Affirmative Action To Build Local Contracting Capacity
Why are local contractors unable to take up, in part or in full, multi-billion projects in Uganda? This question brought up a heated debate on the 8M (WhatsApp) Forum. We consequently made contact with many key stakeholders and procurement gurus in the construction industry and got the following views. This article proposes some affirmative actions which Government can take to build the local capacity for infrastructure development.
International contractors are taking most of the projects in the infrastructure industry in Uganda. They have even gone as far as winning local tenders at district level. A Chinese firm is currently repairing Bugiri Town Council roads. The locals have always been outcompeted on all tenders.
Some of the completed, ongoing and upcoming infrastructure projects include the following: the Jinja Nile Bridge, the Kampala Northern Bypass, the Kampala-Entebbe Express Highway, the Kampala-Jinja Expressway, the Kampala flyovers, the Kampala-Masaka-Mbarara-Kabale highway, the Arua Water Supply project, the dams at Karuma, Bujagali, Isimba and Ayago, the Entebbe Airport Expansion project, the new Airport in Hoima, the Uganda Revenue Authority Tower, the 14-storey building to house the Uganda Investment Authority, the Uganda Registration Services Bureau (URSB) and Capital Markets Authority (CMA), the 28-storey NSSF Tower, the African Development Bank-funded markets around Uganda. Nearly all these projects were or are being undertaken by foreign contractors.
ISSUES, SOLUTIONS AND RECOMMENDATIONS
a) Stiff requirement for a turnover and financial muscle
It is standard that the contractor must show a turnover of similar or higher value for the project being tendered for. The Auditor’s report for the past five years or so is a must. Also required is evidence of working capital (access to lines of credit and availability of financial resources).
Ugandans borrow funds at 20% and above rates in Uganda while many international bidders borrow up to 4% only per annum from their countries. Chinese companies borrow from their State at very low interest rates. Others have solid financial bases and may not need borrowing.
Faced with such inequalities, how can the local contractors compete against foreign ones?
- Government should improve on existing preference schemes to give local bidders a competitive edge over foreign bidders e.g. in reference to a turnover requirement;
- One way out of the bottleneck is for Government to create a revolving fund (similar to the agriculture fund) to lend local companies at low interest rates.
b) Stiff requirement for a proven track record and highly skilled personnel
A proven track record is common requirement. The company must show that it has undertaken works of similar nature and size as bidded for in the last five years or so.
Another requirement is for highly qualified and experienced management and technical personnel for the proposed contract.
Local companies may never fulfill such requirements unless there is a deliberate effort to innovatively train them or delete some requirements. It is said that when China wanted to build a giant dam, it sent about 300 Chinese to work on similar dams in America. Another big number were snet to Europe. On return and with the acquired skills, China built the biggest dam in the world, the Three-Point Gorge Dam. Uganda needs to borrow a leaf. It is suggested that for any massive project done in Uganda, any position taken by a foreigner due to unavailability by a local expert, there should be created a position of a local deputy, whose role must be to understudy the ‘expert’. In this way, for example, after completion of a structure the size of Karuma Dam on the Nile, there should be created a local team, all the way from project managers to designers, contract managers, foremen, materials’ engineers. Such a new team of locals will have enough capacity to undertake the next similar or smaller dam project, e.g. at Ayago on the same river! In line with the above, Government has already trained selected UPDF and other staff in China on the Standard Gauge Railway (SGR) project before its implementation.
Affirmative Action: Government should strengthen on-job training schemes for Ugandans to understudy foreign experts on massive projects to build capacity.
c) Stiff requirement for heavy construction plant and equipment:
Another common hurdle for local companies is a requirement for heavy construction plant and equipment for the works, which should be either owned or leased. Examples are massive mobile/fixed cranes, heavy trucks and tippers, graders and bulldozers, concrete batching plants or mixers, etc.
It is said that China solved this puzzle in the following way: When it opened its borders to the Western constructors, one requirement was for a joint venture between the foreign and local companies, where the local company must undertook at least 30% of the value of works. No plant brought into China was allowed to be taken back at the end of the works. The profits made by the joint venture company were to be divided in such a way that the local company took over the plant and equipment! We need to borrow a leaf.
One suggestion is that local companies in joint ventures with international companies should earn part of the profits through acquisition of plant and equipment brought in by the international company. Construction plant and equipment is very expensive and yet it holds up capital because of idle time when not on jobs. Construction companies everywhere commonly do not purchase but lease equipment as and when needed.
Government, say through the Uganda Development Corporation (UDC), should initiate a leasing scheme for heavy plant, tools and equipment.
d) View on the existing preferences and reservation schemes:
Government should be commended for putting in place a number of preferences and reservation schemes. An example is the scheme that benefits local contractors by ensuring that they undertake 30% worth of the works on selected massive construction works undertaken by the foreign companies.
There is need to monitor and evaluate the success of preferences and reservation schemes, with a view to capacity-build the local companies.
e) View on timely payments to contractors:
Notwithstanding any meaningful intervention, Government is not paying on time for a lot of works already done. This adversely affects the performance of the local companies and stunts their growth.
Government (and other employers) should pay ON TIME for the certified works.
Government needs to review and amend procurement laws and regulations and enact new ones that must help in building the local capacity.
This submission needs a symposium of the key stakeholders to review and make a united stand against or for it.