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HomeInterviewFinance and risk in construction

Finance and risk in construction

The Ethiopian Association of Civil Engineers (EACE) is organizing a workshop dubbed ‘The role of banks and insurance companies for sustainable development of the construction industry in Ethiopia’ focusing on the relationship between the construction and financial sectors.
Capital talked to Eng. Tesfaye Workineh, President of EACE and Managing Director of United Consulting Engineers Plc (UNICONE) about their upcoming event which will be held next Saturday at the UNECA, and what they expect from the workshop. Excerpts;


Capital: When did the Ethiopian Association of Civil Engineers (EACE) begin and what were the reasons for its founding and its vision?

Eng. TesfayeWorkineh: The Ethiopian Association of Civil Engineers (EACE) was established in 1960 with the vision of becoming a world class professional association that serves civil engineering and related professionals including the general public. Our mission is to promote the advancement of civil engineering through continuous professional development, scientific research and disseminating knowledge and skills. Our organization values professionalism accountability, collaboration, diversity and inclusiveness as well as transparency and social responsibility. We are working to make a contribution to Ethiopia’s efforts in developing the civil engineering profession so that it can attain a global standard of excellence. One way we do this is to cultivate and certify civil engineers.

Capital: What have been the noteworthy milestones in the development of the Ethiopian Association of Civil Engineers (EACE)?

Eng. Tesfaye: We’ve held scientific and technical workshops, symposia, seminars and produced publications such as journals, magazines and newsletters to raise insight in the profession. We have also worked with the government to develop more professional engineers.
To raise awareness, for instance, our association organized a forum for Engineering professionals and held consultation and discussions about problems in the construction industry.

Capital: What is the main purpose of the upcoming workshop?

Eng. Tesfaye: The theme of the workshop as you know is ‘The Role of Banks and Insurance Companies in the Construction Industry for Sustainable Development’.
It will look at the impact of banks and insurance companies in the many factors that go into a construction project. This includes employers, investors, consultants and contractors who develop materials, equipment and human resources. It also involves finance, managing risk and facility management.

The contractor and consultant of a project are responsible for obtaining the financing, which can be quite large. So financial institutions play a huge role in construction, in fact obtaining financing is often one of the most difficult tasks contractors face.
The construction industry is subject to more risk and uncertainty than many other industries. The development of a construction project from inception to completion takes a long time and involves many phases. It brings workers with different skills and interests together and involves the use of large and diverse sets of equipment. All of these complex requirements have to be handled with proper co-ordination to provide a smooth flow of activities. It is necessary to identify and analyze the risks that may appear during the execution of the project. And insurance is one means of transferring risks associated with such projects.
So this workshop will help people improve their knowledge of construction insurance, help people learn about insurance policies, and bank bonds. People will be able to compare and contrast different policies and stakeholders will also come together to discuss how to reduce risk in construction projects.

Capital: What should be the role of banks and insurance firms in supporting the construction sector?

Eng. Tesfaye: No construction project can be successful unless an appropriate financial option is selected and a comprehensive project management process is implemented. Banks and insurance companies help finance equipment, provide loans for the construction, help transfer risk and give guarantee bonds to the project.
Capital: Usually banks and insurance firms face problems with construction companies in regards to financial issues mostly with loan repayments; what are your thoughts about that?
Eng. Tesfaye: In fact it is very difficult to generalize the problem. Construction companies strive to fulfill their obligation but due to unforeseen reasons including misuse, mismanagement or problems in the project planning itself, situations occur where they are unable to fulfill their dues.

Capital: Construction companies are said to be spending the money they take as a loan from banks and projects will fail to be delivered, what is your opinion on this?

Eng. Tesfaye: As I said earlier let us not generalize and think this has happened to most of the companies. But if there is not good planning on the use of advances and loans then yes the projects suffer and fail to be delivered. If parts of loans from banks are diverted to other purposes, projects suffer. The effect will be more devastating if the loan is used for other expenses where the extent of return is not much. As a result, loans will fail to serve the intended purposes and ultimately projects suffer due to cash starvations. In order to avoid or minimize such incident a proper risk assessment and the points I mentioned earlier should be taken into account.

Capital: Insurance firms usually delay claim payments for construction companies, what is your experience?

Eng. Tesfaye: Well, the purpose of this workshop is to create awareness and to assess this question and issues around it and learn more.

Capital: Chinese construction firms are flooding the market, they are on time and quality is also their thing many observers say. However local companies lack the proper knowledge and management skills, how can this issue be addressed?

Eng. Tesfaye: Chinese companies are increasing both in number and the amount of projects they are handling. Likewise, the construction industry is hosting a large number of Chinese and local companies.
Still, when we look at overall performances, many projects in Ethiopia suffer from delays. Quality as well has not excelled as expected. In relative terms, the Chinese companies are in a better position to manage construction projects. Construction by its nature is capital intensive. And the local companies are constrained while the Chinese companies are well financed and thus have more options. This is one reason why quality may not have gone up as expected within the construction industry. The Chinese companies can import machines and spare parts as long as they have foreign accounts whereas the local companies need to wait for a Letter of Credit queue even for their spare parts, and in effect, delays are encountered on projects.
Furthermore, the Chinese companies use technologies to ease construction. On the other hand, implementation of advanced construction management techniques is yet to be exercised with local companies to outweigh competition with the Chinese contractors.



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