Last week, the Deputy Minister of Roads and Transport, Hon. Anthony Karbo complained about the lack of funds to repair or construct new roads. A few days later, Senior Minister, Yaw Osafo Marfo complained about “inflated costs” of road projects. The politicians may be right with their legitimate concerns about financing for road infrastructure, single source procurement, high costs of construction for public projects etc.
However these are just symptoms of broader industry-wide problems which need to be comprehensively addressed by all stakeholders. To do this, we need to see the big picture. This edition of a two-part series explores bigger picture of the broad issues at hand before an attempt at analysing the potential strategies that can help develop a world-class industry capable of delivering world-class infrastructure for industrialisation.
The state of the Ghanaian construction industry
Some of the main problems identified from recent and past studies as affecting the Ghanaian construction include inadequate management, poor workmanship, payment delays, poor design quality, personnel issues, bribery and corruption, poor contractor classification, low workloads, issues relating to funding and finance such as poor access to credit, delays in payment from government and government agencies, cumbersome payment processes, inability to compete in the competitive system of procurement, lack of capacity to compete with foreign owned firms and fragmentation of contractor representation bodies. The rest are low technology, inadequate supervision of contracts, poor preparation for projects, revision of bills of quantities, politicisation of contract bidding processes and lack of barriers to entry. Some of these are challenges are briefly discussed below.
Industry regulation
The Ministry of Road and Highways and the Ministry of Works and Housing are responsible for the policies that have an effect on the construction industry in Ghana. Both Ministries are responsible for the registration and classification of road contractors and building and civil engineering contractors respectively. However neither ministry has an established programme for monitoring or regulating contractor performance. All Ghanaian contractors are required to register with the Registrar General’s Department with a requirement and submit annual returns. This however does not technical involve performance on projects. There is therefore no central body authorised to regulate the planned development of the construction industry. This has affected in large measure the effectiveness and overall performance of the Ghanaian construction industry.
Management of Ghanaian construction firms
The performance of Ghanaian construction firms is a main source of concern amongst stakeholders in the Ghanaian construction industry especially the largest clients. Many clients fail to achieve performance targets set for their projects. The larger indigenous contractors are mostly owned by proprietors who have little or no formal knowledge of construction, project or organisational management. Most of these proprietors generally do not employ personnel with the technical know-how to manage their firms towards sustainable growth. Management of firms’ resources is poorly done in many cases and therefore does not promote growth.
Inflation
The Ghanaian construction industry has a highly unstable business environment and is characterised by high inflationary trends which negatively affect Ghanaian contractor capital making it increasingly challenging to manage construction firms in Ghana. For example, in the twelve month period between February 2015 and January 2016, the official inflation rate in Ghana ranged between 16.5% and 19%. Apart from July 2015 when it fell from 17.9% to 17.3%, there were successive increments in the entire twelve month period. In the same period in the UK, the official inflation ranged from 0 in February 2015 to 0.3% in January 2016 with a record low inflation -0.1% in April 2015 and the highest month-on-month increment of 0.2% in the 12-month period.
Financing for construction
Accessing finance for construction and infrastructure projects in Ghana is a major problem for both large and small construction firms. Many of the traditional banks do not lend to Ghanaian construction firms. Banks which finance construction charge very high interest rates which make it prohibitive for contractors. Difficulty in accessing funding is compounded by delayed payments especially for public projects. The effects of these and many other problems which affect the industry accounts for the difficulty in attracting investment into Ghanaian construction firms. In the decade leading up to 2012, there were no listed construction companies in the Ghana stock exchange and no Ghanaian construction firms in the Ghana Club 100 list of prestigious companies which demonstrate excellence in performance.
Ethical issues in procurement
There is a widespread perception of bribery and corruption in the public sector of the Ghanaian construction industry. Perceptions are rife that public sector procurement is affected by unethical payments which influence the award of contracts. It is widely believed that sometimes even non-contractors can be awarded contracts upon payment of an agreed percentage of the contract sum. These “contractors” then go on to “sell” the project to legitimate contractors to others to execute. There have been calls for safeguards to prevent corruption in the awarding of road contracts. Whilst there have been attempts to improve efficiency in the use of selective approaches such as sole sourcing which reduces the costs associated with procurement, there appears to be some abuse of the process. For example, in the procurement process for the construction of the Job 600 office complex for Members of Parliament in 2014, the Speaker of Parliament halted the process, blaming the sole-sourcing approach used as not offering sufficient opportunities to get the best deal. The transparency of the processes in the majority of projects procured using sole-sourcing have been disputed with many questioning whether such projects, mostly public projects, offered value-for-money. A statement attributed to Deputy Minister of Roads, Hon. Karbo claims that some 90% of all road contracts were awarded in the past four years through selective tendering is astounding.
Delays in payments to contractors
In many public sector projects, the contractor has to pre-finance sections of the project or the entire project. This is common particularly in the road sector of the Ghanaian construction industry; the client (Government of Ghana) appears to be downgrading its responsibility for financing projects. Whilst it is common practice globally for contractors to receive regular periodic payments based on periodic valuations of completed work, in the Ghanaian road sector and for many building projects, contractors need to complete the project before payments are effected. Payments for completed public work in Ghana are usually subject to long delays, sometimes up to two years. This practice has resulted unfortunately in contractors on public projects embarking on demonstrations, locking up completed projects etc to demand payments for completed projects.
These are just a few of the many issues that affect the image and performance levels in the Ghanaian construction industry. The collective efforts of all stakeholders are required to address these issues and to help the industry in Ghana to achieve its fullest potential and be the engine of industrialisation that it can be. This is the sort of action needed, and urgently, to develop a world-class industry capable of delivering world-class infrastructure for industrialisation.
Source: Kwame Ofori-Kuragu
The author, Kwame Ofori-Kuragu (Ph.D.) is a lecturer at the Kwame Nkrumah University of Science and Technology and a co-author of TRANSFORMING CONSTRUCTION – An action agenda for enabling world-class construction and infrastructure development for accelerated industrialisation – which will be launched in Accra on the 2nd November, 2017. The author can be reached by email at: kokuragu@yahoo.com