Forcing debt upon local entrepreneurs
I don’t like some parts of my job – though these parts are often meaningful challenges that make me think harder about what I am doing here in the Congo.
Forcing debt on any of the entrepreneurs that I work with is a difficult task, especially when I am in one of the most poverty-stricken places in the world. It must be said that I have had wonderful experiences working alongside truly inspired, organized and driven Africans. However, as in the rest of the world, one eventually comes into contact with irresponsible businessmen. Construction materials are shorted, then sold. Occasionally, local laborers are not paid, and money finds its way into undeserving hands. Sometimes, money is simply mismanaged. The only way to effectively curtail such occurrences (and to ensure the completion of a project) is to use money: withhold it and create debt in the right places.
When I arrived in Congo I inherited a series of problems. The vast majority of schools, roads and water systems had been completed, but 20 projects remained behind schedule and on the verge of failure. Some had not been visited in weeks due to unstable security; others showed little progress, their funds dwindling. These projects had not yet failed, however: all they needed was a little encouragement and a bit of strong-arming.
The average construction cost of a typical Tuungane project hovers around $50,000. Our standard operating procedure is to withhold 10% as a guarantee, which is released only upon completion of the project and with the signature of the community president. It ensures that when times get tough there is still a carrot on the end of the stick. This of course is a standard contractual agreement. Sometimes though, the stick starts to get bigger and bigger, and the carrot gets smaller.
Take, for instance one of our projects in the Walungu territory, a six-classroom project in the village of Bashibashuma. The contractor working on the project–we’ll call him “Jean”–has worked on two projects so far with the IRC’s Tuungane program. His first project, a health center in Uvira, was extremely successful. His second project was not. After running short on money and souring a few relationships, the community opted not to extend his contract and to finish the project themselves. This third project is still salvageable, though my colleagues and the community of Bashibashuma are getting restless. Jean’s contract has already been extended, and little to no work has been done since I signed his last check for $6,300 – 4 months ago.
In mid-June, I invited Jean to my office for a chat. He explained to me that he was having financial troubles, most of which were brought upon by the rains and the difficult roads conditions.
Jean had a remaining balance of $3,000 in our account, plus the $5,000 guarantee. After some discussion, I offered a refinancing option that would reduce the guarantee and put more money in his pocket for the remaining construction. After all, he was very close to substantial completion of the project. All I would need from him would be a revised budget and construction schedule. I told him I’d be happy to set the paperwork in motion.
When I sought approval for this way forward, I learned that this had already been done for him in October of last year (something he had neglected to mention). The guarantee could not be touched – especially by Jean.It became clear if this project were going to be finished, I would have to guide him through the budget revisions and scheduling process myself.
After visiting the site and taking notes on what was left to be done, I estimated what materials needed to be purchased: project completion would cost about $6,000. If we were to release the remaining $3,000, Jean would temporarily have $1,000 more in his pocket than would be his final profit if he were to finish the project.
$3,000 payment – $6,000 construction costs = $-3,000, Jean’s short-term debt
$-3,000 debt + $5,000 guarantee = $2,000, Jean’s profit.
$3,000 payment, and quit while ahead.
If he were to finish the project of course, he would remain in good standing with the community and the IRC, and would preserve his ability to win additional projects within the Tuungane program. Up-front money, however, is a strong force (and perhaps one difficult for Jean to control), and this fact has led me to protect the community from the worst case scenario: a project that dies before it gets the chance to live.
I explained to Jean that he would need to front the first 50% of the remaining construction costs. As soon as he could demonstrate that he had invested about $3,000, either through his receipts or by meeting benchmarks of construction progress, we would release the remaining $3000. He would then be able to complete the project and receive his $5,000 guarantee, repay his debt, and net $2,000 profit. I asked Jean to take the rest of the week to prepare a new strategy: scheduling out tasks, purchases, and setting a date when he would be requesting his final payment from IRC.
Jean arrived in my office a week later with a formal schedule, complete with his signature and a stamp. By his estimates, the remaining work would take seven weeks costing a total of $6,180. His planning showed that the costs would be split (apparently) between him and the IRC, and he would be ready for the final payment in two weeks. Something had not translated. Reviewing his timeline, I noted that he had severely front loaded 50% of the work into the first two weeks – an ambitious plan. This is what I assumed he would propose, but after discussing his purchasing strategy and hearing of the large number of laborers that were ready to get to work, it was clear that he was determined to minimize the duration of his financial investment. It was an aggressive plan, but I was ready to see him succeed.
“OK, Jean. We will come by the site in two weeks to see that this, this and this has been completed and to make sure to get you paid as soon as possible.”
He paused. “Aww, Charles. I will still be working on those things by then. This is Africa.” He says with a smile. “You can pay me on this date – that is what this document says.”
There is nothing I hate more than the “T.I.A.” bullshit.
“No Jean. This is not Africa. This is my office. And this document is your proposed contract. You signed it. You stamped it. And it clearly indicates that we will only pay you if and when you pay for this.”
What followed was a drawn-out, stressful conversation: interpreting the document and treading lightly so as to not offend one another.
Finally, I had to explain.
“Jean. I understand that I am forcing you into debt. But you have to understand that your debt will be my security. It ensures that you will have no choice but to finish this project to gain your final guarantee.”
I have since given Jean a week to revise his plans. I have no idea if he actually can get $3,000. Nor do I want to think about the dangers involved in seeking such a loan in Eastern Congo. Is this reason enough to ease the rules? Because life here is difficult? Because this is Africa?
Bashibashuma needs a school. And if forcing short-term debt upon a contractor is the means to that end, that end will provide new opportunities for the next generation of Congolese entrepreneurs.