Stanbic Bank supports contractors to expand Uganda’s infrastructure

December 16, 2019 in Columnists, Finance, Financial Services, Infrastructure, Investment by Editor

The author is the Sector Manager Power, Infrastructure and Telecoms at Stanbic Bank Uganda.

With a budget of UGX648 billion (about $175 million) for financial year 2019/20, the Uganda National Roads Authority (UNRA) is constructing an additional 900 kilometres of paved roads across Uganda bringing the number of all weather roads across the country to 5000km writes Brian Tahinduka.

Through a preferential contracting policy, UNRA is supporting Uganda’s local construction firms to achieve these targets by ensuring local content of 30% for each contract awarded.

At Stanbic Bank, we are committed to bridging the gap in the construction sector through fostering partnerships. We bring together key stakeholders such as the local contractors under their UNABCEC umbrella and leading employers such as the Uganda National Roads Authority (UNRA).

We have been engaging with both UNRA and UNABCEC to see how best as Stanbic Bank Uganda, we can provide creative solutions that help both parties increase the capacity of local contractors.

Our purpose as Stanbic Bank Uganda is driven by ‘Uganda is our home, we drive her growth’. Part of that purpose is ensuring we partner with local associations, such as the Uganda National Association of Building and Civil Engineering Contractors (UNABCEC), to provide financing solutions that contribute towards the economic growth of our country. This support in turn delivers both public and private infrastructure projects.

Today, as we partner with UNABCEC, we are providing customized solutions to the members and help them become effective partners with UNRA.

We provide a three-way engagement with UNABCEC and UNRA to tackle two key challenges. The biggest one is that local contractors frequently do not have the complete suite of road construction equipment. Our Asset Financing solution ensures that we can provide the required combination of equipment, such as compactors, motor graders, water bowsers and buck hoes to the contractors. Currently we are partnering with equipment suppliers such as Mantrac Uganda -providers of Caterpillar brand and General Machinery -providers of Komatsu brand to guarantee availability as well as regular servicing at affordable prices. This helps UNABCEC members to remain competitive in the industry.

Under our Asset Financing solution, we also give the contractor an opportunity to purchase the equipment and repay the bank over the life of the contract that they have won. The contractor contributes 20% of the total value of the equipment then the bank will pay the supplier the outstanding balance.

Additionally, all equipment is insured through our bancassurance solution that provides cover to the contractor’s business to mitigate any risks rising from the type of work undertaken. Stanbic bancassurance has partnered with the top insurance companies in Uganda to enable the client to get very competitive terms and rates. We provide a ten-month financing loan that once again allows the contractor to match their repayments in receipt of funds from UNRA.

It is however not always sufficient to provide local contractors only with financing without engaging UNRA to provide timely payments for completed work. We also commend UNRA for its efforts in ensuring local content of 30% for each contract awarded. We however need to take this further by making sure payments to contractors are made in a timely manner. Stanbic Bank has been engaging with UNRA to provide a sustainable solution that provides the contractor with a view of when payment can be expected and actually paid. This helps contractors plan their businesses better.

As we look to assist with the follow up of payments with employers of various projects, we are very happy to also provide cash flow relief by advancing funds of the invoices, to allow for continued performance on contracts towards completion. This we have seen has been of great benefit to contractors as they are able to deliver projects within the agreed timelines, thereby maintaining credibility in the market, which remains one if not the most important asset in the construction sector.

At Stanbic Bank, we recognize that for any construction company to succeed there is a need for financial institutions to provide bid, performance, advance payment and retention guarantees. We appreciate that access to these vital instruments has always been linked to the collateral provided, which usually hinders many construction companies from accessing them hence stagnating their growth in the sector. That is the reason as Stanbic Bank we pioneered the unsecured bid bond offering in the market and as it stands now, has allowed many construction companies to have an opportunity to bid for projects and win. We are looking to take this thinking a notch higher by supporting construction companies on the other guarantee requirements, without necessarily looking at collateral to guide the discussions and decisions to provide them.

As a bank, we are looking forward to partnering with you and making meaningful contributions to Uganda’s road construction sector.

The author is the Sector Manager Power, Infrastructure and Telecoms at Stanbic Bank Uganda