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Construction Boom,why we may never feel the real impact -CEO Project Bureau

Within the past few years, there has been much talk about a so-called “construction boom” in several African countries. Africa has received massive injection of Foreign Direct Investments (FDI) for infrastructure projects within the period partly due to European investors looking to explore new opportunities in Africa,rise in population and the emergence of a growing middle class hence increased demand taste for certain class of goods and services.

Though the risks of investing on the continent have been high, the returns have definitely not been low for such investors. The success stories of those investors who braved the odds and made their way to the continent at the initial stage definitely encouraged a lot more of their kind to follow suite while an even greater number is expected with the next few years.

Notable among the companies which has invested heavily in infrastructure include Hermes-Sojitzand Actis.Hermes-Sojitz, an international foundation,  has total investment volume $ 3 billion in ongoing and completed projects  until 2017 in countries such as. Actis, a leading properties investor in Africa,  has already invested $ 500 million in real estate markets of Nigeria, Zambia and Mozambique and continue to invest more. Currently, Actis in partnership with Mabani Holdings Ghana, is undertaking the biggest mixed-used construction project in West Africa at the heart of Ghana’s capital, the Airport City. The project is estimated to cost around $200m.

Like many other African countries, the case of Ghana has not been different; both the government and private sector players have invested heavily in infrastructure. Between 2012 and 2016 alone, the Ghana government, led by John Mahama, invested heavily in infrastructure including schools, hospitals, clinics, roads etc which ran into millions of dollars. Notable among those projects include:

  • €74millionCircle Interchange
  • $29m Kumasi (International)Airport upgrade
  • $50 million Tamale Hospital expansion project
  • $250 million Ridge Hospital project
  • $175 million District Hospitals project
  • $1bn Ghana Gas Project
  • Construction and rehabilitation of major roads
  • Construction of Community Day Secondary Schools

According to the Ghana Statistical Service, construction activity contributed $3.8bn to GDP in 2014, representing 12.7% of GDP. According to government reports, out of a total of GHC311,123,056.92spent from the Annual Budget Funding Amount (ABFA) allocation in 2016, GHC199,447,492.13was spent directly on road and other Infrastructure projects alone. This represented 64% of all oil revenue spent!

 

In spite of all these investments in infrastructure, especially by government, the ordinary people continue to lament of their inability to feel the impact. Youth unemployment and poverty remain major issues governments over time have had to deal with. Why is that the  and why can’t we feel the impact of  such massive investments?

This article focuses on the Ghanaian economy and seeks to explore four(4) main reasons why the ordinary Ghanaian has yet to, and probably may never ever, feel the positive impacts of these massive investments.

  1. Importation of raw materials/labor:In a country where we import virtually everything, from toothpick to shaving stick, the construction sector is no exception. Apart from sand, stone and water, about 90% of all other products used in construction projects in Ghana are imported from outside the country and even the continent. We import doors from China, windows from America, cables from India, hard furniture from Syria, and heavy and light duty equipment from Europe and Asia. Sometime in 2012, I even stumbled on imported building blocks in use on a site here in Accra. Most companies do import these materials because they are not readily available on our markets  and in instances where they are, quality and capacity to produce to meet demand have both been difficult to achieve. What this means is that,funds which are supposed to be spent on procuring locally manufactured goods and thereby keeping revenues within the system and also boosting the local economy are rather used to strengthen foreign economies through their exports to us. As if the importation of raw materials is not enough, most projects have relied on skilled craftsmen from outside the country partly due to the fact that local workmen lack the needed technical training and experience to handle certain projects. It is widely known industry fact that majority of the most effective, most reliable and most technically savvy craft men/skilled laborers are not Ghanaian. Most of the best carpenters, masons, tile men, ceiling experts etc ,here in Ghana are mostly from neighboring Francophone countries, especially Togo and Cote D’Ivoire. It is also common to come across Chinese, Italian, Lebanese and American Senior Project Mangers, Consultants and Engineers on major projects here in Ghana. When these workers receive their fees/salaries, they repatriate them to their families and other interests back in their home countries. During their stay, most of these craft men usually sleep on site and spend just a little of their earning much as possible whiles their senior counterparts, live in foreign-owned hotels and residencies, eat foreign food and dance to foreign music. The local economy, where majority of Ghanaians operate, is generally left out.

 

  1. Corruption and wicked profiteering: It is common knowledge that corruption exists in the building and construction sector and may continue to exist for a lot of reasons. From the process of acquiring permits and licenses to construct, through tendering for projects and requesting for payments when due, corruption stinks and runs through each process like rushing water. A recent World Bank Enterprise Survey report revealed that more than 60% of companies in the private sector reported being expected to give bribes when chasing for government projects.
    In the same study, it was established that, the value of gifts given is estimated at over 8% of the contract value, implying then that it eats into the profits of the companies who in turn pass on to the project by reducing quality or scope or both to the detriment of the country. By reducing the scope and or quality, less work is done and so less people are employed contrary to expectations.

Some politicians and technocrats have exploited loopholes in our procurement laws; have deliberately weakened systems and institutions to the disadvantage of the country. These wicked, unpatriotic elements, without shame, have often operated behind these weak laws and institutions they have created to perpetrate their diabolic acts.

