Dear Mr. President we are particularly pleased by the standard gauge railway and the green field terminal that you recently launched. We are also looking forward to the other projects in the energy sector especially generation of the 5,000 megawatts, the 1 million acres of Galana irrigation project, Lapsset, the 2000 km Lokichar to Lamu oil pipeline, the expansion and commercialization of the port of Mombasa, the laptop project, to name just a few.
The private sector will be a big beneficiary of these projects because the cost of doing business will be reduced considerably and our products will become very competitive within the region and the cost of goods locally will become more affordable.
We support you whole heartedly in your fight against brokers in many of the sectors of the economy who essentially are an impediment to the growth of organized business and do not add value to the implementation of projects.
Today we have some important issues two issues that we would like to bring to your attention because they seriously affect the economy of this country and are of great concern to us as engineers.
A) Ring fencing local content as a way of capacity building of Kenyan firms
Your Excellency we want to enlist your support in the development of capacity of Kenyan firms to undertake the implementation of the above mega projects by either amending the procurement law that will ensure that a certain portion of any project is set aside as local content.
We commend your government in your effort in setting aside 30 % of all government tenders for youth, women and people with disabilities.
The Cabinet Secretary treasury has already issued a circular to ministries and parastals to ensure a local content of 30% and some government ministries and parastals are already implementing this rule. Some are not doing so.
And they should follow the circular
Your Excellency we are looking for a similar initiative but on a slightly different angle. We want joint ventures with foreign firms.
Currently the situation is that our local firms are facing very stiff competition especially from the Chinese contractors even on GOK funded projects. The margin of preference provided for in procurement law is not helping because they are quoting even lower figures, these foreign firms are already quoting much less than our local firms.
They quote less because they are state firms who are heavily subsidized by their government. The price they quote is far below the real market value or cost.
The foreign firms have virtually taken over the building industry and if something is not done our situation will be like that of Angola, Zambia, Zimbabwe, Malawi, DRC to name a few countries where capacity building has been nipped in the bud.
There is no need of competing with foreigners. We want to work with them in joint ventures. This will help us build capacity while at the same time benefiting the country in the following ways
1). In creating an enabling environment for retaining professionals in
The construction sector who are currently finding better and more lucrative opportunities in the Diaspora
2) Technology transfer that will not only spur growth of industries but also be a catalyst for innovation. Industries could be established to provide the materials that are needed for construction of the projects thereby creating even more jobs
3) Kenyan firms to adopt planning and organizational skills from the foreign contractors
4) Learn and adopt their work ethics that has helped them to be providers of world class services for sustainability of Kenyan firms
5) More work opportunities will be created for Kenyan firms who in the
Past relied heavily on work funded by GOK which is limited to the available budget against other competing needs for money.
6) The country will have the opportunity to develop its own capacity to handle infrastructure projects that could serve the whole region at very competitive cost.
6) Joint ventures will increase the purse of the exchequer because a
Certain portion of that money will remain in the country where it will be subject to taxation. An example is the railway project, the airport Greenfield terminal, and the Lapsset and pipeline projects whose total cost is estimated at ksh. 1.088 trillion
Sgr project nrb to msa 327 bil
5000 megawatt projects. 425 bil
Greenfield. 56 bil
Oil pipeline along lapsset corridor 255 bil
Nairobi mombasa oil pipeline. 25 bil
Total estimated cost. 1,088 bill
If only 30% of the above contracts were implemented by Kenyan firms ksh 300 billion would go into pockets of Kenyans and therefore be subjected to tax in form of corporate tax and vat.
Assuming that the total tax would be 25 % then the exchequer would bag in ksh . 75b within 3 years.
7). The country will have an opportunity to create its own capacity to implement projects and be in a position to not handle export the same to the region.
Surely these infrastructure projects cannot all be done by foreigners while Kenyan firms watch.
We are requesting for a stake of at least 30 to 40 %.
China, Indonesia and other Asian tigers built their local capacities using joint ventures with western nations and they are now exporting it to developing countries.
Today there are two organizations that regulate the construction industry.
EBK and NCA and there is no problem of identifying contractors who can perform
B). Pending bills
I want to demonstrate how infrastructure development impacts on security.
Infrastructure is truly the engine of economic growth.
I will give you a simple example.
At the start of every infrastructure project the first people to be employed are casual, semi skilled and skilled workers and watchmen.
Immediately thereafter mama mboga, and other food vendors appear on the scene followed closely by dukawallas and finally a whole market thrives based on the infrastructure project. Moreover a project like Nairobi Thika road had employed not less than 3,000 laborers for a whole period of three years
By the time the construction works commence many men and women are employed and continue working until the end of the project as long as payment to the contractors are paid on time.
Infrastructure development is one of the quickest ways of putting cash into the pockets of the Wananchi. It empowers them and ensures that they have somewhere to report to.
Now as long as they are being paid they will not be involved in other activities that could endanger the security of other citizens.
It is with this in mind that I want to mention the issue of pending bills to contractors and consultants the construction industry is today on the death bed as we speak .
By dec.31 st 2013 consultants and contractors in the construction industry were owed in excess of ksh. 25 bil. In the road sector and 10 billion for contractors in the building sector which is attracting an interest rate of approx. Kshs 300 million per month.
Due to cash flow problems most of the local consultants and contractors have laid off most of their site staff starting with the most venerable the casual worker who must continue feeding even at the risk of endangering his life and others.
Some construction works have been slowed down, suspended and even stopped due to lack of payments for certified works.
Many of the small to medium contractors are now being foreclosed by the financiers, their assets are being reposed and auctioned. Banks are now classifying contractors as bad debtors.
The local construction industry is facing imminent collapse and at the moment the jobs of more than 95,000 employees are at risk of being laid off while 5,000 have already been laid off.
Some contractors owe the banks huge sums of money that they are unable to service others have lost their properties to the banks they have lost credibility with the banks and the banks have refused to loan any more money to them.
The banks are saying that loans by contractors amount to ksh 80 billion.
This is why the interest rates remain stagnant even when the CBK lowers the CBR.
The contractors have not been able to pay their suppliers for materials such as cement, steel, bitumen, ballast etc and also for other supplies such as fuel diesel and petrol thereby also affecting workers in those industries negatively as well.
It is vital that the pending bills owed to the contractors are cleared.
We are of the opinion that the government should only implement projects that can be supported by the budget to avoid this problem in the future.
We are seeking your intervention in this regard so that the construction industry can continue to be part of your government efforts to create employment for our youth and be sustained throughout the years that come at the moment the government is creating wealth and employment opportunities for the foreigners instead of focusing of promoting our own engineers ,engineering and construction firms, manufacturers and suppliers of relevant materials,
Remember we Kenyans shall sweat to pay the loan over many years
During any loan negotiation kindly involve Engineers so that they can remind you of conditions that would be beneficial to them.
Railway is just a road with the bituminous pavement replaced by a steel track. We have the technical capacity but not the financial muscle
Based on a speech by eng. Matu,
He is the Governor infrastructure sector board in kepsa. He is a consulting engineer with apec consortium ltd an engineering consultancy firm.