Factors affecting the value of contracts for indigenous construction firms in Lusaka

Table of Contents

Dedication

Acknowledgements

List of Tables

List of Figures

List of Acronyms / Abbreviations

Abstract

CHAPTER ONE INTRODUCTION AND RESEARCH BACKGROUND
1.0 Introduction
1.1 Problem Statement
1.2 General Research Question
1.2.1 Research Questions
1.3 General objectives of the study
1.3.1 Specific Objectives
1.4 Scope of the Study
1.5 Significance of the Study
1.6 Organization of the Study

CHAPTER TWO LITERATURE REVIEW
2.0 Introduction
2.1 Investment
2.2 Types of investments
2.3 Value of the contract
2.4.2 Financial Investment Value
2.4.3 Value of Capital assets
2.5 Types of Financial Investments
2.5.1 Certificates of Deposit
2.5.2 Stocks
2.5.3 Mutual Funds
2.5.4 Bonds
2.6 Investment process
2.7.1 Security Analysis
2.7.2 Portfolio Management
2.8 Small and medium-sized enterprises (SMEs)
2.9 Contractors
2.10. Subcontractor
2.11 The overview of the Policy in Zambia
2.12 Construction Policies in Various African Countries that encourage indigenous construction firm’s growth in contract value
2.12.1 Construction policies in South Africa to encourage growth in contract value
2.12.2 Construction policies in Nigeria to encourage growth in contract value
2.12.3 Construction policies in Ghana to encourage growth in contract value
2.12.4 Construction policies in Kenya to encourage growth in contract value
2.12.5 Summary of the Construction Policies of the different countries aimed at encouraging growth in contract value
2.13 Empirical Analysis
2.14 Critique of literature reviewed
2.15 Conclusions

CHAPTER THREE THEORETICAL AND CONCEPTUAL FRAMEWORK
3.0 Introduction
3.1 Theoretical Framework
3.2. Basic Production Theory
3.2. Modern Portfolio Theory
3.3. Summary of Theories
3.4. Conceptual Framework
3.4.1 Hypothesis Development
3.4.2. Operationalization of the Concepts
3.4.3 Value of the contracts
3.4.4 Number of Employees
3.4.5 Financial Investment Value
3.4.6. Value of capital asset
3.4 Summary

CHAPTER FOUR RESEARCH METHODOLOGY
4.0. Introduction
4.1. Research Design
4.2. The Study Area
4.4. The Target Population
4.5. Sample Size
4.6. Sampling Methodology
4.7. Data Collection Tools
4.8. Data Analysis
4.9. Research Ethics
4.10. Limitations of Research
4.11. Summary

CHAPTER FIVE DATA PRESENTATION AND ANALYSIS
5.0 Introduction
5.1 Level of response
5.2 Data preparation
5.3 Descriptive Statistics of Dependent and Independent Variables
5.5 Correlation Matrix
5.6 Multiple Regression
5.6.1 Model Summary
5.6 Coefficient Model Summary of the Independent and Dependent variables Source: Author 2019
5.7 Hypotheses Testing
5.7 Discussion of the Results
5.9 Discussion of findings and Implications
5.9.1 Discussion of the Results
5.9.2 Research Question One: Does the number of employees employed by Indigenous construction firms affect value of a contract tendered for?
5.9.2.1 The number of employees
5.9.3 Does the number of employees employed by indigenous construction firms affect value of a contract?
5.9.3.1 Financial investment value
5.9.4 Does the value of capital asset affect the value of a contract for Indigenous construction firms?
5.9.4.1 Value of capital assets
5.10 Chapter Summary

CHAPTER SIX CONCLUSIONS AND RECOMMENDATIONS
6.0 Introduction
6.1 Summary of research conclusions
6.2 Recommendations of the study
6.3 Future research
6.4 Summary
6.5 Conclusion

REFERENCES

APPENDICES

Dedication

This research is a dedication to my late Father, son, and mother, who has brought so much joy in my life, pushing me to work harder

Acknowledgements

This research could not have completed, had it not been for the commendable help rendered, by various people during the research, whose names I cannot enumerate. Their contribution is sincerely appreciated and gratefully acknowledged.

To my “A” team Milly Chewe, Chiko Mukonde and Sibongile Ndelema for the continue support, you are the best.

My employer CRS and my supervisor Matilda Nkashi for her support and understanding I say thank you so much.

However, the most profound appreciation and indebtedness; mainly go to the following: Professor T. K Taylor supervisor and mentor, Dr. Chanda Sichinsambwe, a calm parent, both made me benefit from the wisdom, inspiration, and professional research experiences. Through numerous revisions in all chapters, they provided invaluable guidance towards the finalization of this project. To all relatives, friends, and others who somehow shared their support, either morally, financially and physically, thank you.

