How the Uganda Construction sector is coping with the Depreciating Shilling

Thursday, 18th August, 2011

The continuing depreciation of the Uganda shilling against the dollar is shaking up budgets of most companies.

The unit is trading at an average of sh2,795/2,810 (yesterday’s rate) against the dollar.

The situation has been aggravated by an increase in inflation of 18.7% in July, from 15.8% in May, pushing up the cost of loans needed to finance construction projects.

A survey by New Vision reveals that the prices of steel building materials have been hit the most, increasing by over sh10,000 since January.

“In order to stay in business, I had to stop dealing in certain building products like iron bars because they are expensive. A bag of cement costs sh28,000 from sh25,000 in January,” says Eliazer, a hardware dealer.

Steel bars cost sh35,000 from sh24,000, iron sheets gauge 32 are at sh23,000 from sh17,000 early this year. A kilo of roofing nails is sh7,000 from sh4,500, mild steel plates are at sh106,450 from sh80,000, while hollow section steel pipes 20 by 20 cost sh20,000 from 14,000. Sand bricks cost sh250 each, from sh90.

He explains that he has had to down-size his workforce to a bare minimum and hire many more workers on part-time basis to realise the same profit margins he used to enjoy before the prices rose.

Joseph Kitone, the Uganda Clays marketing manager, says they have had to increase factory prices of tiles and bricks by 9% to meet the increasing cost of production. This has, however, not hurt the company sales due to the high demand.

“We increased the prices of tiles and bricks due to an increase in the price of fuel. We have also outsourced transportation of customers products to further reduce production costs,” he said.

David Kiyingi, an executive member of the Institute of Procurement Professionals of Uganda, advises companies competing for tenders and those selling construction materials to insist on being paid in a currency that is easily convertible like the dollar.

Alternatively, he says firms buying construction materials or giving tenders should insist on paying in shillings to lower costs of production.

“To survive with the current shilling depreciation, sellers of building materials should charge in a currency that is easily convertible. Suppliers should also insist on being paid in dollars if they are few,” Kiyingi says.

Milton Tumutegyereize, the Public Procurement and Disposal of Assets Authority, advises companies to include clauses that provide for price fluctuations in construction contracts.

“Prices can go up or down at any time, therefore, firms must include a clause to cater for it in contracts. The clause enables the two parties to adjust the original contract prices.”

By Samuel Sanya and Michael Opira : The New Vision Newspaper