PART TWO: How the Indians came to build Kenya
PART THREE: History of Cement Industry in Kenya
PART FIVE: The Rise of the National Construction Corporation in Kenya
PART SIX: The Fall of the National Construction Corporation
Construction is an attractive area owing to the perpetual demand for construction works in any given economy. It is also an expensive, capital-intensive industry with government allocating a significant portion of the annual budget to various construction works. The other form of investment is in the area of technical and management skills.
Affordable, Flexible Mortgage Loans
Case in point, in 1964, Nairobi experienced what has been referred to as an “intense demand for real estate of all kinds.” This was according to Colin Leys. Foreigners trooped into Nairobi and made heavy investments in Nairobi’s real estate. At the time, property yield stood at 18% per year. The payback period for most property stood at about 5 years. Rents were high, hence favourable returns especially for the property owners who housed the diplomats and expatriates who made Nairobi their second home.
As for the native Kenyan citizens, especially the civil servants, they could borrow loans from the Housing Finance Corporation of Kenya (HFCK) at “special rates of 8.5%.” Some civil servants, it is said, enjoyed mortgages of “up to 90%, borrowing the rest (10%) from the banks.” Back then, the civil servants would pay their mortgages within a very short time. Reason? A simple, ingenious reason. A civil servant would buy a house on a mortgage at a known and determined repayment commitment and they would rent it out. Rents in Nairobi in 1964 were higher than mortgage repayments! They would then pay off the mortgage with the extra difference. They would then apply for a second mortgage. Brilliant, right?
Technical Skills and Politics
When it comes to investment in skills, the colonial government had made an investment in training institutions. The Native Industrial Training Depot was such an institution set up by the government to train native Kenyans. For instance, between 1930 and 1935, the NITD had churned out 426 carpenters, 363 masons, 69 smiths, 35 painters and 13 tailors. These artisans hardly got jobs on a permanent basis. It was thought and widely believed that, due to the nature of their work, they followed work from place to place, thereby “suffering intervals of unemployment” in the process. In some cases, as it was in May of 1936, the colonial government engaged some apprentices of the Native Industrial Training Depot in Kabete to carry out the extension of the Mathari Mental Hospital.
As the nation inched towards and past independence, a lot was changing in almost every aspect of construction in Kenya. Notably, the Kenyanization or Africanization policy was gaining momentum. In construction, it was widely known that the big contracts were “in the hands of non-Africans” and it was time for Kenyans to “get the benefits of the Government’s services evenly distributed.”
The Kenyanization process and policy affected Kenyans of Asian origin. In 1963, after Kenya attained its independence, Indian businessmen were required to take up Kenyan citizenship in order to express their commitment to stay in Kenya. At the time, most businesses owned by the Asian community were either sole proprietorship or family-owned. At the time, it was expected that the Indian businesses, including contractors, would enter into partnerships but this was not to be the case. Since most of them had British passports – as they were British subjects – some fled to Britain due to this policy.
In the year 1966, the National Construction Corporation (NCC) was formed through an Act of Parliament CAP 493 of the Laws of Kenya. NCC was launched in 1967. As part of the Kenyanization process, NCC was to be a support agency for the Kenyan contractors, especially during the transition phase. It was to facilitate the hatching of a new crop of African contractors and to ensure the promotion and active participation of native Kenyan contractors in the construction sector.
As part of Kenya’s Development Plan of 1966/70, National Construction Corporation was to “provide means to overcome the main barriers to the development of African contracting firms.” This saw NCC receive technical and financial support from international organizations such as the World Bank and the Norwegian Overseas Aid Agency. In essence, NCC’s role was to “promote construction work and assist the indigenous Africans to come up and be able to join with others who are well developed in the construction industry.”
Functions of the State Corporation
The functions of the National Construction Corporation (NCC) were very clear. NCC was to promote, assist and develop the construction industry in Kenya and engage in construction activities. NCC was to be involved in the manufacture and deal in construction plans, tools, materials, machinery, and equipment. The state corporation was also aimed at establishing, equipping and maintaining educational and training institutions for the benefit of those who were employed in the construction industry in Kenya. In addition, NCC was supposed to furnish managerial, technical and administrative advice to players in Kenya’s construction industry as well as enter partnerships with the Treasury and invest money after consultations with the Treasury.
The NCC was to offer practical training to native Kenyans in critical aspects of management and administration of construction such as tendering and contracting. They were, additionally, to be trained on building techniques, site organization and costing of construction works. This would equip and encourage native Kenyans to take part in the complex construction projects that had been a preserve of the British and Asian contractors.
