Businesses in the building and construction sector are severely affected by late payments on government projects with the amount owed in excess of N$1 billion.
Minister of Finance, Calle Schlettwein, is expected to hold a press briefing today to give clarification on the matter.
Outstanding debt of 115 companies that participated in a survey conducted by the Construction Industries Federation of Namibia (CIF) exceeds N$1 billion.
As a result, indications are that close to 75 percent of businesses (85 respondents to the survey) are currently experiencing cash flow crises, with dire consequences. Not only will there be delayed progress or stoppages on projects and contractors will have great difficulty to meet their contractual obligations but more importantly, people’s livelihoods are at stake.
Between 1 September and 30 November 2016, a total of 1 008 people employed by the 115 companies were retrenched, and an additional 604 peopel will lose their jobs by the end of this month.
The results of the survey reflects a trend in the industry, and it is possible that for every 100 businesses in the construction sector, about 1 600 breadwinners will be without an income and 13 000 dependents will be left destitute during the holiday season and without any glimmer of hope for the new year, unless Government pays overdue invoices immediately and provided that there are some significant signs of support to Namibian companies in the sector very early in 2017.
Unless government paid for the services provided by the industry by the end of November 2016, six companies will be bankrupt; another 11 will have folded by the end of this month and a further 11 will have borne the brunt by the end of March 2017.
If no payments are forthcoming by the end of 31 March 2017, 25 percent of the 115 companies that have participated in the survey will be bankrupt.
It is also possible the figure could be higher as some businesses are insolvent and bankrupt already and could not participate in the survey.
Close to half of the 115 respondents indicated that between 70 and 100 percent of their business is dependent on government projects. The majority of businesses keep looking out for new tenders (58.26 percent), with the implication that competition for limited work in the private sector will increase. Businesses are forced to act strategically to counter the disastrous repercussions of late payments and the freeze on new government projects. Expenditures are being cut (71.3 percent) and bridging finance is being negotiated with financial institutions (32.17 percent).
Other strategies include the reduction of the size of businesses (39.13 percent) with 43 companies reducing their labour costs. Measures include: not filling vacant positions, no bonuses, reducing work hours, retrenchments and cutting training and development-related expenditure. Some companies have started selling off equipment, machinery and plant.
When asked about possible solutions that could mitigate the situation, respondents to the survey highlighted that government needed to pay on time, that is, within 28 days (84.62 percent) and needed to pay penalties on late payments (77.78 percent) and that effective payment systems (76.92 percent) needed to be established.
Eighty-five of the 115 businesses also stated that Government should “be brutal” against corruption, and 84 respondents (71.79 percent) stated that no tenders should be awarded to foreign companies.
Bärbel Kirchner, consulting general manager of the CIF, says: “The situation is critical, as N$1 billion is a humongous amount of debt – in fact, much more is likely to be outstanding as not all construction companies participated in the survey.
“Many of the businesses in the construction sector are sitting with a serious cash flow crisis, due to late payments. Companies are downsizing and retrenching, and many are staring bankruptcy in the face. This applies to the entire supply chain in the industry and unless Government acts rapidly and immediately and before closing down for Christmas, we will have a Tsunami effect and a large chunk of Namibian capacity in our industry will be wiped out.
“A variety of reasons were given by Government to justify the consolidation of the national budget. It appears that mostly the development budgets of the respective authorities were cut. However, regardless, there must be funds available to pay service providers in our industry for their work done, even if that were to mean that Government operational budgets have to be cut in the interim.
“The industry cannot wait until after decision makers have returned from their holidays. We know that respective authorities also regard it as a priority but we must be aware of potential bureaucratic inertia. Payments need to be effected immediately. The uncertainty has devastating consequences for the businesses and for the people in our industry. We therefore urge Government to pay all invoices older than 30 days before 15 December and before things slow down for Christmas.”
Kirchner further stated: “We know that our industry is cyclical and that we cannot expect the same growth as we had over the recent years. However, we cannot allow companies to go down due to late payments and Namibian companies must be involved with all upcoming projects, irrespective of size.”