ZIMBABWE’S construction industry is in a precarious position, with operators living on the margins as they try to deal with massive production decline, fast shrinking domestic demand and skyrocketing input prices.
The sector is also buffeted by the impact of local currency shocks, dwindling profit margins, and sustainability challenges as they try to stay afloat. The turmoil in the construction industry sector, which has plunged into a crisis, has spilled over to suppliers in sub-sectors in cement, ceramics, iron and steel, where sharp declines are similarly observed.
The deep economic turmoil has resulted in massive layoffs in the sector which has a potential to contribute more than 10% to gross domestic product (GDP), employment on more than 10% of the working population, earn foreign currency for the country by exporting its services and promote growth of downstream industries. But players are severely hit by worsening economic conditions and are struggling to stay afloat.
While the Zimbabwe dollar’s depreciation has given some impetus to exports, its impact on industrial production, however, has not been pleasing. Industry players, who spoke to the Business Times at the inaugural Zimbabwe Construction Industry Association (ZCIA) congress in the capital last week, expressed disquiet over the deteriorating economic conditions which have left them exposed.
“At the moment the construction industry is in a coma and unfortunately the doctors are on strike,” ZBCA president, Francis Mangwendeza said adding that sector players are frustrated and “it so difficult to talk to government at the moment”. “We have been frustrated by delays in payments by government.
ZIMRA wants its VAT payments yet government has not paid us. Production has declined sharply, there is also shrinking demand and we are struggling to stay afloat. The other issue is the delay in the enactment of the proposed Bill to regulate the construction industry. It’s now almost 20 years, and it’s still on the cards. Government is taking us as an after-thought. Government is protecting foreigners, and local contractors are left out of government projects.”
The situation has also been exacerbated by low barriers to entry in the construction industry due to the absence of industry regulations, a situation which has created a saturated market place with heavy presence of foreign players especially the Chinese.
Consequently, this has resulted in shrinking profit margins and constraining reinvestment in new technology and better business practices. The proposed Bill has been gathering dust in the Local Government, Public Works and National Housing Ministry for the past 15 years.
CIFOZ president, Christian Matope also painted a gloomy picture saying industry players are currently vulnerable.
“Currently there is a lot of idle, underutilised equipment because the current volume of work is very low. There is no long term financing for capital projects. Financiers are also charging higher interest rates. We appeal for concessionary rates like those being offered to agriculture to allow retooling,” Matope said. “We also call on government to expedite the proposed construction Bill, which is meant to regulate the industry. It’s now more than a decade.”
Zimbabwe’s economy has become palpable and it has devolved into a crisis. It is expected to contract by a negative 6,5% this year. Now, the construction sector has become the harbinger of sharp contraction in the economy. At its peak in mid 1990s, the construction industry, used to employ more than 50 000 people but the figures have plummeted to less than 10 000.
Bernard Musarurwa, the president of ZCIA, a body which represents all players in the build environment namely engineers, architects, CIFOZ, ZBCA and real estate industry agreed with Mangwendeze and Matope.
“We have serious problems in the sector including lack of funding because we have no foreign currency. If we are told to go and look for example, elsewhere, we can’t sustain projects. It poses a big challenge for the sector,” Musarurwa said.
“The Procurement Regulatory Authority of Zimbabwe (PRAZ) Act stipulates that if the price varies by 25%, the client has the right to cancel the contract. It makes sense, because the rate is now 1:15 it’s quite a headache for us. We also have a situation where local players are left out of projects. Foreigners such as the Chinese are favoured. Our people are completely left out.”
The proposed law has provisions for the establishment of a Construction Industry Council, which would regulate contractors. This would protect the public from substandard products and workmanship, as well as control the influx of foreign players into the country’s construction sector. Director of quantity surveying in the Local Government Ministry, Mike Dzimati said: “I am taking the Bill as my responsibility. I will chase it up.”
ZCIA members also want PRAZ to simplify tendering procedures. They also want PRAZ to register their members only. But PRAZ director for capacity building, Clifford Gondo said the procurement regulator does not ask for proof of membership when registering consultants. Instead, procuring entities have such responsibility.
“To this end the authority has developed and implemented a fair, transparent and equitable framework for the registration of bidders or contractors. This framework includes the compilation of an annual list of registered bidders and contractors that are eligible to bid and to be awarded contracts with procuring entities,” Gondo said.
Construction companies say they have found themselves trapped between shrinking profit margins and stagnant production, meaning that companies in the sector are unable to generate the profit necessary to invest in critical technology. This lack of productivity is reflected in the bottom line, resulting in a dramatic reduction in workforce.
To cap it all, there is a crunch in skill trades, due to macro-economic problems in the country, which have driven many skilled craftsmen to leave the industry and they have never returned. If one has been in Harare, or any other major city across the country, one would not fail to notice that there has been no crane in Harare’s skyline for many years, a sign that things have not been going well for the construction sector.
Government, which provided over 70 percent of construction work in the country, has no funding. This means that government still owes local contractors millions of dollars, meaning a lot of contractors are under stress. Local contractors have been forced to downsize operations and retrench workers.
The local players argue that government continues to award lucrative tenders to foreign companies especially the Chinese, who even bring in labour for menial work from China. This situation has led to retrenchments, downsizing of operations and closure of a lot of local construction firms.
Currently, President Emmerson Mnangagwa’s administration is under increasing pressure to rehabilitate the dilapidated road network and infrastructure. According to official data from the Ministry of Transport and Infrastructural Development, the country’s road network has outlived its lifespan by more than 40 years. Most of the country’s major roads were constructed before the country’s independence in 1980.
About 20 percent of the national road network is in unusable condition. The country’s road network has been a key artery in the southern African region with traffic from South Africa passing through Zimbabwe on its way to Zambia, Malawi, the Democratic Republic of Congo (DRC) and some parts of Mozambique.
Consignments landing at the port of Beira in Mozambique have had to pass through Zimbabwe to Zambia, Botswana and Namibia while there have been large volumes of traffic from the DRC to South Africa passing through Zimbabwe.
The bad state of the country’s roads means that the amount of money required to rehabilitate them to international standards would be enormous given the huge funding gap. About US$10 billion is needed to rehabilitate the country’s entire road network.