtailed at certain points during the work, like digging the initial holes to get started with the stations, but mostly they were able to do the work under the cover of the timber false roofing and removed the dirt in various locations and times where/when the impact was lessened. Strategic openings in the roof let them access selected underground areas at times without having to block entire roads. Basically, you can live with it, but not fun.

      • Michael James

        johndmuller, 2018/07/31 – 22:13

        .. in Washington, DC … it was not really that bad. Regarding automobile traffic, there were lane closures and lots of timbers and steel plates in the street (or instead of the street),

        I was thinking along the same lines, of the building of the HK MTR, in particular down Nathan Road which is the central artery in Kowloon. I didn’t live there but noticed in visits at that time (of construction) how large parts of it had steel plating covering most of the road while being used as road (it was the usual controlled chaos but that is normal then and now). I don’t know if it was even worse when they began building it, but one could hardly imagine a worse situation in that there are so few alternative routes for traffic to use.

        I think the real reason that cut-and-cover is avoided today is that politicians are allergic to it, and that is partly they are too timid to take any heat from the usual suspects (car drivers, businesses along the routes, general Luddites who want nothing to change even as they whinge endlessly about the problems), as well as, it seems, absolutely no resistance to spending massive amounts of other people’s money, not to mention the revolving door between politics/civil service and the very companies contracting the project.

        Alon’s finding that costs correlate with “local expertise versus reliance on first-world consultants” is perfectly consistent with this view.

        Having said all that, the cost differential between TBM-deep-bore tunnels and cut-and-cover has reduced over the decades. Although I also believe the industry, in collusion with weak politicians, is perfectly happy to inflate the costs of any method they don’t want (or of total alternatives like HSR in the Anglosphere); this is done through a tortuous consultancy-led process during which at every step the cost ratchets up. I believe one can look to the likes of China and to a certain extent Hong Kong, Singapore and Japan, for more pragmatic approaches as they have the political power and relatively low corruption, to make the best decisions.

      • Michael James

        I could also add something that Donald Trump said recently! I forget if it was in relation to the Trade Wars he started or the North Korea thing or the Iran thing, but he said (approximately) that a deal that takes a long time, usually or invariably, is a bad deal if not a failed deal. China has benefitted a lot, IMO, by the sheer speed with which it chooses and then implements large infrastructure projects. Its HSR network and its city Metro systems are breathtaking in scale and short time in construction. The west used to do it too: think of the USA’s Interstate Freeway System. Or all the NewDeal infrastructure during the 30s (dams, bridges etc). Or Paris’ Metro system, about 80% of todays system was built in the period 1900-15. Or indeed Hong Kong’s MTR; or their massive Airport + transport connections that became an almighty rush because of the looming PRC-takeover (and note that this was under nominal British control!; and the PRC throwing up all sorts of barriers to simply delay it, all of which were swept aside to get it all built–the world’s largest civil works at the time). Today the Brits are world leaders in the sort of procrastination and would take twice as long just for the public enquiries, prior to getting down to actual construction (a good contemporary example is the third runway at Heathrow whose cost has reached >$30bn and it still hasn’t begun …).

        Time is not your friend on big projects, and the Anglosphere is horribly prone to this absurd procrastination, endless enquiries, endless reports by overpaid consultants etc. And who knew, Trump’s words are indeed wise ones.

    • Eric

      Sao Paolo’s network is undersized, but they are putting serious effort into fixing that. Right now I see 2 metro, 2 monorail, and 2 suburban rail lines under construction. Obviously they are a long way from a Beijing-like network, but they are making steady progress. Things seem to be working much better than in Rio, where they built a lot for the Olympics, but it was mostly the wrong stuff.

  4. Jhonny

    Which part of modern first world construction methods SHOULD poor countries with low wages spot, tho

  5. James Sinclair

    Alon, what is the impact of raw materials like cement and steel, and the machinery used in construction?
    Some countries subsidize these industries. Others might rely on expensive foreign imports.
    The same may be true of the technology. For example, Brazil is known for having a 100% tax on many electronics in order to encourage domestic manufacturing.

    • Alon Levy

      I don’t know the impact of tariffs. But raw materials themselves can’t be a big part of construction costs, since these costs vary by a huge factor within the world’s largest common market.

      • James Sinclair

        Take something like the Assembly Square (MBTA) infill station. All above ground. It cost $57 million. What are the inputs? Planning, labor, cement, steel, electrical. Union labor in the US is similar to that in Europe, right? Assembly Square cost is in line with the cost of the Chicago infill stations, and half the cost of the West Dublin BART station. How do they compare with above-ground infill stations elsewhere?

        • Alon Levy

          I don’t know about above-ground infill, but underground infill in Seoul is about $50 million before PPP adjustment and it’s locally considered very high (link).

          • James Sinclair

            If you have time, I think it would be interesting to see if you find anything related to basic above-ground infill. Underground construction is rare in the US, so there is a premium related to knowledge and experience in the manner. But any construction crew familiar with highway work can lay a platform and install an overhead bridge.

