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COMPANIES LOSE INTEREST IN GOVT TENDERS

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mbongeni@times.co.sz

 

MBABANE – Things are getting tougher.

Companies are slowly losing interest in doing business with government due to its attitude in settling debts on time.

So bad is the attitude, such the tenders for various works projects have attracted fewer bidders than expected. 

Currently, government, through the Eswatini Public Procurement Regulatory Agency (SPPRA), has advertised some tenders for the construction, rehabilitation and maintenance works for various public roads countrywide. These tenders include the construction of MR21 (Siphambanweni/Ntsalitje road), Construction of D78 (Siphocosini road) and construction of D12 (Siteki/Tikhuba road). Other tenders include maintenance of selected roads in all the four regions countrywide.

Setsabile Dlamini, Communications Officer at the Ministry of Finance, said government was trying hard to settle her debts, which has caused companies to lose interest in doing business with her (government). Dlamini explained that in future companies will be paid cash as soon as they submit invoices for the services offered. This, according to Dlamini, is a new programme that might win back suppliers.

 

outstanding amounts

“The plan is to avoid an accumulation of the debt. It is meant to work from within the budget. However, the fear of companies had got caused by delayed payment in the past. However, we are managing these debts as we are continuing to pay outstanding amounts,” she said.

She continued: “we will soon have a clean sleet,”

This week government announced that it has managed to pay at least E340 million to its suppliers. This, according to government, would cause suppliers to consider continuing to supply the kingdom with much-needed products. The payments come at a time when the E2 billion loan for suppliers got cancelled.

On January 31, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of Eswatini.

IMF reported that following the severe fiscal deterioration in 2010, Eswatini experienced a period of macroeconomic stability.

It stated that fiscal consolidation, a temporary rebound in Southern African Customs Union (SACU) revenue, and credibility in the peg with the South African rand contributed to improve fiscal and external balances and rebuild buffers. 

 

hindered

IMF argued that declining private investment and weakening external competitiveness have kept growth below the pre-2010 period and hindered the long-term growth prospects of the Eswatini economy. 

“Macroeconomic conditions have recently deteriorated. After a period of subdued growth, real GDP growth picked up in 2018, as the drought impact faded, and public spending remained elevated. However, over the last three years, expansionary budget policies and low SACU revenue have widened the fiscal deficit to an annual average of nine per cent of GDP,” IMF stated.

The fund noted that public debt had risen rapidly, and financial constraints have led to the accumulation of domestic arrears.

It reported that the current account surplus had narrowed and international reserves have fallen.

 

decelerated

“With a weakening economic environment, credit to the private sector has lately decelerated, and banks’ asset quality has deteriorated. The authorities have recently implemented some actions to contain the rise in the fiscal deficit, which remains large,” it stated.

IMF further insisted that economic indicators were expected to remain weak. 

“GDP growth is projected to temporarily pick up in 2020, as the government plans to repay some arrears, but growth would get subdued afterwards as fiscal imbalances persist and the private sector remains hamstrung. The fiscal deficit is expected to remain large, and budget financing risks to be elevated. The large deficit would raise public debt above 60 per cent of GDP over the medium-term and contribute, to further reduce international reserves,” it stated.

Meanwhile, Business Eswatini (BE) says it was aware that government had issued tenders for various public works projects. 

“We are also aware that these tenders got issued against the backdrop of unsettled debts, particularly to the private sector. Too many private sector hands are carrying too much public sector debt,” said Nathi Dlamini, the president in a statement.

 

economic growth

“We had said it in the past and would not hurt to say again that while we are sensitive to government’s financial woes, the situation has become untenable for the private sector. Not only that, a situation like this is unhelpful in resuscitating our economy that had been languishing in the doldrums for years,” he stated. 

He said the private sector is the engine for economic growth and job creation. 

“Admittedly, government is in no position to create jobs except the necessary space that is conducive for enterprise to thrive and create much needed jobs. If this statement was true, then it goes without saying that if you strangle the private sector, either by not paying debts, or legislating it up to the hilt as is often the case, the so-called engine will eventually cease along with the economy from which our national wealth comes,” he said.

He argued that government was the biggest consumer of private sector services ranging from heavy construction services to large-scale purchases. 

“It has to be said that the issue of non-payment is not new and COVID-19 has nothing to do with it, except perhaps to have compounded it. These debts referred to have been outstanding for some time, and they have had to keep on refinancing overdrafts time and again some which have long become ‘core’ with banking institutions due to lack of cash inflows.  A situation like this not only affects the banks’ performance but also adversely affects the borrower or supplier due to escalating compound interest charges,” he explained.

 

WHAT BUSINESS ESWATINI HAD TO SAY

There are always terrible far-reaching consequences for bad payers. If suppliers are fortunate enough to get banking facilities to finance government tenders the banks will often levy an exorbitant risk premium in the form of interest charges in anticipations for late repayment by the supplier. In turn, the supplier will always hike his tender prices for government to cover his costs of expensive loans and for the cost of possibly waiting for payment for months, if not years, from government. 

At the end of the day, government ends up paying more for services which would have cost less had they been good payers. 

The domino effect is obvious here and it is troubling when you think about it because everyone loses at the end as a result of a transgression caused by one party.  

This leads us to a question which has to be asked and answered, and it is this: Seeing as we have that government has a perennial cash flow problem which is serious in nature, should government completely stop all projects with immediate effect and concentrate exclusively on paying their outstanding debts first? 

The answer from someone being owed by government would be a resounding YES. But we all know that this may not be necessarily practicable because to put off some infrastructure projects would be commercially insensible or even unwise due to the role certain infrastructure plays in sustaining our economy or the country’s way of life. 

Notwithstanding this assertion though, I would argue that perhaps there could be a better way to achieve this; a better approach that’s amenable to both supplier and consumer while being sensitive to our ailing national fiscus. 

Firstly, we would suggest that we objectively separate the national projects that we want as a country from those that our economy desperately needs. 

We can then ditch the former like a bad habit or alternatively hold it in abeyance for ensuing years while we concentrate on the latter which would in money-terms have paled in quantum by now. We do not have the luxury of satisfying our ego-driven wants anymore, at least not until we recover from this mess. 

 

ostensibly elusive

We have a number of costly public projects around the country whose commercial viability and potential contribution to the economy is ostensibly elusive, if not downright nonexistent.  

Let us master the courage and address that. Secondly, our government can restructure its debt portfolio and voluntarily work out a new debt repayment schedule with the private sector which is sensible to all concerned. 

To get to this point though, financial discipline of the highest order is required. While this is doable, many before this government have failed because of the ever-expanding social demands on the fiscus. And invariably, discipline would be first out of the window due to sheer pressure. 

This time around, the country cannot afford to fail because if the economy does not grow because the private sector is under stress the debt as a function of gross domestic product will shoot through the roof. We thought 29 per cent Debt to GDP was too high; wait until it breaches 60 per cent or even 70 per cent in the next 12 months. To prevent that from happening, which is a tall order, we need the private sector to punch above its weight. 

The bottom line though is that many private sector companies are swimming in red ink with too many bank loans they cannot service. The sooner government ‘makes good’, the better for government’s economic recovery plan. We say this being alive to the fact that we are confronted by hard times in the country, and more so with the advent of COVID. Even in times such as these, there is always a better way; a better approach. Whatever it is, it will not be easy and will demand discipline. We need to look for it and once found we need to stick to it no matter what. That’s called discipline. If it was easy, everyone would be doing it.

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