Economically Empowering Zambians through Infrastructure Investment

1. Introduction

Every now and then, especially since the Patriotic Front took over the running of government, the citizenry of Zambia has become accustomed to hearing pronouncements of different projects being launched. In the beginning the people used to get excited and would praise the government for “taking” development to their areas. It was their belief then, and to an extent it is today, that such projects would lift the masses out of poverty. Most of the projects came with massive machinery never seen before in these villages, a horde of foreign cadres (disguised as experts) and a few temporal jobs were given mostly to the men within the particular project area. On completion however, people yes remained with the infrastructure but had no use for it apart from it potentially posing a safety hazard to their livestock and children (in particular road infrastructure). Others have been left with diseases (new
strains of STD’s) that they have never seen before and in some cases loss of business (this is more especially true for bridge projects). The result of the above is that people, particularly within the project areas are no longer interested to hear pronouncements of projects being launched.

On the national front however, the drive for infrastructure development has left the country with huge loans (the exact amount is disputed) and a widened budget deficit. Interest rates have gone sky high mostly due to a number of bad debts that banks have taken on. The end result is that money for the general populace has become so difficult to come by and equally the government is struggling to finance the social
sectors of the economy (evidenced by the constant closures of the universities due to non payment of salaries to staff or indeed failure to pay student allowances, as well as outbreak of cholera).

I do believe however that the above scenario can be reversed over a period of time and in future we may look back at this period and appreciate some of these decisions the current government has made. This will however only come to pass with the concerted effort from both the (Zambian) private sector and government of the Patriotic Front. In the ideas I will expound below, my concentration will be on the Physical Infrastructure side of the economy (due to my background and expertise) but can however be extended to other areas of the economy with minor adjustments.

2. Current Scenario

On the 29th September 2017, former Minister of Finance Felix Mutati, presented the 2018 budget to parliament outlining how he wished to spend the Zambian tax payers’money during the 2018 fiscal year. He dubbed the year 2018 as one that would accelerate fiscal fitness in order to sustain an all-inclusive growth that is would not leave anyone behind. He stipulated a few issues to be achieved as listed below:

1. Achieve real GDP growth of at least 5.0 percent.
2. Maintain single digit inflation in the range of 6.0 to 8.0 percent.
3. Accelerate implementation of measures towards diversification of the economy.He further pledged to align the government policy interventions to the following pillars:a. Economic diversification and job creation
   b. Poverty and vulnerability reduction
   c. Reducing development inequalities
   d. Creating a conducive governance environment for a diversified and inclusive
   economy.

The Patriotic Front government in their first mandate (2011 to 2016) went into full gear trying to empower local people and businesses. The empowerment drive did not end at mere pronouncements but was actualised through the enactment of various acts like the CEEC act that stipulated that citizen owned companies be given preferential treatment in the award of government contracts. Further, the RDA issued guidelines
aimed at reserving a minimum of 20% of the total road construction contract value for the majority citizen owned companies. The overall objective of this 20% rule was to empower local contractors both financially and technically in order to create jobs for Zambian citizens and indeed create a sustainable local contracting capacity. These guidelines were further aimed at keeping some of the money spent on road
construction within the local industry and indeed the local banking sector. Most industry players were optimistic that the trickle-down effects would be numerous such that by the end of the “ambitious” Link Zambia 8000 project, the economy of Zambia and indeed the local engineering and construction sectors would be a marvel to look at.

Alas, the opposite has happened. 7 years since these guidelines came into effect, there is no local construction industry to talk about. The economic performance of the country is not as vibrant as the 2010 – 2011 levels. The engineering sector has received the biggest beating as most firms have had to lay off workers due to nonpayment of service fees by the RDA while others are grappling with court cases.
Yet, on the national front, very big projects are being announced and indeed launched.Some of them include;

• The Lusaka 400 project phase II and III.
• The CB400 project.
• The Ndola airport project.
• The Millenium challenge funded Lusaka drainage project.
• The Kafue gorge expansion project.
• The Lusaka – Kabwe dual carriageway.
• The Kazungula bridge project.
• The Kafue hook bridge rehabilitation project.
• The Kalabo – Sikongo road project.
• The Mwomboshi dam construction.
• The Chinsali – Nakonde road project.
• The scaling up solar project.
• The Mbesuma bridge project.
• KKIA construction project.
• Paul Mushindo university construction project.
• Kariba dam rehabilitation project.
• Kalungwishi hydro-power project.
• 1,000 communication towers under ZICTA.
• Feeder roads under the USD200 million World Bank facility.

The big question lingering within the industry is that who is really benefiting from these projects? Others are actually wondering who the real beneficiaries are especially that the local community who are on the receiving end of the negative effects emanating from such projects are not benefiting anything tangible at all. The dream or should I say the objective of lifting people out of poverty through infrastructure development is not being realised.

The companies (local contractors) that were privileged to receive some of the subcontracts under the 20% sub-contracting scheme are all bankrupt (well most of them). The reason for this is mainly due to financial incompetence by most of the beneficiaries. By financial incompetence I mean, the companies could not raise the financial requirements needed to execute such huge projects. In rare instances, the
owners of the companies exhibited financial indiscipline where they failed to adhere to well established accounting practices and in very rare instances, exhibited blatant financial mismanagement of their company’s financial resources. So from the foregoing and getting back to the budget pronouncements by the Minister of Finance, one would wonder how exactly he will be able to achieve his objectives and indeed if his pillars are really on firm foundation. My answer to this question is a big

“NO”.

