Uganda: Guarantee fund to benefit road contractors
Roads authorities are doing their best to have roads that are corresponding with the value of money allocated.
Small and medium sized local roads construction companies will be able to easily access big bank loans and win more roads maintenance contracts following the establishment of the Construction Guarantee fund, effective February 2012.
The over Shs7.6 billion (USD 2million) construction guarantee fund has been established by CrossRoads –a four year UK government funded programme and will be managed by the Agri-business Initiative Trust.
Addressing journalists in Kampala last week, CrossRoads’ market systems development specialist Alex Mugova said that the Fund will make local small sized contractors more creditworthy and competitive.
“Unlike big contractors, small ones are always faced with problems of raising funds for performance bond guarantees and bid security to banks before they can access loans. This leads to unfair competition in the sector because local firms lack enough funds. However, with this Fund, there will be a 50-50 sharing of risks,” Mr Mugova said.
He added: “Banks will easily give contractors loans because the risk of loss will be reduced. Hopefully, small and middle sized contractors, with the assistance from the Fund, will be able to get more contracts from the roads authority.”
At the same meeting, Ms Lydia Ochieng, the chairperson Board of Trustees for Agribusiness Initiative Trust— the group that will manage the Fund said agribusiness will only grow if the quality of roads is improved.
“People are wondering about how Agribusiness relates with roads maintenance. Infrastructure, particularly roads is a key element in developing agriculture,” Ms Ochieng said.
Ms Ochieng hopes that this new fund will make small and middle sized construction companies both more marketable and bankable businesses in the near future.
Under this, the fund and construction contractors will have an equal share of risks. First, the Fund will provide security that banks and micro-finance institutions require in order to provide Performance Bond Guarantees to contractors while the contractors will be tasked with catering for Bid Security and Advance Payment Guarantee.
Depending on the performance and response from market actors, the scope of the Fund may later be expanded to support contractors in providing bid securities and advance payment guarantees.
Through this, the Construction Guarantee Fund will in time demonstrate that road contractors are good clients and encourage banks to lend more to them.
However, the Construction Guarantee Fund will only work with contractors that deal in roads’ maintenance throughout the country.
Vice Chairperson Roads Industry Council Eng. Ben Sebuga says that the local contractors should use the Fund to improve their position in the sector.
By Nicholas Kalungi, Daily Monitor
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