Above all, to Jehovah the almighty, the author of knowledge and wisdom, for his countless love.

List of Tables

Table 4.1: Study population

Table 5.1 Descriptive statistics of Dependent and Independent Variables

Table 5.2: Correlation Matrix

Table 5.3: Model Summary

Table 5.4: Coefficient Model Summary of the Independent and Dependent Variables

Table 5.5: A multiple regression of dependent variable and three independent Variables

List of Figures

Figure 3.1: The Theory of Basic production

Figure 3.2: The Efficient Market Frontier

Figure 3.3: Conceptual framework

List of Acronyms / Abbreviations

IV Independent variable

SMEs Small and Medium Enterprises

RDA Road Development Agency

LRAs Local Road Authorities

CEE Citizens Economic Empowerment

ABCEC Association of Building & Civil Engineering Contractors

ZDA Zambia Development Agency

GDP Gross Development Product

UNCTAD United Nations Conference on Trade and Development

PAYE Pay as You Earn

OECD Organization for Economic Co-operation and Development

BEE Black Economic Empowerment

CIDB Construction Industry Development Boar

NES National Environmental Standards

MWRWH The Ministry of Water Resources Works and Housing

NCA National Construction Authority

NSE Nairobi Stock Exchange

DEA Data Envelopment Analysis

Abstract

The objective of this research was to use fifty indigenous construction firms in grade one to three registered with NCC in Lusaka (1) to examine whether number of employees employed by indigenous construction firms affect value of a contract, (2)to find out whether financial investment affect value of a contract of indigenous construction firms and (3)To investigate whether value of capital assets affect value of a contract of indigenous construction firms in 2018.This study was cross-sectional in design. The subjects consisted of a stratified random subpopulation of 130 indigenous registered firms with NCC, drawn from grades one to three, and sampled 50 firms.National council construction (NCC),central statistics office (CSO), and financial statements of the companies sampled provided the population and detailed information used in the study. The factors assessed for 2018. The primary outcome measures were the number of employees, financial investment value, and value of capital assets. The number of employees and the value of capital assets was inversely associated with the value of the contract's indigenous construction firms. The study shows that there was a correlation significant between the value of contracts and the number of employees (r = .634, p < 0.05). There is no correlation significant between value of contracts and Financial investments value (r = .052, p > 0.05). There is a significant correlation between value of the contracts and value of capital assets (r = .580, p < 0.05).The construction firms need to invest more in other assets to achieve growth and diversify their risk. Hence, the management of construction firms registered with NCC should find means to improve financial performance by investment to increase their firms’ value. Further studies are recommended in trying to find out the operational challenges faced by construction companies.

CHAPTER ONE INTRODUCTION AND RESEARCH BACKGROUND

1.0 Introduction

Zambia's, macroeconomic management has not been the same since 1991, when the economy was liberalized (Larmer, 2004). Even though a definitive monetary goal has continued as before, specifically development and business, it is presently commonly acknowledged that investment and resulting development, is probably not going to happen if the economy remains portrayed by macroeconomic insecurity, for example, high inflation, deficiency of outside trade, shortages of products, absence of individual or indigenous firms' investment, etc. (Nayyer, 2012). From 1992, as a prelude to encouraging a more sustainable economic growth, a stable macroeconomic environment has been created to allow individual investors such as employees to take part in the economic development of the nation through coming up with businesses. (Vivien, 2008).

According to Navon (2005), the construction industry contributes about 10% to the Gross National Product of Industrialized economies. He further indicates that the Construction industry is rather complex in nature due to the large number of stakeholders involved. Construction companies if efficient can therefore provide a basis for the revival of the Zambian economy especially during economic downturns. To do so, they need to perform efficiently and effectively for them to contribute significantly to the nation’s growth domestic product.

The construction sector has significant implications on the daily lives of humanity. Generally, amenities such as boreholes, well and other water sources depend on construction. Other useful things such as the buildings we live in and the roads we drive in are also dependent on the construction sector. (Takim and Akintoye, 2002) In his review of the factors that affect the performance of projects among local contractors in Zambia, Ngomi (2017) cites the inability to correctly value the cost of projects as one of the reasons that cause contractors to either delay or totally abandon construction projects. There is therefore, need to ensure that this sector grows.

According to the World Bank (2004), construction projects in Zambia however remained unimpressive. They attributed this to the absence of a coherent Institutional Policy Framework. Construction projects have continued to grow below the expectations in Zambia and Zulu and Chileshe (2008) attributed this to contractors’ poor performance. They argue that there is little to be learnt from local projects as they are usually delayed or incomplete. They further state that this results in lack of competitiveness with foreign contractors. The construction sector is very significant due to its productivity as well the fact that it enhances the accomplishment of socio-economic objectives that include infrastructure, shelter and employment (Usman et al., 2012).

