SMEs can benefit from large projects

20 Mar, 2020 - 00:03 0 Views

eBusiness Weekly

Joseline Sithole
I was in Mutare recently amid tragic circumstances. A lot of death surrounded “Yours truly”. My dear beloved uncle, Calvin Mwaparadza died a somewhat tragic death at an infamous place called PaChigomba Beerhall in Sakubva high density suburb. Next door in Darlington our neighbour and a Mutare businessman, Kumbirai Khumbula, was shot in cold blood in the early hours of Sunday morning during a prayer meeting.

My uncle’s funeral was held in the OTS section of the Sakubva high density suburb, one of the oldest suburbs in the country. I can safely say Sakubva is like what Mbare is to Harare, Mkoba is to Gweru and Makokoba is to Bulawayo. These townships are the oldest in these cities.

Just a brief background on this sprawling suburb will suffice here. I will borrow from research that was done by Jabulani Mangezi Diamond FM manager, for the introduction of our show on the Sakubva Urban Renewal Project on Diamond FM on Sunday.

Sakubva was established in 1925 and was meant to accommodate African labourers who toiled in the factories. Way back, residents lived in sub-human conditions with 15-25 families sharing ablution facilities and two or more families sharing a single room.

Nearly 40 years on, the suburb is now overpopulated with hostels overcrowded.

At my uncle’s funeral I could not help noticing a lot of loitering among our teenagers and young adults, children playing around dump sites salvaging “toys” to play with. Amid all this seemingly doom and gloom, the Sakubva Urban Renewal project recently commissioned by President ED Mnangagwa, is an apt and timely intervention to turn this city into a Smart City by 2030.

The Sakubva Urban Renewal Project is a good example of a Public Private Partnership (PPP) initiative. Plan Infrastructure Group, the developer, will invest US$900 million in 10 phases in developing Sakubva into a Smart City.

The group will partner with Mutare City Council and the Government of Zimbabwe. It will build modern flats and houses, a modern flea market and fresh produce and a state-of-the-art stadium.

The first tranche of $1 million is ready for disbursement in less than two weeks.

Large infrastructural projects have wide ranging benefits to both communities and SMEs. Perhaps the foremost benefit, is the creation of employment opportunities especially for the youths.

Invariably, there will be skills transfer from big companies to recipients. In the same breadth, these projects have the added advantage of improving living standards of communities through providing better social amenities, which will enable the local youth population to embark on clean fun.

However, with regards to the business fraternity, infrastructure programmes have the added advantage of boosting stable and consistent incomes among SMEs if we consider that markets are a problem among this sector.

These projects give SMEs the opportunity to grow not only in revenue but in their human resource base and technical ability. In a survey conducted by Halimani et al, in 2019, the results showed that, SMEs with two or more years contract with a PPP company, increased the number of employees and their profits.

Through skills transfer initiatives, SMEs will gain the capabilities of being able to manage large infrastructural projects.

According to Dominic Bvunzawabaya, a board member with the Manicaland Chamber of SMEs in charge of infrastructural projects, capacity building and SME selection criteria will be important to ensure that project objectives are met.

However, involvement of SMEs within infrastructural projects is fraught with problems and we are going to briefly review some of these problems.

What are the problems SMEs face in participating in large infrastructure projects?

Firstly, to a large extent, SMEs find themselves urged out by bigger players. SMEs might find it costly and time consuming to meet the requirements of a heavy compliance burden.

The Broad Based Black Economic Empowerment is a good example of a policy that endeavours to fight the negative effects of regulatory bottlenecks. According to the BBBEE policy, Exempted Micro-Enterprises (EMEs) with a turnover of less than US$10 million no longer need a certificate from a BBBE verification agency to confirm their BBBEE status. This serves costs that are related to compliance issues.

In addition SMES might not be able to meet pre-qualification criteria. According to Halimani et al, “This is unfortunate, because SMEs participating in PPPs can build local capacity and expertise , decrease costs, facilitate logistics, encourage increased competition and create broader opportunities for economic development.”

Another big problem is the lack of adequate policy that deals specifically with participatory parameters for SMES within big infrastructural projects.

The Government has recently drafted a Small to Medium Enterprises infrastructural development policy. However, this policy only compels local authorities to provide working space for small businesses.

The policy is, however, silent on how SMEs can effectively participate within the realm of the development of big infrastructural projects.

Another problem is the capacity deficiencies that are experienced by SMEs. To start with, SMEs might lack the requisite technical ability to execute projects of this nature.

According to a World Bank Report entitled “Providing Essential Infrastructure in Fragility, Conflict and Violence Affected States” herein referred to as WBPPP, SMEs are particularly active in the manufacturing and textile sectors including tailoring and agriculture. Infrastructure-based SMEs are particularly rare especially in smaller towns such as Mutare where the level of infrastructural built has been particularly low.

To this end SMEs who participate in such projects will only do so within a subcontracting role. It should be noted that this phenomena, is not only problematic to Sub Sahara Africa only.

