PRESS RELEASE: TPSF ENSURES LOCAL CONTRACTORS PARTICIPATE IN DEVELOPMENT PROJECTS IN MAJOR DEVELOPMENT PROJECTS
Background: The fifth phase government under the leadership of H.E Dr. John Pombe Magufuli has prioritized industrialization as the main agenda towards implementing the Tanzania Development Vision 2025 of becoming a middle income country since taking office in 2015. The Private Sector still remains the main driver towards economic prosperity of the nation, and this has been confirmed on numerous occasions by the President of U.R.T. and his commitment towards improving the business environment. It is very evident that the government is implementing numerous development projects in the country to set up the necessary infrastructure to support the Private Sector.
The Situation: The Construction industry in Tanzania has a major role in the industrialization aspirations and remains the cornerstone for socio-economic prosperity of the nation. Construction accounts for nearly 22.2% of the Tanzanian GDP, statistics from 2005 to 2019 show that on average the GDP from the construction sector stands at around TZS 1,858,037.73 Mil. The Government’s budget in Tanzania also allocates a significant portion of its development budget; about 60% is spent on construction projects.
The construction industry in Tanzania is characterized by both local and foreign contractors categorized into different classes. Foreign contractors are restricted to Class One (the highest class) as it is deemed necessary to bring in foreign expertise only in large and complex projects that may be out of the capacity of local contractors and require international experience from more developed markets. From 2010 to 2017 the number of registered Civil and Building contracts double to 6,826 registered contractors with only 78 foreign contractors.
Despite the government’s increased investment in the sector the market share of local players both consultants and contractors remains very low. A study commissioned by TPSF in consultation with the Construction Registration Board in 2018 revealed that foreign contractors dominated the arena with 70% in value of all projects leaving only 30% to locals, which raised major concerns among many local contractors.
Further investigations into the matter revealed that the number and capacity of foreign companies in Tanzania are increasing faster than local companies and the volume of the projects registered by companies is growing exponentially choking local firms. Tendencies of foreign firms being awarded projects as small as TZS 200 Mil. were also on the rise.
TPSF interventions & policy reform proposals TPSF in collaboration with the Construction Registration Board proceeded to intervene in support of local contracting firms especially those small and medium-sized firms that were struggling to compete with the mammoth foreign contractors.
TPSF recommended the following policy changes to the government;
i. Mandatory Joint Ventures for any foreign company wishing to be awarded a contract in Tanzania, with a local Tanzanian Contractor having a minimum of 30% share in JV or subcontract value.
ii. A Financial Margin of preference for Tanzanian contractors over foreign Contractors over foreign contractors during tender evaluation, applying also to foreign companies that J.V with local firms.
iii. Implement a local exclusivity requirement of projects of values not exceeding TZS 10 Bil. not to be tendered or to be implemented by registered foreign contractors so as to safeguard small and medium Tanzania contractors.
Achievements: TPSF is pleased to announce that Public Procurement Regulatory Authority (PPRA) under the Public Act No. 7 of 2011 (PPA) and the Public Procurement Regulations and their subsequent amendments in 2016 has confirmed to TPSF that the law clearly requires procuring entities to grant a margin of preference to locals when procuring goods, services and works by means of international or national tendering. PPRA also intends to conduct annual procurement audits, and appropriate actions and recommendations are expected to be taken against officers in breach of the procurement law.
Mr. Salum Shamte (TPSF Chairman) regards this a big win for local contractors and is in line with the local content policy that TPSF worked tirelessly in the past to enforce, so as to ensure Tanzanian businesses and citizens participate fully in the development of their country. “We are grateful first and foremost to the President of U.R.T H.E. Dr. John Pombe Magufuli who received our proposals and issued a directive for the respective Ministry and Regulatory Authority to work on the recommendations”. TPSF Chairman is calling on local contractors to aggressively pursue development projects in the country.
On his part Mr. Dhruv Jog who heads the construction cluster at TPSF and sits on its board says “This is a milestone achievement for Tanzanian construction companies in particular and the Tanzanian Private Sector in general. For the First time in history, local contractors will now have a margin of preference applied during evaluation. While we continue to work on our other agenda items such as the mandatory Joint Venture and increased minimum threshold of TZS 30 bil. for foreign contractors, we are extremely grateful for our fifth phase government that has made it possible for an existing law to actually finally be enforced”.
“I urge local contractors to make quality, honesty and reliability the cornerstones of our companies to make the most of this preferential treatment”.
In addition, TPSF continues to advocate to raise the minimum threshold to TZS 30 Bil. For foreign contractors in order to align with the minimum thresholds currently being processed within EAC member states.