The Economics of Exclusion: How Financing Asymmetry Is Squeezing Zambian Contractors Out of Their Own Market

By Eng. Willings Sichalwe

Image: Eng. Willings Sichalwe

Zambia’s skyline has changed dramatically over the past decade, but the firms building it have changed too. A growing share of major public infrastructure now goes to Chinese state backed contractors, and the reasons are less about competition on merit than about who can access the cheapest money.

A Market Shaped by Financing, Not Just Competition

Zambia’s construction sector has delivered real, visible output over the past ten years, from dual carriageways to civic complexes. But the mix of firms winning that work has shifted sharply toward Chinese state linked contractors, and the shift is not simply the result of a level playing field producing a natural winner. It reflects a structural gap in how firms are financed.

Many Chinese contractors operating in Zambia draw on policy banks and development finance institutions in their home country, which gives them access to capital that is both cheaper and longer term than what is available in Zambia’s domestic banking market. Zambian contractors, by contrast, borrow from commercial banks at rates that make performance bonds, advance payment guarantees and working capital expensive relative to project margins. That gap shows up directly in tender prices, long before a shovel touches the ground.

The Bidding Table Tilts Before the Bidding Starts

Years of continuous regional project work have also left many Chinese contractors with large fleets of heavy equipment that are already paid off. Running a depreciated grader or batching plant costs far less than leasing or financing a new one, so these firms can price bids close to their direct material and running costs and still stay in business on volume alone. A Zambian Grade 1 or Grade 2 contractor, financing every piece of equipment commercially, is often unable to match that price on paper even where the technical capability is equal or better. In a procurement system that leans heavily on lowest evaluated price, that arithmetic pushes local firms to the margins of projects funded by their own taxes.

Where the Money Goes After It Is Spent

The financing gap is only part of the story. What happens to public money after a contract is signed matters just as much for the domestic economy. In a construction sector that recirculates spending locally, through bank deposits, local professional fees and domestically sourced materials, public infrastructure spending carries a multiplier effect that supports jobs and businesses well beyond the project itself.

Under the current model, a significant share of materials, specialised equipment and senior technical services is instead sourced through supply chains anchored outside Zambia. That reduces how much of each kwacha spent on a public project actually stays in the domestic economy, and it limits the broader growth effect that large infrastructure budgets are supposed to generate.

Wages and Subcontracting: Where the Squeeze Is Felt Directly

The effects reach beyond firm balance sheets and into individual careers. Engineers, surveyors and artisans on Chinese contractor projects frequently report pay that sits below what comparable roles offer elsewhere, including in parts of the public sector. That wage compression discourages skilled graduates from staying in construction and contributes to a slow drain of experience from the sector.

Subcontracting, which is meant to build local capacity over time, often ends up as a compliance exercise rather than a genuine partnership. Zambian subcontractors are frequently squeezed between slow public payment cycles and thin margins set by main contractors who have already priced tightly to win the tender. The financial and operational risk in the value chain lands disproportionately on the smallest, least capitalised firms.

A Different Model Existed Before

It is worth remembering that Zambia’s experience with foreign contractors has not always looked this way. European, South African and other international firms that built major infrastructure in earlier decades were foreign too, and imperfect in their own right, but many ran operating models that pulled Zambian professionals into senior roles. Country directors, project managers and board members who were Zambian were not unusual, and these firms leaned on domestic legal, logistics and engineering consultancy services in a way that supported a wider local ecosystem.

That contrast matters because it shows the current pattern is not an inevitable feature of foreign investment in construction. It is a feature of a specific financing and procurement model.

Where Governance Adds to the Imbalance

None of this is only about money. Weaknesses in procurement governance widen the gap further. Concerns have been raised over the years about limited competition in the award of some large contracts, non transparent bilateral arrangements, and political interference in project scope and selection. When bodies such as the National Council for Construction and the Engineering Institution of Zambia are bypassed or under resourced, it becomes harder to enforce local participation requirements, skills transfer commitments and fair labour practices. Well capitalised external contractors then operate with more latitude, while local firms and professionals have limited recourse when commitments are not honoured.

Four Policy Levers for Rebalancing the Sector

Fixing the imbalance requires more than sentiment. A few concrete levers stand out:

• Reserve smaller contracts for citizen owned firms. Works below a defined threshold could be ring fenced for registered citizen contractors, and larger projects could require mandatory joint ventures with a minimum forty percent local equity stake and real participation in project management, not a silent partnership.
• Overhaul subcontracting and nomination rules. Unbundling subcontracted scopes at tender stage, with indicative value ranges and independent oversight of nomination, would reduce the discretion main contractors currently have to set unsustainably thin local margins.
• Build targeted financing instruments. Credit lines, performance bond guarantees and equipment leasing pools, developed with domestic banks and development partners, would address the capital constraint that is the root of the bidding disadvantage.
• Strengthen regulatory autonomy. Giving the National Council for Construction and the Engineering Institution of Zambia real authority to audit public projects, penalise non compliant firms and control work permit issuance would help ensure foreign staffing is used only where local skills genuinely do not exist.

What This Means for Business, Investors and Policy

For local contractors: the near term challenge is financing cost, not technical capability. Access to concessional credit lines or leasing pools would change the bidding math directly.

For investors and development partners: procurement structures that mandate meaningful local equity and management participation in joint ventures create a more durable domestic construction sector to partner with over time, rather than a shrinking one.

For policymakers: the multiplier effect of infrastructure spending depends on where that spending is sourced. Local content requirements in procurement are a fiscal policy lever, not just an industrial one.

The financing constraint at the heart of this problem is not unique to construction. It mirrors the wider pattern documented in Zambia’s SME credit gap, and it sits alongside efforts such as Statutory Instrument 68’s local-content rules for mining, which apply the same positive-discrimination logic this piece recommends for construction.

Conclusion

Zambia’s need for roads, bridges, power infrastructure and public facilities is real and urgent, and foreign capital and contractors will continue to have a role in meeting it. The concern is not partnership itself but a procurement model that rewards access to sovereign backed capital and integrated supply chains over the development of local capacity. Without a deliberate recalibration, through positive discrimination for citizen firms, fairer subcontracting rules, targeted financing support and stronger regulatory autonomy, Zambia risks building infrastructure it cannot independently replicate, maintain or adapt in the future.

Eng. Willings Sichalwe writes on ethical leadership, institutional integrity, engineers’ welfare and professional dignity in Zambia’s construction sector.

See also: Ethics as Infrastructure: The Economic Case for Integrity in Zambia’s Engineering Sector, Eng. Willings Sichalwe’s analysis of why integrity systems are now a fiscal question for infrastructure delivery.

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