Local business a vital building block

Namibian-owned local businesses should receive the largest portion of the diminishing opportunities in the construction industry, while also ensuring that suitable opportunities are established to improve the government's revenue base.

This is vitally important for the struggling sector, says Bärbel Kirchner, the chief executive officer of the Construction Industries Federation of Namibia (CIF).

The construction industry has experienced a recession since 2016, resulting in numerous closures and bankruptcies of construction businesses. In 2015, the construction industry contributed 7.2% to Namibia's gross domestic product (GDP), which has now decreased to less than 2%.

As a result, many employees were laid off, and almost 50% of those employed in the construction sector lost their jobs, Kirchner says. This has also led to the retrenchment of workers and professionals, causing a brain drain and related opportunity cost as many professionals have left the country, she added.

“Currently, the private and public demand for building and construction works is very limited, which will lead to more retrenchments in the immediate term. It is therefore critically important that the local construction sector is stimulated again with consequential positive macro-economic implications,” according to Kirchner.

Decimated base

Cirrus Capital shares the CIF’s concerns.

“The outlook [for construction] remains a concern, and if nothing changes soon, employment in the sector is likely to decrease before June 2023,” Cirrus said in its economic outlook for this year.

The construction sector is unfortunately experiencing minimal activity, the analysts said. Major construction projects in Windhoek have concluded, and ongoing road projects are primarily handled by Chinese firms.

While some smaller projects are scheduled for this year, such as upgrades at the Maerua and Grove malls, Cymot's relocation, as well as renewable energy and tourism initiatives, they remain limited in size and volume. The active mines, such as uranium and gold, also contribute to the construction industry, but their impact remains small, Cirrus said.

The analysts pointed out that concrete sales in Windhoek reached a multi-year low in 2022, indicating a weak residential sector following the initial surge driven by the pandemic's DIY boom.

Though improvements are expected over the medium term, the struggling sector will face another weak year in 2023, with gradual recovery in 2024 from a decimated base. However, potential new mines from late 2024 offer a glimmer of hope at the end of a long and difficult tunnel, Cirrus said.

Tenders

The CIF recently held a meeting with the African Development Bank (AfDB) to highlight the crucial need and urgency for international financiers to support local contractors that are majority owned by Namibians.

Prequalification requirements of previous projects financed by the AfDB had left Namibian-owned contractors excluded. While the AfDB has existing procurement policies and laws in place, it is crucial to make every effort to involve local businesses that are majority-owned by Namibians.

“It is important that tender requirements are such that they can meet both the AfDB policy and legal requirements, as well as that they are also aligned with the reality of the Namibian economy and construction sector,” Kirchner says.

The argument is frequently raised that foreign contractors can often submit lower bids due to their access to state-sponsored cheaper financing from their home countries, making it challenging to compete on price. However, regardless of this, appointing foreign contractors has significant macro-economic, social and political implications, especially considering the current country-wide issues of unemployment, poverty and inequality, she stresses.

“It needs to be borne in mind that the youth unemployment in Namibia is exceptionally high – above 40% - which can leave the greater part of Namibia’s people completely vulnerable. This needs to be persistently and adequately addressed.

“It is critically important that every opportunity is sought to create employment and fair jobs. Construction is one of the sectors that allows for swift engagement with immediate impact,” Kirchner says.

Competition

In its analysis of the latest building statistics, Simonis Storm (SS) said government has once again reduced its development budget and so local contractors will depend more on private projects. Competition to tender for projects under a restricted development budget is at an all-time high according to the CIF, they said.

Moreover, SS said, Namibian contractors face competition from foreign companies, and smaller local construction businesses have been displaced by more prominent and established contractors.

The sector is highly competitive, with politically connected individuals receiving tenders despite lacking the necessary skills and equipment to execute the work, resulting in subcontracting to more competent contractors, SS said. This practice has also led to project delays and non-achievement of deliverables, causing certain infrastructure projects to stall.

The absence of a sector council or regulator implies that the aforementioned situation is likely to continue, affecting the profitability of local players in the construction sector, the analysts said.

The CIF has been advocating for a construction council since 2006, which would promote local capacity building and regulate the sector effectively. However, this has yet to be achieved. The lack of political will to establish a sector regulator is worrisome and should be a priority for the government, SS emphasised.