22 June 2012

Zimbabwe: 'Construction Sector to Grow'


IN November, government said Zimba-bwe's construction sector will grow by 1,5 percent in 2012 and create new job opportunities. The announcement, made by Finance Minister Tendai Biti during a presentation of the 2012 National Budget, reignited hope for an industry that suffered immense decline during the hyperinflationary period that ended in 2009. The Financial Gazette's Property Correspondent, Paul Nyakazeya (PN) this week spoke to the immediate past president of the Construction Industry Federation of Zimbabwe (Cifoz) Daniel Garwe (DG) about issues affecting the industry. Here are the excerpts:

What is the construction industry's capacity utilisation?

The brick and motor industry is currently operating below 40 percent. Lack of government and private sector contracts and the liquidity challenges being experienced are the major factors contributing to the low capacity utilisation. As at December 31, 2011, capacity utilisation was at 33 percent. This has been an improvement from 22 percent as at December 2010. Some official statistics in the 2012 budget indicate that the sector is expected to grow by 1,5 percent by December 31, 2012.

How many people are directly employed in the sector?

At its peak the construction sector employed more than 35 000 people but the figure dropped to just over 3 000 in 2009. However, with the improvement in capacity utilisation the sector is expected to employ more.

How has the dollarisation of the economy affected the construction industry in Zimbabwe?

Since the inception of the multicurrency system, government has continued its role in injecting funds for the development of various civil and building construction projects across the country. This saw several projects, mainly in the road and public housing sectors that had been put on hold, being revived. Dollarisation has also revived the mining sector. The Zimbabwe Platinum Mines and Unki Mine in Shurugwi have embarked on massive construction of housing units and other administrative buildings. The sad story, however, is that all these projects are being executed predominantly by foreign companies.

Do you see activities and projects on the property sector improving?

Although the industry is stagnant and not much activity is underway, we expect an improvement in the capacity utilisation. It may be a slight improvement. Given the signing of the bilateral agreements and the announcement of some short-term credit lines by government, there should be some movement upwards in the industry.

However, the industry is still constrained with load shedding and acute funding shortages as local banks continue to impose stringent borrowing conditions at short-term duration.

Construction companies are still struggling to re-attract skilled labour mainly engineers and quantity surveyors, who left the country for greener pastures over the past decade. If the industry continues to improve, it has potential to contribute up to 20 percent towards the Gross Domestic Product.

Do you think most Zimbabweans appreciate how the construction industry contributes to economic revival and employment creation?

Zimbabweans appear to have limited understanding of how the construction industry contributes towards employment and wealth creation.

Our farmers, for instance require administration centres, schools, clinic, hospitals. These facilities will obviously contribute significantly towards increased production on the farms. Sadly, that is not the case now. We need to adopt a deliberate policy to construct such infrastructure to create employment. During the 2008 global recession the Chinese embarked on a bullish infrastructure development programme, which invariably assisted European economies in turning around their economies through massive importation of building materials. Countries that benefited were mainly from Europe and the United States. These economies significantly revived their manufacturing industries that had closed down.

What is your comment on residential and industrial rentals?

Rentals are still very high. Most Zimbabweans seem to have a hangover of the hyperinflationary era despite Zimbabwe being formally dollarised nearly three and half years ago. With the US dollar at play, there is no justification for increasing rentals at the moment unless there are significant improvements on a property. There have been increases in rentals due to shortage of accommodation in the country and this trend is likely to continue this year. With low average incomes and loss of employment in some sectors of the economy, a number of people are relying on rental income as a major source of income hence the rentals have remained high.

Would you say property prices are priced correctly?

Many properties especially in residential areas are not priced correctly. Prices of residential properties are distorted because potential sellers use comparative methods and are being greedy instead of carrying out proper property evaluations. Surveys that have been done indicated that rentals in some high-density areas have increased to US$65 per room, from an average of US$50 per room last year.

An increase in rentals could in turn pile wage demands in both the private and public sectors.

Has the release of mortgages improved activity on the property market?

