Rising costs haunt government

Malawi Government is feeling the pinch of the 25 percent kwacha devaluation implemented in May 2022 as contractors are demanding increases in their contract prices due to rising cost of materials.

The contractors are also pushing for a review of an increase in their withholding tax to 10 percent which Minister of Transport and Public Works Jacob Hara concedes threatens to “kill” the construction industry if left unchecked.

The minister expressed the sentiments yesterday following a decision by Unik Construction Company, which was constructing part of the Rumphi-Nyika-Nthalire Road, to ask for an increase in the contract sum or they will terminate the contract.

The contractor is constructing a section of the road from Chikwawa to Bembe worth about K7 billion.

Hara said the request was not unique to Unik Construction as almost all contractors are pushing for an increment and the ministry is evaluating each contract separately to determine the way forward. He said contributing factors were being assessed.

He said: “This is a common problem. All the contractors have complained about that, so it’s a big problem because contractors feel like they are making losses and if we cannot revise the prices, then they will quit the work.

“Sometimes it takes too long before we award contracts and prices will keep escalating such that by the time we award contracts, the prices will have changed. So, we have several contracts on the table that we are looking at separately, including one from Unik.”

Besides suggesting that the best option for government is to negotiate on the contracts such as the one for Unik, the minister said the withholding tax is a big burden to companies, as most of them make profits of between 10 percent and 15 percent.

Said Hara: “This has been a big blow to most of the contractors and that’s why we are also having serious challenges on the contracts. We are talking to the Ministry of Finance on the consideration because that 10 percent is a killer, it is one that will bring down the industry because we will never have a properly done or finished contract, and everyone will feel short-changed.”

National Construction Industry Council (NCIC) spokesperson Lyford Gideon said the council is aware of the challenges and is taking advantage of the review of the procurement law to deal with the challenges.

He said: “In the meantime, NCIC has in the past few weeks launched the Malawi Infrastructure Delivery Management Standards as a guide to best practice in the inception, planning, procurement, implementation, maintenance and disposal of infrastructure.”

Mzuzu-based contractor Weekly Mhango of North Works said government takes too long to award contracts which burdens contractors.

“I am working on something now whose contracts are based on prices for 2021, which is a burden to us as contractors. Government needs to understand these things,” he said.

Mid this month, the Malawi Building and Civil Engineering Contractors and Allied Trades Association (Mabcata) protested government’s decision to increase withholding tax in construction contracts from four to 10 percent.

In February, the World Bank Transport Infrastructure Sector Assessment Programme report said the Malawi Government needs about K1.57 trillion to finance road projects by 2025 to promote connectivity and economic growth.

The report said Malawi’s comprehensive medium-term investment covering the year 2020- 2025 would need roughly K2.30 trillion.