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Construction sector sinks into economic quicksand

THE construction sector has been in the doldrums as it has not been spared the deepening economic crisis characterised by a debilitating liquidity crunch, foreign currency shortages, runaway inflation and massive power cuts which last up to 18 hours daily. The introduction of Statutory Instrument (SI) 142 of 2019, which banned the use of the multi-currency regime and made the Zimbabwe dollar the sole legal tender, has worsened the problems bedeviling the sector. Zimbabwe Independent business reporter Kudzai Kuwaza (KK) spoke to the Zimbabwe Building Contractors’ Association president Francis Mangwendeza (FM) on the performance of the sector, amid these challenges:

KK: How has the sector performed in the first half of 2019?

FM: The construction sector has not fared well at all during the first half of the year. A considerable number of contracts have been cancelled, shelved or are in limbo because contract budgets or monetary provisions have suddenly been eroded and require funding that is now nine times higher than before.

This lack of contract activity has led to substantially high numbers of company closures. As a result, companies have terminated employee contracts, leading to very high levels of unemployment for construction workers. For those companies still operational, the employee numbers have been reduced drastically.

For our employees the situation is even worse because a large number of them are no longer employed and, those that are still “lucky” to be employed, their wage levels have been drastically eroded and they can barely survive at the current levels.

KK: What has been the impact of Sl 142 on the industry?

FM: SI 142 came at a time when the industry was adjusting to the issue of converting United States dollar contracts to Zimbabwe dollar. The issues that were relevant then remain. The industry has a long cycle from tender to completion, thus the biggest problems that the industry faces are to do with economic stability.

For prior existing contracts transitioning from US dollar contracts into Zimbabwe dollar has remained a thorny issue. For contracts that were completed in US dollar there are outstanding issues involving outstanding claims including retention amounts that remain unresolved. We are cognisant of our clients’ position which is that tenders that were previously, for example, one million dollars, are now valued at nine million dollars, an increase which most clients are struggling to fund.

Construction contracts have prescribed terms and conditions which assume certain economic fundamentals. Where these economic fundamentals are turbulent or are breached, it creates contract breaches from both contractors and clients. This is the current scenario.

We are therefore appealing for both clients and contractors to realise that it is no longer business as usual and they should engage, be tolerant of each other and work towards fulfilling their contracts in the best way possible, without prejudice to one party or the other.

For current tenders, the pricing of risk in the current environment has been problematic for the industry. This is reflected in the wide variances in tender prices that are being submitted. It is difficult to forecast what the economy is going to be like in, say, 12 months’ time, given the amount of shocks that have been recently been experienced.

KK: How far have you gone in pushing the contractors’ Bill?

FM: We unfortunately have not made any progress at all and the Bill is still sitting with the Ministry of Public Construction. We are now pursuing other options including seeking a meeting with the Presidency, petitioning our MPs and tabling the Bill as a private member’s Bill. At the same time, we keep engaging the ministry. 
KK: Do you think the Mid-Term Fiscal Review by Finance minister Mthuli Ncube last week addressed any of your concerns as an industry?

FM: We do not believe so and the current provisions have caused shocks in the economy, causing instability. This, in our opinion, is going to result in company closures and retrenchment in the sector.

KK: What action are you taking as an industry to overcome the current problems you are facing? 

FM: We continue to engage government as much as possible. Unfortunately, the issues are becoming very fluid that when you raise an issue, by the time you engage, it will have been overtaken by events. 

We have, under the Zimbabwe Construction Industry Council, an organisation that includes all practitioners in the sector that is Zimbabwe Association of Consulting Engineers, Zimbabwe Institution of Engineers, Architects Council, Quantity Surveyors, Contractors and other construction industry players and suppliers are going to hold a joint congress in September this year to interrogate the current state of our industry, engage government and deliberate on what we can do jointly going forward. 

This is a first for our industry and is indicative of the seriousness with which we view the current situation and the need to come up with workable solutions.

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