Consider for example the recent case of what has come to be known as the “Smarttys Saga” which led to the resignation of the then Minister of Transport. In the end, the re-branding of 116 buses which initially cost the state Gh3.6million of her oil revenue was reduced to about GH1.7million after huge public outcry and protest. In effect, the state had been overbilled to the tune of Gh1.9million, more than 100% of the supposed original cost! This means that, Gh1.9million would have ended up in the accounts of individuals instead of being spent on employing artists, creative designers, etc.  Government would have captured the said amount as “spent” without the needed impact!This situation is no different from what happens in construction sector where even more powerful middle men and third party elementsthat wield unimaginable amounts of power and influence, parade the corridors of government with different names such as Consultants, Lobbyists, Financial Engineers, etc are at play. Have you asked yourself who really benefits when a government project is bloated 2 or 3 times its original cots? Is it the laborer or the poor carpenter? Or is it the…? Right! So yes, we may be spending millions of dollars in the sector but are they being used on projects or rather sitting comfortably in the accounts of people and earning interests on their behalf?

  1. Unfavorable Contract Terms:A number of infrastructure projects have been signed over the years with both local and foreign construction firms. Local contractors are generally given low-profile, low budget roads with their foreign counterparts enjoying the lion’s.Granted, local contractors do not always possess the needed capacity in the form of experience, equipment and skill, to complete some of these major projects on time and within budget, it is also true that our governments use foreign contractors as a result of certain mandatory clauses contained in most of the loan agreements. Because governments may not have the needed capital to commence a particular project at a time, they are made to apply for loans with certain institutions such as the World Bank, the China Exim Bank, Foreign governments and other investment firms. These institutions demand, as a condition for accessing such funds/loans that, certain contractors of their choice are appointed and subsequently awarded contracts. Our governments are somehow coerced in accepting these conditions and accept these conditions contractor wholesale with no room for objection whatsoever lest they lost the funds to equally loan-hungry countries from Africa. These companies come to Ghana along with their imported equipment, consultants, food, materials, skilled labor, etc and only employ a handful of Ghanaians, thereby denying the local economy of the much needed capital inflows. The amounts they spend on foreign-owned residenciesand hotels cannot be over emphasized. After construction, they exit the country with all the profits they make and sell their left over equipment/materials as scrap to local contractors. Scrap,maybe that is what we deserve or maybe that is what they think we are entitled to, after all.

Consider the following four (4) major projects in terms of their funding sources and their respective contractors:

Project Cost(million) Funding Agency  Contractor($m)
Ridge Hospital Expansion $250 HSBC Bank & Exim Bank of USA Bouygues Batiment (France)
Nakpanduri to Otidamanko(Easter Corridor) $150+ Brazilian Development Bank (BNDES) Odebrecht, and another (Brazil)

 

Circle Interchange €74.88 Brazilian Government QueirozGalvão(Brazil)
Construction of 7No. District Hospitals $175 Barclays Bank,UK NMS Infrastructure, (UK)

 

  1. The emergence of technology:The emergence of technology globally has no doubt given birth to innovative and more efficient ways of delivering services and projects. Due to technology in the form of advanced equipment and machines, works which would have taken 2 weeks to complete now take a few hours. Projects that needed a thousand workmen now need less than a quarter of the number due to technology. Because of technology, drawing and designs of projects can actually be virtually modeled, remodeled and constructed before they are physically put up. Mistakes /errors committed on site are gradually being reduced or even eliminated thanks to technology.

Because of technology, a team of experts or consultants no longer have to fly from Europe or America to oversee a project in faraway Oda in the eastern region; they can do so from the comfort of their offices or homes. By this, the country is denied what even the little they would have spent on local economy if they were to physically present. By this same technology, one expert can effectively manage more than three complex projects at a time! As a result, foreignconstruction firms do not have to spend extra to recruit local experts who would normally have been relied upon in the absence of foreign experts.

Over the years, when technology was gradually gaining root in the industry, our people failed to be innovative and also take advantage.Most smart phones/devices now have the capacity to produce real time GPS locations, conduct quick soil tests and conduct complex calculations and estimates. All these have reduced the number of hours and workmen needed to complete even complex projects. We have not been able to empower the likes of “Suame Magazine” in Kumasi to manufacture alternative spare parts for machines and equipment. Neither have we equipped our technical institutions to train students to deal with the new trends in the industry. We look on helplessly as some foreign firmsfly in mechanics from Europe to come fix technical problems here in Accra.Even components and spare parts for ordinary bore-holes are imported from India and China!

Well, until we stop dancing to every tune of the politician, until our politicians stop focusing on the superficial attributes of projects; until we all decide to create the needed environment for business to thrive, for small business to be nurtured and assisted to grow to the likes of DANGOTE in Nigeria; Until we all put the interest of our country ahead of any other interest, foreign or domestic, our story will never change even after eternity. In fact, it will worsen! We may even decide to spend Gh1bn on each school block project or plate our roads with Obuasi gold, unemployment will remain, hunger will increase and our economy will deteriorate.

Thank God for the emerging breed of Ghanaian, this story will not remain the same!

God help us!

 

By: Habakkuk Amakye, CEO-Projects Bureau Limited

 

 

 

ahotoronline.com|Ghana

 

 

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