The WBPPP cited above also notes that, in Europe, no SMES in a PPP partnership has been valued at more than €17 million.

In addition 85 percent of these contacts are valued at the sub contractor level. Human resource capability is a big problem with a majority of Manicaland SMES largely individually owned at 79 percent of all total SMES (Finscope Study 2012).

SMEs traditionally have had challenges with accessing funding. In Zimbabwe this problem is very real as traditionally, banks have not been forthcoming in disbursing loans. This leaves SMEs heavily dependent on grant funding. Coupled with this problem are the lack of awareness of quality control measures and lack of standard certification from respected bodies such as the Standards Association of Zimbabwe.

This problem might be exacerbated by weak public institutions who lack the capacity to deal and execute such big infrastructural projects.

As will be indicated later during the article, public and private partner institutions need to be capacitated in various skills for them to manage and deal extensively with a wide range of issues and stakeholders who are part of the project.

1.0 Towards inclusivity for SMEs in infrastructural projects.

Policy shift

A policy framework is an absolute must for the engagement of SMES with the project. Failure to position a policy in place might possibly lead to misinformation, uncertainty and suspicion over the implementation. SMEs might also need to be aware of the implementation modalities of the project. These examples are taken from the WBPPP report.

(a) Argentina: Regulation for the Promotion of the Private Participation in Infrastructure Development — Decree 676/2001. (This law outlines the various roles of SMES at the procurement and implementation stage. At the implementation stage, if the project is awarded to a non-SME, the private partner has to subcontract at least 20 percent of the construction value of the contract to SMEs.

(b) Australia: National Public Private Partnership Guidelines Volume 2: Practitioners’ Guide — The Guidelines’ section 13 — Bid Evaluation states that when evaluating the experience of those who expressed interest in a project, the evaluator should not be “narrowly defined nor over-weighted to the extent that it is a barrier to the development of smaller firms, unnecessarily reducing competition.”

(c) European Union: Directive 2014/23/EU of the European Parliament and of the Council of February 26, 2014 on the award of concession contracts — this EU directive on the award of concession contracts promotes the levelling of a playing field for SMEs to ensure that they are able to equally participate in the EU market on business opportunities. For example, Article 1 sets out the need to support SMEs as a rationale for this directive, and Article 63 notes that bidding criteria must permit subcontracting to encourage the participation of SMEs in the project.

(d) Preferential procurement:  The policy should state a quota system for the different gender and age groupings. For example, what compulsory quotas should go to women based SMES, youth-based SMEs and Persons Living with Disabilities.

2.0 Technology and skills transfer

It is imperative that the project has a foolproof skills and technology plan. Local educational institutions should take advantage of this project and find internship opportunities for students. Many policies have an embedded skill training and transfer component within their infrastructure development projects.

In Ghana, the National Policy on Public Private Partnerships expounds “Local Content and Technology transfer as one of the key guiding principles. In Malawi, the Public Private Partnership Policy is structured in a way that “encourages the maximum use of local content and technology transfer”.

3.0 Awareness campaigns

Stakeholder awareness is very important in large infrastructural project such as the Sakubva Urban Renewal Project especially within communities. To this end, Non-Governmental organisations can play a major role in ensuring that all stakeholders are well aware of the project and their role. Frequent stakeholder meetings and community interfaces are a must in this project.

4.0 Dedicated agencies

The Eskom Kusile Project within the Mpumalanga region has a dedicated Enterprise Development Unit, which ensures that quotas that are supposed to go the intended beneficiaries are well monitored and requisite intervention strategies are put into place. In Sierra Leone, Local Content Act established the Local Content Agency which “provides support to suppliers, exporters and importers, gives local content certification, and establishes rules for tendering processes.” In Mutare this agency might bridge the gap among all the stakeholders and ensure that project milestones are being monitored.

5.0 Establishment of

sustainable supply chains

Many studies have stressed the importance of establishing robust supply chains. This is particularly important considering that this is an infrastructure project and suppliers are going to be important. According to Micael Thunberg in his paper “Developing a framework for Supply Chain Planning in Construction”; “Inadequate management of supply chains affects costs productivity time and quality of the product. To this end the project needs to ensure that a supply chain strategy is embedded within the whole project.”

6.0  Capacity building

A variety of capacity building initiatives need to be conducted to a wide range of stakeholders. For example within the public sector and the various Gvernment authorities’ capacity can be built in areas such as Monitoring and Evaluation, Reporting and stakeholder management and liaison. In this project capacity building of the local authorities in the frontline of the projects is very important. Capacity building for the SMEs can be sector specific to build capacity in those particular sectors.

In conclusion, there is a need to be strong co-ordination and monitoring and Ban Ki Moon the Secretary General is that broad partnerships are the key to solving broad challenges. When governments the United Nations businesses, philanthropies and Civil Society work hand in hand we can achieve great things

Joseline Sithole is an SME Consultant and founder of Southern Africa Development Consultants (SODECO). For comments write to her on [email protected] or whatsapp +263773634062.


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