UNABCEC Open letter to H.E on delayed payments
AN OPEN LETTER TO THE PRESIDENT OF THE REPUBLIC OF UGANDA ON DELAYED PAYMENTS OF CONTRACTORS
Greetings from the Uganda National Association of Building and Civil Engineering Contractors (UNABCEC), an umbrella association of legitimate Engineering firms in Uganda that are involved in construction of the different types of physical infrastructure in the country.
Your Excellency, the sustained economic growth your leadership has enabled over the years has continued to increase the demand for larger and higher quality physical infrastructure in all the domains of engineering including Housing, Energy, Transportation, Telecommunication, Industry, Mining, and ICT. Our membership dominates in the provision of these engineering and construction services, motivated by the fact that a stable secure economic environment will exploit the full economic potential of our nation, Uganda if the right infrastructure is in place. The processes at this infrastructure development stage are also good incentives for local industry development if contract forms are structured well to enable the retention of dividends within the economy.
Notwithstanding that the construction industry is still an infant industry in Uganda, we are currently the second biggest source of employment for the “bazukulu”, the youth, after Agriculture. Construction offers better quality of employment because it offers predictable incomes that also come with progressive skills development for the worker. So, parenting this infant industry that also happens to have a direct contribution of over 12% of our GDP is of strategic importance for establishment of employment of our youth, growth of local industries, delivery of a higher quality of public infrastructure and, consequently, sustainable economic development of our nation.
Your Excellency, the entity that bears the responsibility to parent this infant industry, the government, has not been a caring parent. Today, no contractor executing government works has not suffered the injustice of delayed payments, making some close shop.
The chorus of contractors' songs and lamentations is nothing but the delayed payments and lack of work continuity. The government of Uganda remains by far the biggest employer of construction contractors. So, any irregularity in contract management significantly affects the local industry and, in many incidences, wipes out gains contractors will have gained towards establishing a local construction industry. Patriotic efforts like reservation schemes, mandatory 30% subcontracting and BUBU to promote local content, have yielded insignificant results because the ground is not leveled with international players, most of whom are supported by their states of origin.
The recent Business Survey conducted by the Uganda National Association of Building and Civil Engineering Contractors (UNABCEC) indicates delayed payments as one of the major challenges affecting construction businesses in Uganda. Besides the overwhelming accumulated interest on loans, contractors are currently risking losing everything they used as collateral to acquire loans to execute government projects. Commercial Banks, who are the main financiers of the industry, are losing confidence in government-funded projects making these projects less competitive and hence more expensive.
Contractors have lost credibility before associated stakeholders. Their family members, workers, and colleagues in other sectors; besides the critical ones being suppliers, bankers, and insurers among others, are now viewing contractors with contempt and a sense of derelict.
Due to delayed payments, most contractors have been and are still struggling to complete ongoing projects by borrowing expensively and in the process going beyond the contract sums and period which in turn results in penalties like liquidated damages. Others have been frustrated from performing ongoing works and have thus been hindered from generating requisite revenue to maintain skilled labour force, pay statutory obligations, and Insurance among other business obligations. In addition, they are unable to meet their obligations with Uganda Revenue Authority (URA) and as a result, their Accounts have been seized and some offices closed; they are unable to get Tax Clearances from the entity, which has affected future businesses.
Continued non-payment severely hurts construction companies and triggers a downstream spiral negative effect of suppressing related manufacturing and smaller businesses along the supply chain.
Besides delayed payments, the escalating prices of Construction Inputs namely, fuel, cement, and steel among others has become an additional burden to contractors. While there is need for deliberate cushion against ongoing contracts with government entities that were signed before the current inflation, this increase in the cost of production could have been mitigated had payments been timely.
The far-bearing micro and macro challenges, which will compound into a paradox include the nugatory expenditures to the government due to machine idling and interest on unpaid invoices, sociological problems that arise as companies lay off workers when under financial constraints, and poor investment decisions and projections since it is almost impossible to invest in capital development due to the uncertainty in payments.
It is therefore critical for this industry, which represents the backbone of our developing economy, to function efficiently. An appropriation of a special fund in the FY2023/24 budget purposely for settling all outstanding arrears to contractors would serve to address the challenge.
By Elizabeth Muhebwa
Executive Director of UNABCEC