Tender freeze to hit SMEs hard
Ministry of Industrialisation, Trade and SME Development Permanent Secretary, Gabriel Sinimbo, has warned that the recent decision by government to freeze the awarding of tenders will have tremendous implications for small to medium enterprises (SMEs) that depend on government contracts.
He said that many SMEs are solely dependent on government procurement.
“This will affect SME revenue and some might end up having to lay off employees, because they will not have an income coming in,” Sinimbo said.
The Finance Ministry last week directed government institutions to suspend the issuing of new State contracts, until the national budget is reviewed later this year.
The ministry said this was necessary to prevent the overcommitting of the current budget, and in order to maintain some fiscal space, which would allow for the realigning of financial resources with the country’s development and socio-economic priorities.
Finance Minister Calle Schlettwein said that no tenders should be awarded until such time that the 2016/17 budget review and the reappropriation of capital projects is finalised.
All new tenders for capital project feasibility studies, and surveys that were due to take place under operational budgets, were put on hold.
Sinimbo said it is a pity that the country is in this situation.
“It is not only Namibia, but also in other countries, but this will not be a permanent situation,” he said.
Economic analyst Rowland Brown said that there will undoubtedly be negative impacts on economic growth, adding that construction companies across the country, and their service providers, including commercial banks, are likely to be negatively affected.
Additionally, the fiscal tightening will have an impact on employment, particularly low-level jobs in the construction sector, where jobs may well be shed due to less spending by government, he said.
Brown added that government has certainly thought this through, and has taken a difficult, but correct decision, to try and bring spending under control.
“This was desperately needed, after the debt stock of the country doubled in the 18 months, between the end of 2014 and mid-2016. This adjustment will be painful for the country in the short-term, but it will help to maintain a positive long-term outlook,” he said.
Brown said that without these spending cuts, Namibia will be guaranteed of a junk status rating by September next year.
He said the responsible actions of the Ministry of Finance had given the country the best chance of avoiding such a downgrade.
“Government has chosen to freeze all tenders, due to the fact that their revenue collection, both in 2015/16 and 2016/17 was worse than expected and forecast, and thus as a result they have had to cut expenditure, in order to run a reasonable budget deficit, in an effort to maintain an investment grade rating,” said Brown
He added that if the government had not cut its spending on construction, as it has decided to, cuts would have been made on wages and salaries of public sector employees.
Another economic analyst, Suta Kavari, also said that SMEs were bound to suffer.
“Short-term, this will hurt smaller businesses with a huge dependency on government,” he said.
He, however, said that the belt-tightening exercise is a welcome move, to ensure a good future for the country.
The big question that government will have to answer is whether this will affect the Mass Housing projects.
Urban and Rural Development Minister Sophia Shaningwa could, however, not comment on whether it would, and referred questions to Schlettwein.
In his response, Schlettwein said that the directive covered all projects for which the tendering process has not yet been concluded.
He said this could include phased projects where the tendering process for a distinct phase has not been finalised.
“All depends on the availability of funds and therefore the outcome of the mid-year budget review. For now, the directive as issued stands,” the finance minister said.