In 2014, the building and construction sector was indicated as the largest industrial sector in Zambia as it contributed to 27.5% of the GDP (ZDA, 2014). Murray and Appiah- Baiden (2000) reveal that most construction contracts are held by foreign companies. They indicate that this result makes it difficult for indigenous firms who at times do not receive the much-needed support from their governments. They further reveal that indigenous construction firms are faced with difficulties such as competition from foreign firms which are usually more established, fragmentation of contracts by value as well as the lack of expertise.

Production theories that relate to construction contracts do not only concentrate on the transformation of inputs to outputs in construction but also focus on the flow of processes in order to ensure that resources held by these firm are effectively utilized (Koskela, L, 2000). The value of contract is dependent on factors such as the value of financial, labour (number of employees) and capital assets held by a firm as well as the number of employees. This study concentrates on these factors.

In order to compete favorably for high value contracts, an indigenous construction firm needs the right plant and equipment. This can take the form of capital assets that aid the execution of contracts. Capital assets can also act as physical collateral in case a firm needs to access financing.

A construction firm needs adequate manpower with the right set of skills and expertise in order to be able to compete for high value contracts (Ofori, 2000).

However, from the 1970s, Indigenous communities have assumed leading roles in building community services network-controlled administrations in areas, such as housing, local government, and welfare administrations (Sanders, 2002; Tsey, McCalman, Bainbridge, & Brown, 2012).To foster growth in the value of contracts given to indigenous firms, they have been numerous representations from various stakeholders the Government inclusive, aimed at improving services countrywide. Sanders (2002) described the involvement of native construction firms as crucial as it involves indigenous firms' participation. For example, in Zambia, indigenous firms' participation has been encouraged by the 20 percent policy put in place. The policy is deliberately aimed at guaranteeing that every Government's contract funded by the Government institutions such as Local Road Authorities (LRAs) and Road Development Agency (RDA) should be executed by Indigenous Zambian firms with the guidance of the Act No. 9 for Citizens Economic Empowerment of 2006, regarding shareholding structures. The fundamental point is empowering local firms' contributions. Zambia's economic developments through participation that will help build capacity in the local construction's firms (rda.org.zm, 2019). As per the RDA, 20 percent Sub-contracting Strategy leaflet (2016) the policy covers all indigenous constructions company's civil works whose value is above ZMW30 million. Contracts that will be below the policy threshold of ZMW30 million will be solely for citizens and Indigenous construction companies. These guidelines were born from the 2011 Procurement regulations aimed at empowering Indigenous Construction firms.

Therefore, several studies have been conducted aimed at analyzing and reviewing the set 20 percent policy, awarded to all indigenous firms by the subcontractors. These reviews were aimed at a framework that encourages Local participation of contractors. The policy had gaps and limitations identified when some reviews were done through questionnaires, semi-organized interviews and literature review. (Phiri, 2016). It was established by Robert at al. (2018) that, it would be hard to effectively make use of the policy to grow indigenous construction firm's capacity to enable them to manage high value contracts. This is because the policy statement concentrates on the road sector, ignoring other essential sectors, such as energy and building sectors. It is a challenge to measure the framework been implemented to ascertain, how objectives set would be achieved. According to Akintan & Morledge (2013), no incentives have been put in place for foreign contractors to be motivated to build capacity in local constructions firms; thus, overlooking the need to help.

Other research looked at a way to come up with a more comprehensive policy proposing modifications to the already existing policy. The modifications targeted strategic plans aimed at building capacity on local contractors to be measured on set deliverables such as number of employees a firm has and the value of capital assets. Based on research findings, though, a subcontracting policy framework aimed at enhancing Indigenous firms' participation and increased capacity was developed (Construction Industry Development Board, South Africa, 2013).

Therefore, not so many studies have been conducted on assessing of factors affecting the value of indigenous construction firms in Lusaka have yet been researched on, as evidenced by the reviewed literature. Specifically, Assessment of factors affecting the value of indigenous construction firms in Lusaka has yet been conducted. Thus, the study aims to bridge the gap from the existing knowledge by assessing the factors affecting the value of indigenous construction firms in Lusaka

1.1 Problem Statement

The Republic of Zambian has come up with policies to empower local contractors. The policies incorporate the 20 percent policy for subcontracting aimed at increasing indigenous construction firm's capacity and participation to reach a level where they can be given high value contracts like foreign contractors. (Parliament.gov.zm, 2014). Some local firms, who according to the policy are the intended beneficiaries complained that, though the policy is in place the problem is that it is not working as designed (Hinze, and Tracy, 2014). Through the policy, the Government aims to empower the indigenous contractors, but the problem is that agencies tasked with implementing, such as the Road Development Agency (RDA) are failing to follow the Act No.9 of 2006 CEE policy announced by the Zambian Government. According to Mudzvokorwa, (2017) and Phiri, (2016) empirical research output showed that implementing agencies are some of the reasons affecting the ability for local contractors to be awarded high vale contracts through lack of participation. The Government would formulate policies, and the agencies fail to execute.