  6. Michael James

    India in particular needs to get better at indigenizing its construction and avoid mindlessly copying the first world out of cultural cringe,

    More likely it is because the Japanese are helping with the financing too, and thus applying max pressure to adopt the Japanese system whole (which would be lower risk). The same thing is about to be replicated across half the world with China’s Belt & Road, and you can be certain only Made in China will be involved. Indonesia’s Jakarta-Surabuya HSR line involves a $4.5 billion loan from China Development Bank.
    Another kind of colonialism. And again, to be fair, except for the cases where the target nation gets over-indebted, it is probably going to be more productive infrastructure development than most of the Euro- or American-colonialism was.

    • Nicolas Centa

      The Shinkansen was domestically built with money from an IMF loan, so the financing is definitely something that has to be thought about on an international level.

      And the Shinkansen as opposed to European and American HSR designed to run on a fully dedicated network, not on conventional lines together with other trains, because in Japan conventional meant too slow. I guess India made a choice (that Alon disagrees with) here.

      • Alon Levy

        What American HSR?

        Anyway, the main issue isn’t the fully dedicated tracks. India needs fully dedicated tracks because the legacy approach tracks in Mumbai are clogged with overcrowded commuter trains, and if I were consulting with them I’d tell them to seriously consider grading the HSR rights-of-way for four tracks rather than two to build for the India of 2050 and not for that of 2020. But it still needs to use its wide loading gauge to maximize capacity, and use broad gauge to let HSR use legacy branches without needing to resort to the Mini-Shinkansen kludge.

        HSR can run on broad gauge without any problem, unlike on narrow gauge. Russian HSR uses Russian gauge. The reason the AVE uses standard gauge is compatibility with the French network. India is a big country and the only connections it needs to worry about are with broad-gauge Pakistan and with approximately railway-free Bangladesh (which should be building everything broad gauge too, but there I at least understand its reasons to build the Dhaka Metro standard-gauge).

        • Nicolas Centa

          I agree with you, the problem is the financing that is coming with strings attached.

      • Michael James

        Nicolas Centa, 2018/08/02 – 17:43

        The Shinkansen was domestically built with money from an IMF loan, so the financing is definitely something that has to be thought about on an international level.

        It was the World Bank (not the IMF, but same diff.) and the real reason for their involvement is part of a wider strategy by the Shinkansen advocates, explained below in an extract from Shinkansen by Christopher P. Hood, 2006. The choice of entirely new track and different (bigger) gauge was for similar reasons, though the existing narrow gauge was not suited for HSR and also involved lots of level crossings. The things these engineers and railway men have to do to get the politicians to build good infrastructure:

        Many compared the construction of the Tõkaidõ Shinkansen to the Great Wall of China and the Battleship Yamato as being a white elephant, and it was a considerable political risk to back the project (Hosokawa 1997:5; Kasai 2003:8, 14; Yamanouchi 2002:30). Sogõ [Sogõ Shinji; president of JNR] had always worked on this assumption and devised a plan to make it almost impossible for the government to withdraw its support, once given. Central to Sogõ’s strategy was the use of a loan from the International Bank of Reconstruction and Development (‘World Bank’). This was apparently an idea put to him by future Prime Minister and then Minister of Finance, Satõ Eisaku, who had previously worked under Sogõ in the Railway Ministry. With the successful application for a $80 million loan (estimated to be no more than 15% of the cost of the line (Yamanouchi 2000:111)) in place, it ensured that the Japanese government had to remain committed to the project. At the same time Sogõ, who had deliberately kept estimated cost figures of the Tõkaidõ Shinkansen low for fear that if they were too high neither the Japanese government nor the World Bak would have supported the proposal, began to divert money from other JNR projects to the construction of the shinkansen. This was possible as once JNR’s total budget had been approved by the Diet, the JNR President had ‘discretionary authority’ over how to spend it (Kasai 2003:15). It was not only the costing figures that Sogõ ket down. Concerned that a proposal for a 250 km/h train, as was being designed, would be met with disbelief and distain, the maximum proposed speed for the shinkansen was kept to 200 km/h (Semmens 2000:7-8). Sogõ also managed to circumnavigate opponents within JNR who planned to use the Council of Railway construction, an advisory body to the Minister of Transport to determine the approval of new lines by ‘arguing successfully that the Tõkaidõ Shinkansen was not a new line but the expansion of the existing Tõkaidõ Line to quadruple-track’ (Kasai 2003:15, emphasis added).

        Earlier Hood had explained how too much of the land adjoining the existing Tõkaidõ Shinkansen twin tracks was developed “making it prohibitively expensive to purchase land for the new line”. He also explains how the Shin-Tanna tunnel which had been partly built towards the end of the war, was maintained,even though it was incomplete, for the 12 years until it was used in 1959 for the new HSR line.

  7. Trefor Williams

    The use of cut and cover or tunneling is highly dependent on the geologic conditions at the construction site. There are instances where cut and cover is not possible due to poor soil or rock conditions. So it is not always possible to make cost comparisons based on only on location or country.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.