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Establishment of State-owned construction enterprise

KUMBUKILANI Phiri.

Analysis: KUMBUKILANI PHIRI
LAST week, I received a number of calls and messages following the publication of the article about the need for Zambia to establish a State-owned construction company from those who are for the idea and those who are opposed to it.Those who are opposed to the idea claim that our government has performed very badly when it comes to running of State-owned companies.
They cited examples of the so many parastatal companies that are failing in Zambia and strongly feel that Government should not have a role in business. They further argued that Government should only create specific support mechanisms for local contractors to grow and build capacity.
Government should come up with a deliberate scheme of providing financial support which enables small and medium enterprises (SMEs) to acquire equipment or even an equipment leasing scheme.
In their argument, they also pointed out that a State-owned company may slow down the growth of Zambian-owned companies as these will be confined to doing small jobs and fail to grow and compete with the best of the best as private-owned Zambian companies.
On the other side, those who are for the idea also argued that Zambian private construction companies have already stagnated because they are confined to doing small jobs and Government does not pay them on time.
It was further pointed out that with the new austerity measures in place; Cabinet has asked the Ministry of Finance not to fund new projects and those below 80 percent completion.
This has left Zambian-owned construction companies in the cold as they do not take part in the construction of foreign financed projects, which are mostly done by foreign companies from where the money is coming from.
It was also argued that Government will come up with a deliberate scheme of providing financial support, which enables SMEs to acquire equipment or even an equipment leasing scheme is wishful thinking because Government is currently in financial distress and is already failing to pay for works already done by contractors.
Moreover, government financial institutions like the Citizen Economic Empowerment Commission and Development Bank of Zambia are underfunded or not funded at all to carry out their mandate of providing cheap financing options to the Zambian business community.
This means that in the short run, local contractors have no hope at all to seek cheap financing locally.
Further, even if financing was found, who will manage to pay back a loan at 28 percent when foreign companies can easily borrow for capital investment from their countries at two percent?
Given the above scenarios, those for the idea of the State-owned construction company argue that such a firm is needed to tap into concession loan financed projects where the funding governments always insist on using their own state-owned construction companies.
It will be easier for Government to bring in its own State-owned enterprise for partnership on a bilateral arrangement.
It is also easier for a State-owned company to source for cheap financing for its capital investment in equipment and personnel’s training as it has some guarantee for business. A State-owned company will help in capital retention and capacity building in our people.
It is a well-known fact that most genuine Zambian private construction companies have aspirations to grow big. Unfortunately, the dynamics at play do not really support their growth now.
Zambia is financially incapable of funding most of its infrastructure development as a country and most of our projects are being financed through either donor money or concession loans where the funders are dictating the terms.
There are many Zambians with good qualifications and substantial experience in the construction sector, but since all big projects are in the hands of foreigners, they are not being made to use their acquired skills. Many are not satisfied managing construction of toilets as SMEs for the sake of getting by. They want to be project managers for big projects where their skills will be challenged and exploited.
This is what will give them the much-needed experience to run future projects in the country and the region at large. It is wishful thinking to think a Zambian construction company can grow organically in the current business environment with so much uncertainty.
The dynamics do not favour organic growth for Zambian construction companies because we are not in control of the sector as a country. We have seen local construction companies that were growing steadily collapse because Government is not paying them on time or they are not getting new projects anymore as most foreign-financed projects are not even advertised in the country.
One thing we need to realise is that Zambia is currently undergoing unprecedented infrastructure development. If we are to take a leaf from other fast developing countries like China that underwent similar development, we will realise that more than 80 percent of their construction was done by themselves whilst here, it is the direct opposite.
At the time when China was undergoing massive construction, the country decided to strategically form state-owned construction companies which have since grown and are now undertaking projects all over the world, Zambia included. Without that deliberate policy, China would not have been anywhere near where they are now in terms of construction technology and skills.
China leveraged on its massive infrastructure development to build its construction capacity.
They raised enough capital for its companies and built a cadre of skilled workforce which it is exporting to other countries like Zambia. This is what is referred to as path dependence in economics.
The current massive construction going on in our country may not happen at the same rate in future. Therefore, it is high time we took advantage of the critical mass created and get maximum benefits of both capital retention and capacity building in skills and technology in our people.
The 20 percent subcontracting to locals for construction projects given to foreign companies is a farce and will only help us make a living for now, but will not retain anything in terms of capital and skills. However, we should not forget that Zambia is a going concern. We need to plan and create success routes for our future.
We should not be comfortable that in the 20 percent subcontracting policy, Zambian contractors are only subjected to do those parts of the projects that require less technical expertise such as bush clearing, drainages and road signage.
These will not take us anywhere as a country, and we will have missed a golden opportunity to rip maximum benefits from what is rightfully ours.
It should worry us to think that we later failed to support these companies and started relying entirely on foreign companies, firstly with South African companies and now with Chinese firms.
The author is a business executive.

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