However, according to some media reports, local contractors tend to abandon the work upon being paid the 35 percent upfront upon commencement of the project. (Daily Mail, 2015) Banks also have reservations to offer loans to local contractors as the risk is high compared to foreign contractors. Furthermore, the economic development of any country is vital through the participation of local firms, including local contractors. (Phiri, 2016) The construction industry in Zambia has also argued stating that several small and medium enterprises (SMEs) were many contractors fall struggle to grow and make progress to even be given higher value contracts even with the policy provisions of the 20 percent policy. The notion dispelled is that most SMEs are not interested in perfecting the deliverables but just receiving payments. (Daily Mail, 2015:2019).

Indigenous construction firms continue to qualify only for low value contracts even though Government policies have been deliberately put in place to ensure fair participation of these firms. This has resulted in their inability to grow in size. Efficient construction contract management can help to eradicate the issues faced by these small firms. (Bentall et al, 1999)

The growth of any construction firm to a level where the contracts awarded to them are high value is dependent on among a number of issues, the ability to carry out contracts that are of high value. The value of contract that a construction firm can tender for is determined by the ability to meet a specified selection criterion. Biased selection criteria have disadvantaged small construction firms from bidding for high value contracts due to their inability to meet these set standards. (Standard Prequalification Documents Guidance Notes on the Prequalification of Tenderers, 2002: Hasnain and Thaheem (2016).

There is therefore need to establish the factors that affect the value of contracts for indigenous firms in Zambia. These factors will inform good construction contract management practices that can enable these firms to grow in size and be able to compete favorably with foreign owned construction firms (UNCTAD, 2018)

Despite, the complaints, no research has been conducted on assessment of the factors affecting value of a contract for indigenous construction firms in Lusaka, and it is from this background that the study will be based.

1.2 General Research Question

The general research question is assessing the factors affecting value of a contract for indigenous construction firms in Lusaka

1.2.1 Research Questions

1. Does financial investment affect value of a contract of indigenous construction firms?
2. Do number of employees employed by indigenous construction firms affect value of a contract?
3. Does value of capital asset affect the value of a contract for indigenous construction firms?

1.3 General objectives of the study

To assess the factors affecting value of a contract for indigenous construction firms in Lusaka.

1.3.1 Specific Objectives

1. To examine whether number of employees employed by indigenous construction firms affect value of a contract.
2. To find out whether financial investment affect value of a contract of indigenous construction firms.
3. To investigate whether value of capital assets affect value of a contract of indigenous construction firms.

1.4 Scope of the Study

This research aimed at assessing the factors affecting value of a contract for indigenous construction firms in Lusaka. The study will cover fifty (50) indigenous firms in Lusaka province registered with National Council for Construction (NCC) in Grade one to three. The local construction firms must be in the industry of not less than six (6) years. The purpose is to have the firms with vast experience to aid with the study in giving valuable and reliable data responding to appropriate responses relevant to the study as compared to new firms.

1.5 Significance of the Study

Based on the importance placed on the construction sector it is of the strategic importance of any nations development, there is valuable need to ensure that, a sustainable way of doing construction works aimed at building capacity is done that encourages growth that trickles down to been awarded high value contracts. (Uriyo, et al. (2004). In Zambia, it is not the case as indigenous contractors have a marginal market share due to various challenges they face (Greens Job Program & United Nations Zambia (2014). Therefore, the study will be of so much importance to scholars and future researchers because it will provide a source of materials for future research and assist in bridging the knowledge gaps once identified. The study will also assist deepening the empirical research on assessing the value of contracts on indigenous construction firms in Lusaka.

The study will also be relevant to the policymakers in the organizations that deal in construction and other Government Ministries, Association of Building & Civil Engineering Contractors (ABCEC), National Council for Construction (NCC) and other stakeholders tasked with coming up with policies related to indigenous construction firms. In view of the Study findings from this research, the Government will work through other ministries relevant to construction and develop policies appropriate guidance for the implementation and formulation of policies that may encourage firms to grow through been tasked to manage high value contracts.

The research would be relevant to the management of indigenous construction firms to understand the importance of assessing the factors affecting value of a contract for indigenous construction firms in Lusaka. The management and all staff of indigenous construction firms would understand how important the construction industry is in developing the economy of any country (Ofori, (2000)

1.6 Organization of the Study

This study is organized into six chapters. The chapters have been outlined below:

Chapter one introduced the subject of the study, and it provided the studies general overview, problem statement, research questions, objectives of the research, scope, and studies significance.

Chapter two outlines studies found through a literature review relevant to the relationship between Financial Investments and Growth of indigenous Construction firms in Lusaka. The literature review will give insightful knowledge to the readers and other ideas formulated by other similar researches already conducted.

