Interview: Dhruv Jog, Managing Director, Advent Construction
How has the sector evolved since 2015?
DHRUV JOG: The construction sector has changed in terms of the proportion of projects in the building segment versus the civil segment. Since 2015 there has been a gradual but clear shift towards civil works, with many more infrastructure projects, namely road, bridge and marine projects, as opposed to building sector projects. Since 2008 the private sector invested heavily in building spaces, which has now evened out as the commercial capital Dar es Salaam has an adequate supply of buildings. There is still demand in the residential segment, but commercial space is quite well supplied. There is a lot more demand for infrastructure, marine works and water distribution projects. At the same time, numerous industrial construction projects are commencing as the government has strongly positioned itself to industrialise the economy. As a result, there are incentives for industries, resulting in better infrastructure and generating more industrial projects.
What can be done to improve the tendering and procurement process of public works projects?
JOG: Chinese companies benefit from subsidised materials and equipment from their country of origin, and also enjoy tax subsidies because they bring in foreign currency. As a result, Tanzanian companies that have to buy equipment and materials from China, the US and the EU cannot compete on a commercial level. There are very simple policy changes required and similar reforms have been made by other governments around the world. We have done extensive research and started to put these reforms forward to the Tanzanian government. We are looking for simple and non-obstructive policy amendments. A margin of preference during evaluation and mandatory joint ventures with local contractors are some of the policy improvements we need to see; these have demonstrably helped domestic construction industry in almost every developing and developed country and it is time the Tanzanian government showed its commitment to developing local capacity by doing the same. Additionally, a review mechanism needs to be set up and the Public Procurement Act, of 2011 should be amended to require the full disclosure of the final cost of completion for projects in the public sector. There is currently a loophole which only requires the cost of the award of a contract to be disclosed, but the cost of completion is never disclosed. As a result, less scrupulous companies intentionally underestimate the cost and then, over the life of the project, build up costs using various claims and variations. Most of the time, examining the record to see the actual cost of completion reveals them to be one-and-a-half times higher than the most expensive original bid. Setting up a review mechanism will bring more responsibility to contractors when they tender an offer, leading to more realistic offers. By introducing these reforms – which do not impact the national budget whatsoever or require any fiscal benefits – the government will significantly benefit from added liquidity in the market, more efficient tax collection and increased job creation.
How has a stronger shilling and falling inflation over the first half of 2017 impacted the sector?
JOG: These factors have been great for the sector as it gives us a little more confidence in our pricing mechanisms. The nature of this industry is that we have to hold pricing for at least one year, if not two to three years. A stable, if not stronger, shilling gives more confidence to the sector. It also helps provide less of a risk factor when it comes to pricing, while also lowering the cost to the client and making projects cheaper and more efficient. For example, in 2015 steel prices went up by 20% in the space of a few months. For a contract that required 1m tonnes of steel over a period of two years, this equated to a significant jump in costs, and may have led to the suspension of a number of projects as well as conflicts between contractors and clients. The fact that this is not happening now is a good thing.
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