The first quarter of the year has seen reduced activity on the property market because of the liquidity challenges that have worsened. Shortage of money on the market largely moved the property market to a buyers' market. The few buyers on the market are enjoying good deals as the law of supply and demand came into play. The greater percentage of buyers on the market is within the US$50 000 to US$160 000 range creating a shortage of properties within this category. This development created distortions on the market as certain properties that would ordinarily not fit this category were being pushed to satisfy the demand. There are a few buyers being advanced mortgage loans from various institutions. However, these loans are short-term loans, making them expensive for borrowers. Most home seekers would then look at not borrowing a lot of money thus creating greater demand at the lower end of the market. The few institutions that have managed to disburse mortgage funds have immensely reduced the mortgage period from the traditional 25 years to between five and ten years while low salaries have not helped the situation as far as qualification amounts and ability to pay are concerned. However, with a limited number of financial institutions offering mortgage finance, players contend that a 10 year mortgage at an average interest rate of 15 percent per annum could result in high mortgage defaults.

What do you think should be done to revive the construction industry?

Affordable finance should be readily available. The absence of finance has greatly affected the sector as available financial institutions are not disbursing funding, if they do give loans it will be short-term and very expensive. The sector relies mainly on mortgage financing and long-term loans to operate viably. Their absence has negatively affected the industry. The sector also needs access to plant and equipment. Most of the plant and equipment that construction companies own is antiquated such that they cannot perform tasks efficiently. Worsening the situation, the new plant and equipment available in the market is extremely expensive. Indigenous companies have no financial capacity to procure the plant and equipment.

There is need for value added products and risk management to address the challenges faced by industry.

Government must enforce laws that ensure designers give preference to the use of locally manufactured materials. This helps in resuscitating our materials manufacturing sector. Clients should understand their contractual obligations and avail funds and upfront procurement of materials before the start of a project. Consultants should be convinced that the funds are available for the job before commencement.

The issue of globalisation has offered competition on the local market. Foreign companies with highly skilled labour, state-of-the-art technology and equipment have grabbed both local and regional business away from local companies. This has affected local players as most of the contracts are being awarded to foreigners leaving no business and opportunities for locals.

Lack of meaningful government support should be reviewed. Government which is the greatest client in the construction industry has not been fully equipped to give local players business. Effects of sanctions and other challenges have negatively affected government's capacity to invest in infrastructure. However, sadly though, the few contracts that government is parceling are going to foreign companies. Zimbabwe has very sound and solid empowerment laws that unfortunately are deliberately being ignored by line ministries, parastatals and the state procurement board. It is my considered opinion that a vehicle be created to monitor the implementation of empowerment laws.

Compared to the region, how would you rate Zimbabwe construction industry?

The sector has a great potential, if everything is to be in the right place, with the right pricing, right equipment, right products and right market. However, currently the Zimbabwe construction industry is still lagging behind as the cost of building materials remains prohibitive compared to the region, unlike most sectors in the country that are adjusting themselves in line with regional pricing after the economy was dollarised. The property industry still has a hyperinflation hang over. Most contractors' quotations are still very high compared to what the region is charging and this is inevitably slowing down projects.

The cost of building in Zimbabwe is still very high. To mention a few example, in Zimbabwe 1 000 common bricks cost between US$60 -US$90 while the same quantity in the region costs less. Semi-common bricks are being sold for US$40-US$90 while semi-common bricks in the region cost between US$30 and US$70. Face bricks cost between US$100 to US$190 locally while the regional average was between US$80 and US$160. In Botswana and South Africa, plumbing materials, door frames and window frame cost about 20 percent less than what is being charged in Zimbabwe.

 Is it cheaper to build or buy a complete house in Zimbabwe?

This is perceptional, however the issue dances around the factors such as quality, size, the contractor, features of the house and other factors. It seem like the whole issue also rest on the doorsteps of mortgage holders.

As CEO of Planet Building Contractors, how has the current environment affected your operations?

Planet Building Contractors has been in existence since December 1998. The business has endured the effects of harsh economic conditions that have been created by sanctions. A number of government projects have been put on hold due to lack of funding and this negatively affected the company as well, since it was executing some government projects. The company is predominantly surviving on jobbing projects. What has kept the company going though is nothing other than the art of resilience demonstrated by management and staff. Adhering to good corporate governance and ethics has been a key result area as well. We have managed to build a brand during the most difficult period of our life.

I am proud to mention that Planet Building Contractors (Pvt) Ltd is now a distinguished brand.

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