Chapter Three highlights the conceptual and theoretical framework in the study and possible hypothesis employed.

Chapter four addresses the research methodology used for this research. The focus will be research design, target population, unit of analysis, sample size, method of sampling, sampling procedure and mode of data collection.

Chapter five shows the data analysis and highlights the discussion on the findings employed from the analysis.

Chapter six focuses on the conclusion made from the study and recommendations for further future research

CHAPTER TWO LITERATURE REVIEW

2.0 Introduction

The previous chapter presented the introduction of the study. Additionally, it outlined the background of the study, the problem statement, and research questions. The objectives of the study were also outlined, including the significance of the study. To have a clear understanding of the study, work that has been published by other scholars on the assessment of the value of the contract of indigenous construction firms within the region and some countries outside the region was reviewed in this chapter. Therefore, the literature related to the study would be presented in this chapter.

2.1 Investment

Investment is putting aside of cash or different assets in the desire for receiving future rewards (Bodie, Kane & Marcus, 2014). To invest is when money is set aside in the hope of venturing into activities that will bring a future return. In the finance context, Benefits derived from an investment is a return. According to Coslor & Spaenjers (2016), the returns obtained from any investment such as capital assets sales can be either a loss or gain, depreciation or appreciation or income in the form of dividends received, rentals income and many other forms of returns

2.2 Types of investments

There are two types of investment, namely real investment, and financial investment. The real investment is an intangible investment asset other than bonds, stocks, and cash. The term also includes coins, commodities, precious metals, art, Venture capital, film production, antique and some financial assets such as real, private equity, distressed securities, hedge funds, carbon credits, venture capital, financial derivatives, and cryptocurrencies (Coslor, et al. 2016). Furthermore, real investment is funds invested in productive tangible assets such as plant and equipment (Floros & Vougas (2007). Indigenous construction firms in the construction industry can invest in real estates, such as properties, plots, apartments, land, (capital assets) etc. Investments can assist with the growth of a company as the construction industry is very volatile as it is not mandatory to be awarded a high value contract.

Financial investment, is also, referred to putting funds into assets like, estate, bonds, and equity shares with a view to future capital appreciation. Financial investment is the investment made in stocks, insurance, mutual funds, and many others where money can grow that can be used to finance contracts given to construction firms (Baker & Haslem, 1974). According to Ndao et. Al (2004). financial assets are stocks and bonds, and as such indigenous construction firms may invest in these securities as a way of diversifying their investment instead of relying only on income from contract.

2.3 Value of the contract

A contract is an agreement between two parties, and in this case, it is an agreement made with the construction firm and contractor (Thomas & Wright, 2016: Mau, 2010: Patra, 1962). Concurring to Ahmed et’ al (2002), the value of the contract of any project, depends on the length of the contract, the number of workmanships required to complete the works and the value of capital assets required to efficiently execute the construction works. In Zambia, the main contractor is usually the Zambian Government. Additionally, Kaliba et al. (2009). Indigenous construction firms have challenge in competing with foreign contractors due to various constraints such as, poor working conditions, access to investment and working capital to acquire capital assets, mainly aimed at growing assets, participating in high value contracts depends on the length of bids and ability to overcome all chronic cash flow challenges caused by delayed payments; procurement processes, and public tendering aimed at maximizing firms potential to bid for high value contracts .

2.4 Variables under study

2.4.1 Number of employees

As indicated by the Zambian Central Statistical Office (2012), even if the construction in Zambia is the fastest rapidly growing sectors, employment raking near the bottom compared to other sectors concerning wages, the proportion of permanent employees’ proportions, social awareness on protection and unionized staff. It also has inherent occupational safety and health risks. Peck et al. (2005) outlined that the value of the contract affects the working conditions a construction company will give its workers due to stagnant growth brought about by narrow margins or continuous losses, giving the need for impetuses to firms to genuinely put resources into their workforce. They are needed to encourage economic growth through indigenous firms’ participation by awarding them high-value contracts. This is because not only will that enable them to compete with the foreign construction firms like AVIC but also help them manage employment turn over and statutory payments such as Pay as you earn (PAYE), social security, workman’s compensations, and other obligations. According to Qaqaya, (2008), firms will, in turn, have a clearer incentive to guarantee adequate working environment security, to evade absenteeism, accidents, and reputational hazards in an undeniably competitive marketplace. Most indigenous construction firms continue performing poorly because they do not have a steady stream of valuable contracts, or clients generally had the most impoverished conditions. The number of the contracts continue to have an impact on the value of a contract and duration that a firm can be given (Perera et al. (2009

