The Construction Industries Federation of Namibia (CIF) has met with a delegation of the African Development Bank (AfDB) which was in Namibia in view of the preparations for a prospective public tender for the upgrade of the railway line between Kranzberg to Tsumeb.
This meeting was an important step in raising awareness amongst international financiers about the absolute necessity and urgency of supporting majority Namibian-owned local contractors.
Prequalification requirements of previous projects financed by the AfDB had left Namibian-owned contractors excluded. This was the case in 2018, when the railway line between Walvis Bay and Karibib ((No. MWT-DRIM/2018-03, ICB No. MWT-DRIMTIIP2018/A1.2) had been upgraded. Namibian contractors were not in the position to tender for prequalification. This was due to the fact that especially the financial criteria were too steep, and that the criteria considering the value of previous projects completed, was also unrealistically high. The contract was awarded to China Gezhouba Group Corporation which largely had subcontracted the work to DMRail. Indeed, the situation was similar with the road project between Windhoek and the Hosea Kutako International Airport (TR 9/1: WHK – HKIA Phase 2A), which had been awarded to a foreign contractor (Avic).
Bärbel Kirchner, chief executive officer of the CIF explains: “It was not possible for local Namibian contractors to meet the turnover and cash flow requirements, despite having had the right technical skills. Also the requirements were not necessarily project specific. The industry was indeed very disappointed as it would have been an opportunity to partially revive the construction sector. Currently, the industry finds itself very much in the same position as in 2018”.
The award of contracts to foreign contractors needs to be considered in the following context. The construction sector went through a recessions since 2016, which has led to many closures and bankruptcies of construction businesses. In 2015, the contribution of construction was 7.2% to GDP. This has now changed to less than 2% of Namibia’s GDP. The consequence is that many employees had to be retrenched and close to 50% of those engaged in the construction sector, had lost their job.
This also has meant that workers and professionals were retrenched; and many professionals have left the country with the consequential brain drain and related opportunity cost.
Currently, the private and public demand for building and construction works is very limited, which will lead to more retrenchments in the immediate term. It is therefore critically important that the local construction sector is stimulated again with consequential positive macro-economic implications.
Considering the Namibian government’s current debt to GDP ratio and therefore a reduction of infrastructure development; as well as the need for grant or loan financing, it is not only vitally important that local majority Namibian-owned businesses get the maximum share of the increasingly less available opportunities but also that appropriate opportunities are created that will enhance Government’s revenue base. This can be achieved by corporate and individual tax contributions, as well as taxes on trade and taxes on consumption. This is very unlikely to happen optimally if the railway rehabilitation project is again awarded to a foreign contractor.
Despite existing procurement policies and laws of the African Development Bank, it is vital that every effort is made to engage local majority Namibia-owned businesses, as loans will also have to be paid back with income mostly generated by Government by taxing its people, irrespective of the type of taxes.
Bärbel Kirchner emphasises: “It is important that tender requirements are such that they can meet both the AfDB policy and legal requirements as well as that they are also aligned with the reality of the Namibian economy and construction sector.
“This could mean that the rehabilitation of railway line project between Kranzberg and Tsumeb will be divided into smaller lots. This would then allow majority Namibian-owned contractors to meet the financial prequalification requirements. Taking into consideration that the management of the project might become more demanding, the size of the lots should at least be small enough that two majority-Namibian owned contractors can tender together as a local joint venture”.
An argument was raised that foreign contractors were often able to offer a lower bid. This is as a result of having access to state-sponsored cheaper finance by the sending state. This would therefore make it difficult to compete on price. However, irrespective, the appointment of foreign contractors still has macro-economic implications, as well as critical social and political implications, considering the current country-wide unemployment, poverty and inequality.
Bärbel Kirchner further says: “It needs to be borne in mind that the youth unemployment in Namibia is exceptionally high – above 40% – which can leave the greater part of Namibia’s people completely vulnerable. This needs to be persistently and adequately addressed.
“It is critically important that every opportunity is sought to create employment and fair jobs. Construction is one of the sectors that allows for swift engagement with immediate impact”.
It was suggested that the AfDB would look at other African countries where the construction sector had faced similar predicaments and were potentially misplaced by foreign contractors; and where the AfDB had packaged their projects accordingly, i.e. in line with the local capacity. Although it was stated by the AfDB procurement specialist that it was country specific, it was indeed affirmed, that larger projects were divided up into smaller projects. This could potentially serve as an example for Namibia.