Before looking into the historical background of the construction industry, it is necessary to look at what exactly constitutes the construction industry. In trying to define the construction industry, it may not be easy to come up with a universal definition. This is because of the fact that the definitions bestowed to the phrase in different societies tend to contain different aspects pertinent to that society. Of the definitions given, the definition given to the phrase by Australian Bureau of Statistics to its construction industry survey seems appropriate and widely applicable. Accordingly, the construction industry is described as including:

"all units mainly engaged in constructing buildings (including the on-site assembly and erection of prefabricated buildings), roads, railroads, aerodromes, irrigation projects, harbor or river works, gas, sewerage or storm water drains or mains, electricity or other transmission lines or towers, pipelines, oil refineries or other specified civil engineering projects. In general, units mainly engaged in the repair of buildings or other structures are also included.... as are those engaged in the alteration or renovation of buildings, preparation of mine sites, demolition or excavation.

Construction has been an aspect of life since the beginning of human existence. The first buildings were huts and shelters constructed by hand or with simple tools. As cities grew during the Bronze Age, a class of professional craftsmen like bricklayers and carpenters appeared. Occasionally, slaves were used for construction work. In the 19th century, steam-powered machinery appeared, and later on diesel and electric powered vehicles such as cranes, excavators and bulldozers. Traditional construction, might be considered as having properly, commenced between 4000 and 2000 BC in Ancient Egypt and Mesopotamia when humans started to abandon a nomadic existence, that caused a the construction of shelter. The construction of Pyramids in Egypt (2700-2500 BC) might be considered the first instance of large structure construction. Other ancient historic constructions include the Parthenon by Iktinos in Ancient Greece (447-438 BC), the Apian Way by Roman engineers (312 BC), and the Great Wall of China by General Ming T'ien under orders from Ch'in Emperor Shih Huang Ti (c. 220 BC). Similarly, the Romans developed civil structures throughout their empire including aqueducts, insulae, harbors, bridges, dams and roads.

Population growth and urbanization led to an increasing need for shelter developments, and focused attention on the importance of local building materials and techniques. Accordingly, the construction industry in many parts of the world started to grow with an increasing demand. In line with this, construction companies are growing at a fast pace all over the world. With this growth of the construction industry and subsequent growth of construction companies, contractual relationships related to construction are increasing. Thus, there is a dire need for a coherent and efficient law to deal with such contractual relationships.

Coming to our country, the growth and increasing demand for the construction industry has followed a similar pattern as observed in the trend of the world. Currently, construction is one of the sectors leading the way towards modernization and industrialization in Ethiopia. The construction sector in Ethiopia, generally in the world, contributes to the realization of about fifty percent of the total capital. Being the second largest employer in the country, it’s also an engine for technology, innovation and overall development.

In the past history of Ethiopia, the construction industry was not considered as an independent sector of the national economy. It was rather considered as incapable of generating national wealth. As a result, no comprehensive strategy for its development was considered. This, in turn, has led to the undesirable features of the current construction sector. These features include lack of clear developmental objectives for the industry; inadequate co-ordination of planning between the industry and infrastructure programs in the various sectors of the economy heavy dependence on foreign resources such as materials, equipment and expertise representation of the role players in the construction sector by inadequate and ineffective organizations inadequate numbers of suitably qualified and experienced personnel at all levels that include engineers, technicians, mechanics, operators and foremen, etc. inadequate relevant local construction regulations and standards, and inadequate consideration given to the use of local resources (including community participation in labor-based works).

Ethiopia witnessed a decline in the performance of almost all sectors of the economy during the various periods of government prior to 1991. The post-world war period in Ethiopia registered significant changes from the time of Emperor Haile Selasie (1941-1974) to that of the Derg (1974-1991) culminating in the events of 1991 which resulted in the formation of the Transitional Government of Ethiopia (hereinafter TGE). Even though various market based economic reforms have been introduced to the various industries of the country, including the construction industry, since the downfall of the Derg regime in 1992, the domestic construction industry has still faced several hindering factors in its development.

In the New Economic Policy statement issued in 1992, the TGE made clear its intention to transform the stagnant command economy inherited from its predecessors into a functioning market-based economy. This transformation is sought to be achieved through an Agricultural Development Led-Industrialization (hereinafter ADLI) strategy for the country which is supported by similar strategies in education, health and transport sectors. However, even if the country is well endowed with natural resources with 60% of its total land area estimated to be potentially arable, its road density is amongst the lowest in Africa nations and other developing countries. Furthermore, the existing road network has deteriorated to the extent that only eleven percent of paved roads and nineteen percent of gravel roads are in good condition, making it the worst in comparison with other developing countries. It is evident from the above that the success of the ADLI strategy and the consequent economic recovery and development of the country is highly dependent on the restoration of the country’s road infrastructure.

With the above considerations in mind, the construction industry is being given special focus in the policies of the country. The construction industry is one of the three sectors of the economy identified by the Ethiopia Government for special consideration to foster the country’s economic development.  However, the general state of the domestic construction industry in Ethiopia is still characterized by inadequate capital base, old and limited numbers of equipment, low levels of equipment availability and utilization, deficiencies in technical, managerial, financial and entrepreneurial skills, limited experience and participation of the private sectors in construction and consultation works, and insufficient and ineffective use of labor-based road construction and maintenance technology.

The construction industry in Ethiopia is a sector that opens the door for the growth of many additional industries. Building works require high input. For instance, they require different metal products, clay works, and cement and cement products, etc. As such, the growth of these industries will surely follow the growth of the construction industry. Similarly, when the construction and renovation of housing increase, the demand for household furniture increased; thereby, indirectly, opening the door for the growth of the furniture industry. All in all, the construction industry is a sector that can entertain big micro companies, that is widely labor based. All these being taken into consideration, the industry policy of the Federal Democratic Republic of Ethiopia has sought to pay special attention to the construction industry of the country.