2.4.2 Financial Investment Value

Ingleton, (2016) defined financial investment as an investment in intangible assets such as stocks and bonds. Several studies suggest that managers of companies prefer to maintain low debt ratios to reduce and manage risk and to protect the firm's undiversified investments” (Modigliani and Miller, 1963),” allowing them to have access to other forms of investments opportunity. However, many firms have littles knowledge of diversification or financial flexibility aimed at improving the firm’s investment ability to help finance the company’s operations and encourage Growth. The Growth will trigger the ability for contractors such as the government in Zambia to have the confidence to shoulder them more valued contracts compared to previous contracts handled by indigenous firms. If firms could find alternative ways of sustaining their Growth through any available financial investment opportunities that would be able to get a reasonable return (Bank of Zambia. (2018: OECD, 2011). This strategy will be ultimate, value-enhancing for indigenous construction firms as they will grow to the point of been awarded high value contracts (Ofori, 2000)

2.4.3 Value of Capital assets

Carrillo et al. (2008) define capital assets are assets used by the firm that are tangible such as machinery, cars, and many others to enhance their effectiveness and efficiency in terms of production. The economies in almost all developing countries confronted by many difficulties owing to a mix of lower product costs, higher costs in energy, fluctuating exchange rates, and inflation. Due to the government's reduction in capital investment construction industry in a developing country is struggling to compete as levels of demand reduce (Outlook, A. E. (2007). Ofori (1993) suggests that the construction industry in developing countries should perform better-considering constraints in environment construction activities should lay the infrastructure for development. The value, type, and state of capital assets will dictate the value of the contract an indigenous firm can get as an awarded. It entails that construction firms should invest more in capital assets as they will enhance their ability and credibility to manage high-value contracts. When this happens, firms would have grown through their ability to handle more valued contracts giving even more prospects for growth (Ugochukwu & Onyekwena, (2014)

2.5 Types of Financial Investments

The following are some of the financial assets in which individuals and companies are encouraged to invest.

2.5.1 Certificates of Deposit

Certificates of deposits are deposits with the ability to earn interest over a specified time. The Certificates of deposits have a maturity ranging from 30 days to 5 years, issued most often by banks. These are extremely low risk (Cleary & Jones, 1999). Thus, the certificate of deposit is a facility with the bank where the bank times the deposit. The condition with the bank and other service providers is that cash deposits is only withdrawn as per initial terms. At the end of the term of the certificate of deposits interest and principal is paid to the depositor by the issuing bank.

2.5.2 Stocks

Stocks are ownership interests in a part of a company (Fama & French, 1993). When one buys stock in Zambeef, for example, they are becoming a part-owner of the business. Stocks allow them to receive profits that the company allocates to its owners potentially. The profits made are also received in the form of dividends.

2.5.3 Mutual Funds

A mutual fund is another form of commercial vehicle comprised of a pool of Funds obtained from many investors, making investments in securities such as Money market instruments, bonds, and other assets (Sharpe, 1966). Professional money managers manage Mutual funds, and these managers make different allocations to the funds' assets in an attempt to make future income for the investors in the fund. A mutual fund is guided by a prospectus portfolio designed in such a way that investment objectives are guided by it.

For SME indigenous construction firm Mutual funds will give them access to portfolios that are professionally managed like, bonds, equities, and other securities investments. With funds' investment, any gains or losses made from the fund are shared proportionally among all member investors. The funds' managers will invest in several securities, and performance usually tracked as the change in the total market cap of the fund, derived by the aggregating performance of the underlying investments (Sharpe, 1966).

2.5.4 Bonds

According to Fama (1972), bond is an agreement with a Government or a company operating the same as a loan. When Bonds are purchased, the owner of the bond allows the issuer to lend the funds with the agreement to pay back principal plus interest, when ranked investments bonds are generally considered safer compared to other stocks. Bonds, though low risk, like any investment, still has the risk of default to payment.

2.6 Investment process

To understand investment processes investors, conduct a thorough fundamental analysis of investments. Investment process encompasses arriving at activities to be conducted during the investment decisions process: two critical facets of investment govern the investment process; they are a risk and return (Brinson, Diermeier & Schlarbaum, 1986). Therefore, these two fundamental measures are of basic significance to investors, considering the risk and return expected.

2.7.1 Security Analysis

Valuation of securities is done when conducting a Security Analysis. According to Murphy (1980), traditional analysis of investment conducted in securities, places much emphasis on dividends and price projections. That is, forecasting on the expected price change of common stock and stream of expected future dividends. The expected stream of cash flow is discounted to get an expected return known as intrinsic value; the value obtained is contrasted with the Present market Cost of the securities. When the intrinsic value is higher compared to the market price, a purchase is recommended, and in case of the opposite, recommendations of a sale are made.

Although modern analysis of securities is fundamentally rooted in the concepts outlined above, the accentuation has shifted. The current methodology to conventional stock analysis underscores returns and risk evaluations instead of mere price and estimated dividend (Murphy, 1980).

