Contractors welcome credit bureau

Failure to access finance has been stalling local contractors’ growth and ability to compete in the market as well as pursuing huge projects which could contribute immensely in job creation and poverty alleviation.

Lending institutions like commercial banks have been hesitant to give loans to huge projects that require massive funding due to risks associated with them.

And where they fund construction projects, commercial banks have been charging very high interest rates that make contractors fail to make profit.

A strong economy tends to push forward the construction sector which employs a lot of people and involves many other sectors too; its development tends to propel other sectors toward progress.

To arrive at this point, the Contractors Registration Board (CRB) said the establishment of the credit reference bureau which is set to commence on June this year having put in place the creditworthiness of the borrowers including contractors will provide a crucial mileage in accessing bank loans.

“Financing small and medium construction projects could have far reaching impact into the economy, particularly job creation and poverty alleviation,” noted Mr Boniface Muhegi (pictured), the CRB Registrar in an interview with Business Standard.

The absence of the credit bureau has been listed as one of the reason for high interest rates as commercial banks have little information of the borrowers’ creditworthiness.

BoT currently has selected Germany’s Creditinfo International GmbH and US business information firm Dun and Bradstreet to provide credit information on behalf of the central bank under stipulated law and regulations.

Statistics show that over 90 per cent of small construction projects not exceeding 1bn/- value are being undertaken by local contractors, which is a sign of the improved capacities but with improved financial capacity it could boost the quality of works.

He said the quality of works and integrity is among the factors which bolster most of the financially crippled small scale local contractors’ ability to compete and execute huge multibillion projects.

“In order for the small scale construction business to contribute significantly to creating jobs and reducing poverty, financial empowerment is no more an option but a priority,” he said.

There is a direct relationship between construction sector and the growth of national income which is also a sign of improved living standards of the people. Statistics show that activities in the construction sector last year recorded over 10 per cent growth rate.

For the Tanzanian economy to grow, it needs well developed transport infrastructure like roads, bridges, railways as well as efficient telecommunication network.

Other important features like residential properties, commercial buildings, hospitals, fibre optic cables and service centres are equally important.

By enhancing the capacity of local contractors, the immediate impact could be noticed in the ability to compete and win huge tenders thus reducing the market share gap with the foreign contractors.

“Despite the progress made by the local contractors, their foreign counterparts have continued to dominate in undertaking large and high valued tenders with over 50 per cent market share,” he said.

Capital remains to be a huge problem as a number of local contractors seeking financial accommodation from banks find themselves disqualified due to lack of or inadequate collateral.

Lack of strong economic muscles for local constructors has freely given foreign counterparts dominance of the lucrative construction sector and repatriating millions of money, while experts warn that the country will hardly develop economically unless the unhealthy trend is addressed.

Currently, lending institutions provide limited range of financing to construction activities. Most local contractors face the challenge of lack of enough funds to manage or run multi-billion shilling construction projects.

The CRB recommends that small scale contractors should always consider either merging or forming consortium that is capable of competing with the giant. This aspect should be considered as one of critical importance that would ultimately lift them the uncompetitive environment.

Mantrac Tanzania, who is the sole distributer of CAT construction equipment, has recently collaborated with Stanbic Bank to offer credit facility to contractors.

“Limited capacity and high prices of the construction equipment have been hampering most small scale contractors to pursue big projects that could at times signify an automatic elimination from the tender process,” said.

The Mantrac Tanzania Team Leader, Used and Rental machines Mr James Malonga. This is an opportunity for contractors to explore the loan opportunity provided by Mantrac Tanzania to procure machines that will help them withstand the current market competitions in the construction industry.

Also, it is high time that key players in industry like companies specialized in making construction machines and raw materials like cement to support small scale contractors grow and executive huge projects.
Source: Daily News, reported from Dar es Salaam, Tanzania
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