Besides training the native Kenyans, the NCC was to undertake construction works as an entity. Until the formation of NCC, construction works in Kenya were carried out in a rather monopolistic manner. Most construction projects in the country were undertaken by foreign-owned companies. Unlike most locally owned firms, these foreign firms were perceived and considered to be well-established, had the desired technical know-how and personnel in addition to the financial capital and latest equipment that made them very competitive. NCC was, therefore, to be the government’s machinery that would be used to edge out the foreign companies. However, this was not to be the case as NCC became slow in the execution and completion of construction projects in Kenya. Reasons that were given ranged from “insufficient manpower to inadequate manpower.”
War Between Local and Foreign Contractors
The tug of war between locally-owned and foreign-owned contracting companies regarding the distribution of works did not start just the other day. During and after the Kenyanization process, it was always feared that foreign-owned companies would tender lower prices in comparison to the local contractors due to the economies of scales and advantages discussed above. This meant that the local would also have had to quote and price their contracts at a much lower level in order to win the same job.
By 1971, about 700 contractors were registered with the NCC. Out of these, only about 50 were effective contractors. The main reason given for this ineffectiveness was that the African contractors lacked the technical and organizational skills. Until this time, most native Kenyans were involved in the “odd jobs” that required semi-skilled labour at best. The competence of the local contractors could not be matched to the Indian/Asian contractors.
The reasons given for the complacency in NCC in realizing its mandate and meeting its obligations did not go unnoticed. In 1972, the Assistant Minister for Works, John Keen, highlighted the objectives of NCC did not include making Kenyan contractors sloppy in their work while expecting big profits. He reiterated that NCC role was to create an environment where diligent Kenyan contractors would exert the required effort and exploit the available opportunities. In his words, Kenyan contractors were to prove that “they can be relied upon for the standard of their workmanship and their competence.”
Access to capital was a challenge to most native Kenyan contractors. Therefore, there were plans to create a credit facility within the National Construction Corporation (NCC). This proposal stemmed from the fact that foreign-owned companies had an unfair advantage in securing building and construction contracts in Kenya due to their owning their plant and equipment, unlike their local, native Kenyan counterparts. Contractors would be able to access credit capital to procure construction plant and equipment as well as finance other capital investments in a typical start-up construction company. NCC would evaluate these firms prior to them being allocated a loan from the credit facility.
Just how did NCC provide and disburse the funds to the start-up contracting firms? There were two main ways. One, the NCC would directly provide funding to Kenyan contractors in the form of loans. Two, NCC would, alternatively, guarantee the bank loans that the contractors would obtain from the local commercial banks. Essentially, the credit facility was meant to be a tool that would enable local, indigenous contractors develop and build their capacity in order to compete favourably with the international, foreign-owned contracting firms and those that had been established much earlier.
The loans advanced to the contractors through a revolving fund. This is similar to such a facility that is provided for within the present-day National Construction Authority (NCA) Act. In the case of NCC, as of 1970, the maximum a start-up contracting firm would get in the form of a loan from NCC was Kshs 200,000. This amount was later doubled to Kshs 400,000. There was an incentive given to contractors who worked hard and repaid their loans in good time – they would be eligible to access higher amounts. Unfortunately, many local masons and fundis were unaware of the existence of the fund and what it could have done to their start-ups.
The credit facility was, unfortunately, subjected to misuse and abuse. In 1983, NCC had grown to become one of the local institutions that advanced loans to Kenyans. In this particular year, the state corporation had incurred losses estimated at Kshs 34.2 million. When explanations were sought reasons included: rocketing costs of raw materials, limited financial resources and the “non-availability of imported materials at the right time.” It was also said that the beneficiaries of the loans from NCC had made losses in addition to delay in the delivery of various construction projects.
In hindsight, there were deep-seated reasons that led to the collapse and running down of the credit facility. There was an outright lack of managerial and commercial administration knowledge among the indigenous Kenyan contractors. For the well-established companies, there was the lack of relevant experience to handle the projects. It was also thought that insufficient financial resources led to the failure of the credit facility, which, for example, led to limited access to credit facilities with building materials suppliers. Local contractors also lacked modern construction plant and equipment.
In the course of all these, the Kenya African Contractors Association (KACA) lobbied for the “indigenous Kenya building contractors.” Their existence was not recognized by the Ministry of Works, Housing and Physical Planning. The ministry insisted that it only dealt with registered contractors at an individual level in awarding contracts.
Some of the other functions of the National Construction Corporation (NCC) were to engage in construction activities and award contracts. During its existence, it was not uncommon for the NCC to be awarded contracts. In turn, it would sub-contract further to smaller contracting companies. This resulted into poor progress and delivery of construction projects owing. This was because the role of NCC in terms of offering supervision and technical support was questioned due the haziness surrounding its role in such a setting.
NCC, for instance, would win and be awarded government building jobs. Subsequently, it would negotiate the contract with the government’s Ministry of Works and then NCC would sub-contract the same job to smaller Kenyan contracting firms.
In such a case, if a Kenyan contractor made a profit, he would take it all! This was a double-edged sword in the sense that, the indigenous contractors felt protected while enjoying the subsidies while they carried out the projects.