2.7.2 Portfolio Management

Portfolios are combinations of assets made up of different securities. Traditional portfolio puts emphasize on investors character regarding risk. (Treynor, 1965). For example, someone young can aggressively be advised to invest in a new company while someone older and retired could be advised to invest in already established and stable companies.

The modern portfolio theories criticized the traditional portfolio analysis approach stating that the expected yield is less than expected. Treynor, 1965). Hence considering investors different perceptions and attitudes on making single investments, investment in several securities help to spread the risk associated with a single investment.

2.8 Small and medium-sized enterprises (SMEs)

Small and medium enterprises (SMEs) are not subsidiaries of other firms, but independent firms that employ a smaller number of employees. ("About SME", 2016). The number of employees varies across countries. Most SME can employ 250 employees, according to the European Union. However, other countries have set a different limit of 200 employees, while in countries like the United States they consider at most 500 employees or less. (OECD, 2005b)

Firms with 50 Employees or less are generally known as small firms, while those with not more than 10 or 5 micro-enterprises, workers. Financial assets can be used to define SMEs. A new definition was put into force on 1 January 2005 from the European Union. The definition applied to all funding programs, and Community acts, whose target was to grant more financial aid to SMEs, than large established companies. The definition also brought a change in the new financial ceilings: the annual turnover for medium-sized companies (50-249 employees) EUR 50 million or less; for small enterprises ranging (10-49 employees) EUR 10 million or less. (OECD, 2005).

2.9 Contractors

The contractor can be an individual or company who does business by executing construction contracts won. The construction obligations guide the contractor on payments and work required, and they need to perform as per the signed contract with the contractor. As a contractor, one sets their working conditions, negotiating power, and rewards based on the companies’ ability to perform. Construction is a vast industry, and thus, contractors offer specialized skills in construction (Bentall. Beusch, & de. (1999). As a contractor, the payment received is more than if a mere worker did the same work because a contractor invests more capital assets and resources, expertise, skills(employees), and goodwill. Therefore, all profits made from contract work are solely for the Contractor (Hinze et al. 1994; Subcontractor vs. Contractor: Understanding the Difference, 2019)

2.10. Subcontractor

A subcontractor is a company or person who is hired by a general contractor to perform a specific task as part of the overall project and is usually paid for services provided to the project by the originating general Contractor (Contracts Working Party, 2007).

2.11 The overview of the Policy in Zambia

The Zambia Government established the NCC through and by parliament Act 13 of 2003, a statutory body aimed to encourage construction firm’s development and growth through the size of contracts given to them .NCC is a regulatory body for all contractors in Zambia. It is a body that issues practicing certificates annually to practicing contractors. Other primary functions of NCC are registration, regulation of the whole constructions, to provide for the knowledge and skill transfer through training of construction staff (employees) in construction related activities. Thus, the primary tasks of NCC as a regulatory body are to enhance project delivery, improve construction industry stability and industry performance and develop human resources and promote the capacities of Zambian contractors through training (National Council for Construction, 2012).

Foreign corporations dominate the construction sector in Zambia. Such big corporations that are winning construction projects in Zambia include AVIC from china, China Geo from China and China Jianx from China. In the quest to empower local contractors, the government of Zambia in 2006 issued a policy statement that 20% of the constructions activities and funds given to the main Contractor should be subcontracted to the local contractors. The policy was deliberate to encourage growth of firms through skills transfer from foreign firms. when skills is transferred firms were expected to be able to handle and manage high-value contracts and purchase more capital assets for improved efficiency and production and increased demand for employment trough increased production.

2.12 Construction Policies in Various African Countries that encourage indigenous construction firm’s growth in contract value

2.12.1 Construction policies in South Africa to encourage growth in contract value

In South Africa, to encourage indigenous construction firm’s participation, development, and growth in terms of increased contract values the public sector has come up with policies that contractors must oblige such as training and skills transfer, local employment, and Black Economic Empowerment (BEE) (CIDB, 2013).

The Construction Industry Development Board Act of 2000 (CIDB Act) governs all construction activities in the country. The CIDB Act gives guides on how to implement and promote policies such as, procurements standardization, programs, reform, and proper procedures that are practical and within Government framework. The CIDB main mandate is to ensure all contractors in the industry legible to be awarded tenders are fully registered, procurement procedures are followed by advertising tenders on the website for CIDB calling from interested parties and record contract awards and cancellation of any contract The policy further requires that since 2017, the companies awarded tenders worth more than R30 million needs to subcontract 30% of the contract value to the local contractors (Tomlinson, 2010)