In a nutshell, the following are some of the problems that were encountered in this “empowerment” agenda and indeed the implementation of the 20% sub-contracting mandate;

I. The lack of financial capacity within the local construction industry to execute major projects running in million USD.

II. The lack of technical acumen to be able to predict whether the contract may turn a profit or not.

III. Most contracts were being awarded to companies in good standing with the party and not necessarily in good standing with National Council for Construction (NCC).

IV. They lacked financial discipline and mismanaged their resources. Most of them were being “Zambian”.

V. Lack of political will from the government to ensure that local companies benefit.

VI. The existing commercial banks have stringent rules when it comes to lending out money or indeed issuing bank securities and guarantees such that most local companies could not meet the requirements.

VII. As a result of the above challenges, most contractors opted to sell those contracts back to the main contractor (or indeed another foreign firm) or went ahead to get loans from micro financing organisations with very high interest rates (as high as 35%).

VIII. Lack of an oversight or indeed a monitoring tool from RDA on how the program is running. This would have enabled them to identify the problems well in advance and remedies would have been applied.

3. Proposed Schemes

Nevertheless, despite the many challenges discussed above, we are yet presented with another opportunity to remedy these short comings. According to the annual work plan by RDA, ZMW 8.6 billion has been budgeted for this year to be spent on road construction alone. Other government departments have budget lines towards infrastructure development, rehabilitation, maintenance or indeed overhaul. This is briefly tabulated below.

From the above table, over ZMW13.0 Billion has been allocated towards the construction of physical infrastructure just for the 2018 fiscal year. If we can reserve 20% of that for the local companies, it will mean we are empowering our local contractors with about ZMW2.7 Billion just within one year. Over a period of 5 years we would have empowered them with over ZMW13.0 Billion, and of which by that time we should have built capacity within the local industry for them to take up even more than 50% of the total budgetary allocation.

Going forward and in particular within the year 2018 and beyond, we should go further by actually allocating 20% of all the material requirements on these infrastructure projects to be supplied by the local contractor/suppliers.Despite these prospects being positive, the underlying challenges listed above still remain unresolved. Here now are some of the measures that I feel could be implemented in order to empower our people economically.

a. The monitoring and evaluation sections of each of the implementing agencies should devise early warning mechanisms to detect problems early enough within the 20% implementation framework.

b. The government of the Republic of Zambia should setup and capitalise a Bank of Construction (Development Bank of Zambia or Natsave can work in the interim) with a clear mandate of supporting the local construction industry with bank guarantees, securities, loans, etc.

c. All Interim Payment Certificate’s (IPC’s) to the contractors should be paid through this bank and the bank should not release more money to the firm in question than what is needed to advance the project until the project is complete and handed over to government (to stem the abandonment of projects and misuse of project funds)

d. The local firms should sign up to an agreement that they will not be allowed to access any physical cash during the project implementation apart from their remunerations for the time input on the project. All other payments relating to the execution of the project would be paid directly to the suppliers and into the worker’s salary accounts (This will further stem illicit financial flows and payments for corruption related activities as all the monies will be monitored).

e. The moneys due to the contractors will only be released upon receipt of a completion certificate and conclusion of the defects liability period.

f. Only contractors demonstrating that they have undergone certain trainings should be considered for the award of these contracts (just like the NCC and Workers compensation requirements). These may include; deliberate technical courses to be run by NCC and TEVETA. Short accounting courses to be run by ZICA, Some training in banking and finance to be run by either the Bankers Association of Zambia or the newly formed “Bank of construction”. A short course on investments and the value of money to be conducted by ZDA. Some courses on corruption, fraud and financial intelligence to be conducted by the FIC in collaboration with ACC. All these courses should be tailored for the construction industry and should be aimed at equipping contractors with skills to manage their financial resources prudently.

g. NCC should be given the mandate to certify which contractor qualifies under the 20% sub-contracting after the said firm has fulfilled all the above. The current scenario of RDA giving authorisation certificates should be stopped as it has the potential to breed corruption.

h. Further subcontracting opportunities should be based on merit (performance based) as opposed to political or tribal patronage.

4. Conclusion

The above write up is aimed at unlocking the economic potential of this great country whereby masses of our people are lifted out of poverty. The measures contained herein are mostly applicable to the construction industry, but that is not to say they cannot be extended to other sectors of the economy. I believe, with political will, all these things are not far-fetched and are achievable within the resources and human expertise currently existing in Zambia. Further refinement to these ideas is possible to make the plan implementable within the existing legal framework.

It is my firm belief that the development of our country will only be achieved once both the local private sector and government rise up and find home-grown solutions to our local problems. Infrastructure development without a deliberate enabling policy does not achieve economic growth anywhere in the world. In fact, I like to say it this way, “the mere pouring of concrete into the ground without right policies in place benefits no one and does not lead to economic growth (development)”.

By Michael Kopulande
The Author is a Chevening Scholar (2016/17), Structural Engineer and Infrastructure planning expert.