‘Infrastructure projects too expensive for local banks’
Roadworks for the expansion of the Kampala Northern Bypass at Busega. Projects such as this have been found too expensive for local companies to fund. PHOTO BY MICHAEL KAKUMIRIZI
What you need to know:
Problem. Foreign companies are preferred to local ones.
Kampala. As Uganda enters into a phase where private money is being sought to finance infrastructure projects such as the $1b (Shs3.3 trillion) Kampala–Jinja Expressway, banks are expected to play a role.
However, such ambitions have been played down by the country’s largest bank - Stanbic. Mr Patrick Mweheire, the bank’s managing director, said the 25 commercial banks in Uganda combined can only raise up to $200m (Shs664b) for a single project.
“Banks cannot do everything. The expectation that banking can fund all infrastructure projects in Uganda is rather misguided,” Mr Mweheire told technocrats, regulators, and construction and insurance company managers at a symposium on power and infrastructure projects last week.
Stanbic Bank can only fund up to $50m (Shs166b) of a single project and as such credit limits are put in place to avoid exposing the bank to potential loan defaults.
In the past, infrastructure projects have been financed through taxpayer funding. However, with the passing of Public Private Partnership Act, 2015, some projects such as the Kampala-Jinja Expressway are being used to attract private money into public projects.
If the government is to seek such from locally registered commercial banks, they would still have to look to foreign development banks to access the bulk of the financing. The best the commercial banks can do is financing the needs of contractors.
“We provide financial guarantees to support the procurement process, letters of credit to procure materials to be used in construction projects, offer import loans, contract financing and structured financing amongst many others,” said Ms Emma Mugisha, the head of transactional products and services at Stanbic Bank.
Local companies miss out
Some of the companies that require financing to participate are Ugandan owned. However, they are below the pecking order in government contracts.
At the symposium, Ms Cornelia Sabiti, the executive director Public Procurement and Disposal of Public Assets Authority (PPDA), once again raised concerns that the infrastructure projects were mostly going to foreign companies.
According to her, at least Shs11.2 trillion worth of infrastructure projects is held by foreign companies and Shs911b by local companies.
Furthermore, she said where large foreign contractors are expected to sub-contract a local company, that was not being done. “The government is doing anything deliberate to encourage contractor and supply of materials for projects comes from companies within the country,” Ms Sabiti said. This is even despite the preference schemes emphasised in the PPDA Act. She said the government agencies such as Uganda National Roads Authority and Uganda Electricity Transmission Company Limited have not been able to make preference schemes for local companies to work effectively.
