Chinese Huawei dodging contractual payments to Malawi ICT support service firms
Huawei, a Chinese company that is touted as a leading global provider of information and communications technology (ICT) infrastructure development, is being accused of giving Malawian ICT support services firms unfavorable trade practices in honoring contractual payments.
According to a communication we have in possession addressed to Huawei’s managing director in Malawi, dated May 8, 2019 signed by all subcontractors under the subject ‘Subcontractors’ Concerns Regarding the UAP Service Project’, it details Huawei’s unfair trade practices.
The letter in 2019 was pleading for professional response from the Chinese firm contractual agreement of the UAP Service Project, which was suspended but they still haven’t received any response up to now.
According to our source, who is from one of the Malawian firms — Damak Construction; Jadcon Construction; Luna Technologies and DEC Construction — Huawei owes four Malawian firms it subcontracted to build telecommunications towers — whose contract was awarded to the Chinese company by the Malawi Government to construct 200 telecommunication towers across the country.
Huawei awarded them as subcontractors to build the towers in 2018 and were given some prerequisites, which included dictated number of skilled personnel to hire.
The personnel included engineers, riggers, supervisors, project coordinators and others — went on special training course, whose high expenses were borne by the Malawian firms whilst waiting for Huawei to refund them, which they haven’t done up to now.
Huawei also listed equipment and tools which the Malawian subcontractors were to buy for the project execution before any agreed upfront payment.
The Malawian firms then mobilized to their awarded sites with all personnel, equipment and tools, materials, warehousing, staff accommodation, allowances amongst others.
The letter to the MD, which haven’t been responded to till now as according to our source, asked for an update of the UAP TK Service project; when they expected its resumption and what was Huawei’s plan “to bail out its subcontractors who are passing through unanticipated financial hiccups due to the involvement in a project that has been on hold for 7 months”.
The letter reminds the MD that on September 26, 2018 — a week after the contracts by the four had duly been signed for by Huawei on September 17 — the subcontractors mobilized to the sites but on October 6, they received “a phone call followed by email communication from the Project Manager that we should put on hold all activities in our respective sites”.
“It was said in the email that further information would be provided in a week’s time as to which sites were to proceed.”
The letter goes on to remind Huawei MD that on October 8, the subcontractors were called for a meeting where they were told of the cancellation of some sites and also the introduction of some new sites and it was agreed that they should start on October 9, of which they did.
“Barely one week after returning to construction sites on the 16th October, we received email communication from the Project Manager that he received instruction from management for us to put on HOLD the site works till further notice.
“Since this HOLD on, there has not been proper communication regarding the project status apart from being given the hope verbally that the project might resume in January, 2019. We then heard that it might start in February 2019, then mid-March and finally April 2019
“It was this hope that was keeping us going on but now we have been over-stretched beyond our capacity.”
The letter mentioned all the investment the four Malawian firms injected into the project as per requirements that included employment of new additional staff; training of staff; acquiring new vehicles; acquiring new equipment and more tools, work suits, boots, helmets and new belts.
“We had to put everything on our disposal in order to make that project a SUCCESS,” says the letter. “It was our wish to be given Site Construction Duration for every given site.”
The letter also indicates that they approached banks for loans “in order to smoothly execute the project without any financial hiccups [but] when the Purchase Orders were raised for us, they did not include everything for the total site”.
“This meant that the 30% advance payment that was given to us was not enough for a subcontractor who mobilized for the total site works,” said the letter to Huawei Malawi MD.
According to our source, the subcontractors sought loans to fully finance their projects in anticipation that Huawei would fully honor the contractual payments and that they were still paying the idle staff that were specifically employed just for the project as requested.
“Up to now Huawei has not given any explanation on the suspended contract,” said the source. “Our worry, has been that we invested into this project through preparation for this project where we had to acquire bigger central warehouses; new offices; employment of additional personnel; trainings of staff prior to the project; equipment; PPE for health & safety and insurance.
“When the project started we had to increase our finances through acquiring of bank overdrafts and indeed some loans from other quarters like friends in business.
“We have suffered in silence at the way we were treated in the tower construction project because we were trying to protect our interests and business relationship.
“We expected Huawei to pay for all expenses we incurred in the project since the suspension of the project was not of our making,” the letter said.
Currently, Huawei has engaged some of these subcontractors in the current Malawi National Fiber Backbone Project Phase II for optical fibre installation which was launched last year by President Lazarus Chakwera.
“The current project is also marred with so many issues including unfavorable payment terms for the local subcontractors compared to the payment terms given to foreign subcontractors and also stringent and prohibitive processes to claim payments.
“This is disheartening and frustrating that local firms are being treated like this at a time when our President, Dr. Lazarus Chakwera’s government is promoting fair trade practices and empowerment of local firms and SMEs,” he said.
A few weeks earlier, Centre for Democracy and Economic Development Initiatives (CDEDI) echoed President Chakwera’s call for the development of deliberate policies to protect the local players in the construction industry, observing that the local players are at the mercy of foreign firms.
Chakwera ordered that foreign companies awarded construction contracts in Malawi should award 30% of the projects to the local contractors and also ordered that all international bidders should allocate 30% to local contractors when accorded an opportunity to manage projects through a thorough process.
Addressing the media in Lilongwe, CDEDI Executive Director, Sylvester Namiwa maintained that the President had said he had taken this step to protect exploitation of the local players by foreign contractors.
Namiwa contended that there is rampant financial discrimination in the construction industry in Malawi, with foreigner-owned companies enjoying the biggest share in contract awards.
A survey by CDEDI has established that Roads Authority (RA) awarded ‘almost all the contracts’ to Chinese Government-sponsored companies — thereby putting local companies at a disadvantage.
Namiwa claimed that from Marka in Nsanje to Meru in Chitipa, everything is in the hands of Chinese firms, saying “the Chinese government sponsored companies are creating advantage and, in the process, killing the competition by quoting prices that are lower than the engineers’ estimates.
“Our prediction is that in five years’ time after successfully killing the local contractors, the Chinese are likely to raise the prices to recoup all they invested in this scheme.
“The Chinese, unlike their European counterparts, use the cheapest bids as a strategy to enter the African market, while companies such as Starbag use high quality strategy,” he had said.
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