2.12.2 Construction policies in Nigeria to encourage growth in contract value

In Nigeria contracts (value of contracts awarded to indigenous construction firms)must adhere to the relevant law’s provisions contained in the Regional Planning National Building Code, 2006, National Environmental Standards(NES) and Regulations Agency Enforcement Act, Environmental Assessment Act on impact, Procurement Act for the public , and other laws aimed at regulating the Construction Industry such as, Engineers Registration Act, Quantity Surveyors Act, the Builders Registration Act and Architects Registration Act. Despite these laws, there has been a total failure to enforce these provisions of the law (Ede, 2010). The policy was a deliberate policy to foster growth of indigenous construction firms in terms of increase in contract values awarded after firms invest in not only financial assets and skilled employees

2.12.3 Construction policies in Ghana to encourage growth in contract value

In Ghana, no single agency for the government oversees construction industries (Foster & Pushak, 2011). The Ministry of Water Resources Works and Housing (MWRWH), Transport, Roads and Highways are the three responsibility for the construction industry management and regulation. Besides, the three the Labour and Employment ministries helps with labour related matters and other employment aspects within the industry, while the Education Ministry partially supports trainings and research and development (R & D). The inconsistent ad hoc construction policies reflect how sector responsibility is divided across all ministries (Darko & Löwe, 2016).In such an environment it would be difficulty to encourage growth as firms will find it hard to invest in capital assets or even retain employees due to lack of valuable contracts

2.12.4 Construction policies in Kenya to encourage growth in contract value

In 1966, National Construction Corporation (NCA) through a parliament Act of CAP 493 of Kenyans laws was formed. The corporations main focus was promotion of construction work and encourage indigenous Africans participation and ability to work with other well-developed foreign firms in the industry. However, in 1987 NCA collapsed caused by mismanagement of act leaving ingenious contractors without important support. It was only until 2011, when another act was established through the Act of 2011 enactment of the National Construction Authority. The main focus was to regulate, Build, coordinate, and build indigenous construction firms’ capacity. The aim of the construction policy enacted in Kenya, was to coordinate and develop a construction Sector able to address industry needs and contribute to economic development and an enabling environment for growth in line with increase in value of contracts awarded and capital assets invested in. (Construction Industry Policy, Republic of Kenya, 2018). According to Mwendawa (2013), the Kenyan Government recently gazetted the National Construction Authority (NCA) Regulations-2014, which aims at protecting the local construction companies from unfair foreign competition. It states that foreign contractors bidding for big contracts must enter into joint ventures or other subcontracts with local contractors, with at least 30% of their project value going to local construction companies.

2.12.5 Summary of the Construction Policies of the different countries aimed at encouraging growth in contract value

The construction policies of almost all the African countries that have been reviewed supports sub-contracting to the local contractors by the main contractors. The essence of subcontracting has been found to be citizen economic empowerment or merely the empowerment of local contractors. In Kenya, for example, 30% of the contracts given to foreign contractors should be subcontracted to the local contractors. In Zambia, the policy has been that 20% of the total construction project should be subcontracted to the local Contractor. In South Africa, 30% of the total project should be subcontracted to the local contractors. The purpose of subcontracting in South Africa is the economic empowerment of the local South Africans through the deliberate policy of Black empowerment Policy. Similarly, in Zambia, the subcontracting is spearheaded by the policy called citizen economic empowerment (Ward et al. 2007). In almost all countries, there is a regulatory authority that oversees construction activities. In Zambia, for example, there is a National Construction Council (NCC). In Kenya, it is called National Construction Corporation (NCA). These authorities are backed by the act of parliament, and the act of parliament is supported by a number of legal instruments and regulations such as the environmental regulations in all aspects of construction. The NCA, for example, is backed by the Parliament Act of CAP 493 of the Laws of Kenya. It is evident that all the policies the different countries have put in place if implement as intended may result in contract growth.

2.13 Empirical Analysis

Several studies throughout the world have been done to assess the factors affecting the values of contracts for indigenous construction firms. One such study was done by Zulu and Chileshe (2008) and Kulemeka et al. (2015), aimed to examine the service quality of building maintenance contractors in Zambia. They argued that improved service quality will enable local contractors to compete favorably with foreign contractors in a globalized environment. Unlike this study, the current study will focus on establishing the factors that contribute to the increase in the value of contracts for indigenous firms in general. While a proven quality service record is likely to have an impact on the value of a contract, this study focuses on the number of employees, value of financial investments as well as the value of capital assets.

Ogunbiyi and Bamgboye (2016), conducted a study to establish the factors that affect the performance of indigenous small contractors in Lagos State in Nigeria. They reveal that factors such as lack of expertise scarcity of materials, lack of relevant manpower (number of employees), inconsistent government policies as well as the unavailability of plant and equipment. They further recommend that Banks be on hand to assist in the financing of small size indigenous firms for them to perform better. Whilst the factors highlighted have an impact on the ability of a firm to bid for high value contracts, this current study focuses on the number of employees, the value of capital assets as well as the value of financial investments.

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