Mar 25 , 2023

Local contractors plea for the international bid price threshold to be raised as the conversion rate has made it easier for foreign-based companies to outperform.

The proposed entry is to be set up to two billion Birr as discussed in a meeting that saw the attendance of officials from the Ministry of Urban Development & Infrastructure and the Ethiopian Roads Authority a fortnight ago.

Gebeyaw Yitayew, head of the Public Procurement & Property Authority, agree the threshold does not reflect the current purchasing power even though it was tripled to 600 million Br over a year ago by the Ministry of Finance.

"The experts at the Authority will assess and adjust," he told Fortune.

Gebeyaw also disclosed the door has not been closed for contractors that are able to work on projects requiring more than the appropriated amount.

Ethiopian Contractors Association, which lobbies for 2,500 members, presented a study focused on the challenges of the sector that was conducted over the span of six months.

It reveals the local contractor's participation is only three percent in federal projects although the capital budget accounts for up to 70pc of the total.

According to Girma Habtemariam, head of the Ethiopian Contractors Association, local contractors possess high tolerance during delayed payments, seeking bank loans to remain operational.

"We're struggling," he said.

Over 25,000 construction companies are operating in the country. A report from the central bank shows the sector's growth rate has plummeted to 4.9pc, the lowest in the past five years.

Wendimu Seta, state minister for the Ministry presented an assessment conducted by the experts, which received a 60 billion Br budget for the current budget year.

The assessment reveals that the number of national bids retendered due to insufficient bidders was six in 2018 rising for consecutive years and reaching 38 in 2021.

"Competence is declining while infrastructure appetite is increased," said Wendimu.

Of the 32 major construction projects five years ago, 80pc were contracted to Chinese firms, known for their better performance and delivery records outdoing local and international competitors.

Last year, Ahmed Shide, minister of finance endorsed the injection of billions of Birr to contractors handling university projects, covering them from cost escalations in construction materials and inputs. However, budgetary limitations forced federal Authorities to allocate a budget for  projects on the pipeline rather than commencing new constructions this year.

Bright Construction has been in business for over two decades with a 10,000 Br initial capital. The owner Zeratison Girmay said federal offices get into a deal with foreign companies for the associated funds they bring.

He claims to have witnessed the drainage of foreign currency without technology and knowledge transference.

Local contractors are finding it difficult to operate under the skyrocketing inflation, delayed client payments, and lack of short-term credit options.

Incorporated in 2008, Stiffcon Engineering is among the construction companies struggling to maintain their business. The grade two construction company is unable to put two of its three projects worth 160 million Br to the finish line.

Seyoum Dawud, owner of Stiffcon believes the local contractors should be subcontracted in the mega projects to alleviate their financial problems.

According to Seyoum, segmenting out construction into roads, buildings and general construction after gaining a license limits the contractors.

"We have the competence just not financial strength," he said.

For Argaw Asha (PhD), a board member at the Ethiopian Association of Civil Engineers, adjusting the threshold cannot be the long-term solution while the value of Birr keeps depreciating.

The expert who has been in the construction sector for 17 years recommends easing the financial burden through loan disbursements.

He believes the focus should be on enhancing the capacity of local contractors, making joint ventures and subcontracts mandatory.

"Capacity building is important," he said.

PUBLISHED ON Mar 25,2023 [ VOL 23 , NO 1195]

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