Martin Endjala
Construction Industry Federation of Namibia Chief Executive Officer, Barbel Kirchner, has attributed the reduction of activities in the construction industry to higher interest rates at local commercial banks.
While responding to Windhoek Observer questions this week on the ever-declining activities in the industry, Kirchner said the decline can be a result of increased interest rates on borrowing money from local banks for construction work.
Kirchner said with an increase in borrowing costs, one would automatically see that it is increasingly difficult to finance building and construction projects, which impacts building activity negatively as affordability reduces the demand for new residential or commercial properties would automatically decrease.
Increased interest rates also slow down overall economic growth, which has a cascading effect on building activities.
“If this trend continues, the demand for maintenance and renovation will also decrease. Interest rates are generally increased to curtail inflation and the depreciation of our currency. However, as people are less likely to invest in such an environment, it really has a massive impact on our industry,” she said.
Kirchner believes that this is one more reason why the construction sector should get the necessary support from the Government through strategic, targeted and focused initiatives.
She argued that the opportunity would have been there, adding that the fact that there are projects financed by the Kreditanstalt für Wiederaufbau and the African Development Bank, which lead to the exclusion of some local contractors is simply impossible and will lead to the death of the industry.
“Recently NamWater as well as NamPower advertised tenders. The size of the projects will once again prevent our own contractors from tendering. They are therefore forced into joint ventures with foreign contractors or are indeed subjugated to them as subcontractors. That happens even though they have the technical capacity.
“NAMFISA recently had a tender opening for the planned N$200 million head office and out of ten bidders only two were our own contractors. The rest were forced into joint ventures with foreign companies.
“Now it was also announced that our Government through the Ministry of Education, Arts and Culture – awarded a N$ 220 million contract to August 26 Construction, a company owned by our Ministry of Defence and Veteran Affairs,” Kirchner said.
She said the Government is competing with the private sector in a space where the private sector can handle the project. A situation she described as unacceptable, especially when the Government clearly knows about the state of the industry and what ought to be done to ensure that they maintain and further build capacity.
“We have to bear in mind the much-talked-about future opportunities relating to Green Hydrogen and the oil and gas industry. By the looks of it, our government really does not show much will or any intention to support our contractors. That really needs to change, “argued the CEO.
Kirchner further stressed that they want to see that all projects, including the KfW-financed road upgrade project between Karibib and Usakos, will be cancelled and re-advertised into smaller lots after all financial and technical criteria have been reviewed.
Meanwhile, according to A Simonis Storms Security report of July, the outlook on the construction sector remains bleak, with poor approval and completion results for the year thus far.
Fewer plans were approved and completed year-to-date compared to the same period during the pandemic year 2020, making it more likely to expect the sixth consecutive contraction in the real value of building plans approved and completed subsector of the construction sector Gross Domestic Product (GDP) in the second quarter of 2023.
The two municipalities analysed so far are Windhoek and Swakopmund which approved 2.5 percent fewer plans in 2023 totalling 1 538 compared to the same period in 2020 were 1 577 plans were approved, and for the same period, projects completed decreased by 47.4 percent since 2020.
This is the third consecutive year that the number of projects completed has declined during this period.
A total of 275 plans were approved in July 2023 compared to 340 plans in July 2022, translating to a 19.1 percent decrease.
However, on the positive side, the number of projects completed in July 2023 increased by 39.4 percent from 137 projects completed in July 2022 to 191 projects completed in July 2023.
The sector shrunk is said to be due to poor demand for new buildings which is reflected in the fact that there is a decrease in the number of building plans being submitted for approval.
In addition, tight financial conditions for households and businesses due to higher interest rates are leading to less demand for mortgage loans. Businesses have been net repairs of their mortgage loans since September 2022, indicating that new investments in buildings have been slow.
