A PROJECT IN PARTIAL FULFILMENT OF THE REQUIRMENT FOR THE MEng DEGREE IN CONSTRUCTION TECHNOLOGY AND MANEGMENT

Abstract

This project paper mainly focuses on the role of bank and other financial institutions in Ethiopian construction industry. The paper context mainly comprises on methodological, conceptual and contextual frame work. This paper is initiated and scoped to local banks among the financial institutes and contractors in Ethiopia. In Ethiopia there are only two government and eleven private commercial banks that provide services and facilities to the construction firms. In Ethiopia there are a large number of construction projects for the development of infrastructures. The existing construction projects are full of financial and managerial problems. Construction projects are time and cost bounded. Generally, construction projects objectives are stated in terms of project completion time, budgeted cost and stipulated quality specifications. Construction projects consume a huge amount of resources. One of the major resources and the resource by which to own other is cash, so managing and utilizing cash flow efficiently is essential and to perform this, firms should prepare cash flow forecast. Cash flow forecast is necessary to understand projects cash demand with respect to time, the time when projects demand external financial support, and to plan in advance from where to get it. Contractors in Ethiopia, who are the main actors of construction projects, have low financial capacity. Projects in Ethiopia are full of financial constraints. To solve this contractors try to finance projects from different sources. Generally, there are two sources of finance for construction firms that are internal (depreciation allowance, accounts payable, wages payable, retained earnings, and accrued taxes) and external (term loan, equipment loan, construction loan, overdraft facility, and bridge financing). The external sources of finance need the involvement of the third party like banks. The basic instruments used for this paper are questioner and interview to domestic contractors of different category and commercial banks. After the collection of data, analysis has been made. The analysis of the result shows that the Ethiopian contractors are full of financial scarcity, the information gap between contractors and banks is significant, cash-flow forecast is vital for successful project completion. On the other hand the role of banks in minimizing contractors‟ cash flow problem is not sufficient.