‘Tenders to foreigners will deplete reserves’

MBABANE – As concerns continue to mount on the awarding of expensive tenders to foreign companies, an economist has warned on the dangers that this could have on the country’s reserves.

This is in the wake of reports that the about E3 billion-worth tender for the construction of the Mpakeni Dam by the Eswatini Water and Agricultural Development Enterprise (ESWADE) would more than likely be given to foreign companies.

Both joint ventures that have submitted sealed bids for the project are foreign companies (from South Africa and Mainland China), which means there is no chance of a local entity being the main contractor of the multibillion project, whose loan will be repaid through taxpayers’ money.

The African Development Bank (AfDB) is the main financier of the project. According to a project appraisal report from the AfDB dated November 2021, the first phase of the project will cost an estimated E2 890 000 000 (E2.89 billion) and this will cover the infrastructure development, specifically the construction of the Mpakeni Dam, the environmental and social management activities and project management including engineering supervision.

SECURED

An amount of around E2.6 billion has been secured from the AfDB in the form of a loan towards this project.

The total cost of the project is estimated to cost around E4.8 billion, a bulk of which will be financed through a loan from the AfDB. A controversial company known as Sinohydro, which is owned by the Government of Mainland China, is in a joint venture known as Sakhalive and they are competing for the dam project with another joint venture of Stefanutti Stocks and WBHO.

The joint venture in which Sinohydro is part of has submitted a bid of E2.6 billion, while the WBO/Stefanutti joint venture bid is at E5.6 billion.

Local economist Thembinkosi Dube spoke to Times SUNDAY, stating that the effect of taking international loans and using them to pay foreign companies was negative to the economy because it meant that the country was taking out its reserves since it had to pay back the loans using foreign currency.

“Normally, public debt is calculated using foreign currency, which normally depletes the reserves of the country. So that’s the negative effect,” he said.

CONSTRUCTED

Dube said there were some minor benefits, such as the local people who are employed by the foreign companies and the fact that the structure that would have been constructed remains.

“But at the end of the day, we deplete our reserves. We do benefit by having the infrastructure if it has been built properly without the money being wasted and the objective was met. We have to look at the benefits over the costs. If the benefits outweigh the costs, then they will engage in the loan. We can look at what the benefits are and how they help the country in terms of development. But in paying back it chows our reserves and further we are exposed to the risk of foreign exchange,” the economist said.

He said for instance, if the country took a loan in the year 2000 for the construction of a road and was supposed to pay it back in United Sates Dollars over the next 25 years; in the year 2000, the US Dollar cost around E4 but now it is around E18, so the risk for foreign exchange becomes more when the country takes international loans.

Dube said it was true that the Central Bank does hedging in terms of curbing the loss from foreign exchange volatility, but there was still a loss in terms of payments. In terms of outflow and inflow of cash, he said those responsible for the loans looked at the quality of service.

ACQUIRED

“Maybe we might not have the expertise in the country and it has to be acquired from outside the country; that could be the reason that leads to us utilising foreign companies. As Eswatini companies, we have sometimes exposed ourselves by not performing to the expected standards and you find that in the future we are excluded from tenders, even if we qualify, because of substandard work. That is also considered. But in a case where there could be a local company that meets the standard, I think then we are missing the point by giving the tender to a foreign company because the local company would invest the money locally and pay the taxes and also employ local people and the money would work locally. That would be a plus to the economy,” he opined. Dube said the best practice in such scenarios was skills transfer, whereby these foreign companies, when they get awarded tenders locally, would employ the locals who will acquire the skills with which to further develop their own companies afterwards.

“The main thing that is lacking from locals most of the time is the entrepreneurial skill and you find that we are comfortable with the salaries we are being paid and we don’t see the need to utilise the skill we have acquired from the foreign companies to start our own engineering companies. We also have all sorts of excuses that prevent us from exploring our entrepreneurial skills,” Dube said.

Meanwhile, Business Eswatini (BE), the organisation that represents the country’s private sector, has asked that a good portion of the value of these big tenders should benefit emaSwati.

JUSTIFICATION

The organisation has stated that in a perfect world, there is a moral and social justification to source and localise all major works in order to empower local companies and create jobs to the benefit of the economy and the people.

“This is consistent with the country’s own vision to which BE is not opposed. The private sector of this country as represented by BE which has vested interest in this country as they create jobs and pay taxes, which means it would be disingenuous to overlook them when it comes to big tenders, yet they meet all the stipulated requirements. If that would happen, and God forbid, BE would be the first one to raise the alarm,” said BE Chief Executive Officer (CEO) Nathi Dlamini.

He said fortuitously though, the country now had a public procurement agency whose competence seemed to be unassailable so far as they possessed the specialised skills of assessing every project to determine the resources and technical competencies required to pull it off.

The CEO said if that assessment was done and the outcome was that we did not have the required technical skills locally and the wherewithal to fulfil the requirements of the project, then the unavoidable option would be to look elsewhere. “For example, if there was a tender for a nuclear power station, which is a project that demands unique technical and engineering competencies beyond what we have in the country, then one would be compelled, albeit begrudgingly, to look further afield and outsource the project to foreign firms. Admittedly, there is no company in Matsapha that we can think of which can handle a complex project of the scope and technical specifications as would be demanded by a nuclear power project,” Dlamini said.

He said in the event big projects had to be outsourced outside the country, some countries in the region had, at least in part, cleverly found a way out of this quagmire. “What they do in the specifications of the tender is to demand that certain aspects of the project be outsourced to local firms. Furthermore, they make it a requirement that the winner puts in place a traceable programme to up-skill local talent and purchase project inputs locally should they be available,” said the BE leader.

IMPLEMENTED

Dlamini said they had seen some tenders where the winner was even expected to put in place social programmes to uplift the communities in which the project would be implemented. This, he pointed out, was done in order to mitigate the extent to which taxpayers’ money allocated for the tender would find its way to foreign banks and companies which had absolutely no interest in the development of the country. “Even in an imperfect world like ours, there would be no justification for that,” he said.

The CEO added: “All we ask as BE, is that we be creative as a country when issuing tenders, especially to foreign companies, by ensuring that when the project is complete, a good portion of its value would have benefitted emaSwati. In doing so, the project would be a win-win. And that’s not a bad thing to say the least.”