Road under construction. Contractors want to have their own bank to
easily access funding, but they are facing a challenge of seed capital.
PHOTO | FILE
By Felix Lazaro, BusinessWeek Reporter
In Summary
“Contractors are not bound by any by-law to make
contributions compulsory to raise the seed capital. That is why we have a
problem. However, our plan is still to have such a bank,” says
Contractors Association of Tanzania (Cata) chairman Davis Baitani
Dar es Salaam. Although contractors are striving
to have a construction bank, the problem is to have an initial capital
to set it up.
“Contractors are not bound by any by-law to make contributions compulsory to raise the seed capital. That is why we have a problem. However, our plan is still to have such a bank,” says Contractors Association of Tanzania (Cata) chairman Davis Baitani.
According to the central bank, establishing a bank requires a seed capital of at least Sh15 billion.
Cata has formed a savings and credit cooperative
society (Saccos) to generate the capital. “We have a lot of issues to
tackle to realise our dream,” said Mr Baitani.
Five year ago, Prime Minister Mizengo Pinda challenged contractors to form their own financial institution to empower themselves.
Contractors Registration Board (CRB) registrar Boniface Muhegi says CRB, Tanzania Civil Engineering Contractors Association (Taceca) and Cata are supposed to mobilise their members to raise the capital. Tanzanian contractors are unable to compete with their foreign counterparts who are heavily capitalised.
During the 15th annual CRB meeting and exhibition,
Works minister John Magufuli stressed the importance of setting up the
construction financial institution for Tanzanian contractors to check
the dominance of foreign competitors.
“I wonder why you are not starting your bank,” he told more than 600 contractors.
Contractors hope that by having their bank they
will be able to capitalise their businesses and win large tenders. They
are taking a leaf from China’s book of contractors in which a bank for
construction has boosted the performance of the Chinese contractors.
According to a study titled ‘Chinese Contractors in Africa: Insights from a Survey’ by Ray Levitt, Chinese have been getting more support from their financial institutions to execute contracts in Africa.
According to the research, which surveyed 32 Chinese contractors in Africa and used a case study of Chinese projects in Ethiopia, the respondents noted that they got most of the support in terms of loans, guarantees and bonds from Bank of China.
Other financial institutions that supported them
were Exim Bank, China Construction Bank, China Agricultural Bank, Bank
of Communication and Standard Chartered Bank.
Mr Muhegi says most financial institutions are yet to design products for offering guarantees and bonds to the contractors. That is why it is necessary for contractors to open their financial institution, apart from having Saccos.
“The beginning is difficult, but with time the bank will be opened after pooling our contributions together,” he told BusinessWeek. Currently, classes four to seven contractors get support from the Contractors Assistance Fund (CAF) by CRDB Bank for their capacity building. The CAF capital base was increased from Sh891 million in 2004 to Sh1184.4 million in 2005 while the fund’s membership increased from 335 to 414.
“The fund itself is not enough due to high demand,” says Mr Muhegi. That calls for the need to have the bank for contractors to meet their demands.
CRB chairperson Consolata Ngimbwa calls on Tanzanian contractors to take the Sri Lanka Construction Guarantee Fund (CGF) as a role model for construction activities.
The fund offers construction guarantee services on behalf of contractors since it was started to serve as a financial ventilator to contractors and to ensure the domestic construction industry is undertaken with integrity and professionalism.
CGF has since recorded a good performance given that its number of bonds grew from 122 in 2000 to 710 in 2008 and various bonds were issued.
China also intends to open a bank in Tanzania.
The challenge remains that most banks have no special services to cater for the needs of contractors in Tanzania.
Mr Muhegi says most financial institutions are yet to design products for offering guarantees and bonds to the contractors. That is why it is necessary for contractors to open their financial institution, apart from having Saccos.
“The beginning is difficult, but with time the bank will be opened after pooling our contributions together,” he told BusinessWeek. Currently, classes four to seven contractors get support from the Contractors Assistance Fund (CAF) by CRDB Bank for their capacity building. The CAF capital base was increased from Sh891 million in 2004 to Sh1184.4 million in 2005 while the fund’s membership increased from 335 to 414.
Already 360 members have benefited from the fund.
“The fund itself is not enough due to high demand,” says Mr Muhegi. That calls for the need to have the bank for contractors to meet their demands.
CRB chairperson Consolata Ngimbwa calls on Tanzanian contractors to take the Sri Lanka Construction Guarantee Fund (CGF) as a role model for construction activities.
The fund offers construction guarantee services on behalf of contractors since it was started to serve as a financial ventilator to contractors and to ensure the domestic construction industry is undertaken with integrity and professionalism.
CGF has since recorded a good performance given that its number of bonds grew from 122 in 2000 to 710 in 2008 and various bonds were issued.
It was set up in 1999 by the secretary to the
Treasury and established a trust for providing guarantees and other
securities to contractors. The fund is devised in such a way that the
guaranteed contractor is supervised to ensure that there is no misuse of
the opportunity by some unfaithful contractors.
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