BUSINESS
Companies in the construction sector generally face more difficulties than
firms in other sectors when it comes to accessing finance.
design, which is when DFIs typically come on
board. Hence, the nature of traditional project
development does not allow an interface
between DFIs and contractors to allow DFIs
to participate in contractor-facilitated finance.
This is a great drawback in the traditional
project development process. But thankfully,
this phenomenon is changing. Greater
private sector participation in infrastructure
development and financing is allowing greater
synergies between downstream project
activities, such as construction and operation,
with upstream activities, such as design and
project structuring. This results in a holistic,
whole life cycle view of project development,
rather than the fragmented approach that
has traditionally applied, with construction
companies securing access to DFI financing
through PPPs and project finance schemes.
Other challenges that I can cite without
going into detail include:
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High costs relating to participation
in the bidding processes, for example
submission of bid securities, lines of
credits, asset ownership and leasing
arrangements, and performance
guarantees. Advance payment securities
pose a great financial challenge,
particularly for smaller companies
that might not have the necessary
financial standing to meet these bidding
requirements, which also limits their
participation in tendering for projects.
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FEBRUARY 2018
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Uncompetitive strategies deployed
by some companies to win projects,
including the presentation of very
low bids that deprive legitimate and
highly competent companies of the
chance to win. Firms that win by
presenting these low bids are in most
cases unable to execute the contracts
successfully, leading stakeholders to
label construction companies as high-
risk non-performers, which of course
has an adverse effect when it comes to
accessing finance.
The difficulty construction companies
have in establishing lasting joint
ventures to pool their strengths to
pursue projects is another setback.
For contractor-facilitated finance,
some form of government guarantee
is often required to secure debt. This
would count towards the country debt
ceiling agreed with the International
Monetary Fund (IMF) and can often make
the scheme unattractive.
Existing local procurement laws do not
necessarily cater for contractor-facilitated
financing in some instances. Increasing
use of ‘design and build’ schemes
and their variants — including build,
operate, and transfer (BOT); build, own,
operate, and transfer (BOOT) — will
help contractors to secure financing,
but in this case, the financing would not
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2.
only cover construction and companies’
working capital, but instead would
cover funding of the whole project with
expected revenue generation from the
project upon completion.
Export credit agency (ECA) financing,
where available, is restricted to home
country contractors only.
How does the African Development
Bank work directly with construction
companies looking for funding?
The African Development Bank provides
financing of infrastructure projects through two
separate funding windows: public sector or
sovereign; and private sector or non-sovereign.
Public sector funding of road projects is
usually in the form of concessional loans
or grants to governments or state-owned
entities (usually with some kind of government
guarantee). This is the conventional way
of financing road projects where funding
for a project is secured before selection of
contractors takes place. In this case, the
bank’s sovereign financing is not directly
accessible to construction companies.
In the private sector window, the African
Development Bank does not provide
financing directly to construction companies
that are acting as EPC contractors, nor
provide ECA (export credit agency)-type
financing for the purpose of exporting;
however, should the construction companies