Determinants of Closure of Local Construction Companies in Rwanda

Abstract

Globally, construction companies experience high risky closure because of its unique features such as long period, complicated processes, unexpected environment, financial intensity and dynamic organization structures. All these uncertainties make the termination of construction companies is one of the pitfall of the construction industry. The sector is highly fragmented and very sensitive to many determinants. The industry has high rate of business closures. Business failure, collapse and bankruptcy are common terms used to define the status of the company closure. The ease in entering the construction market with limited financing resources results in many companies competing on a limited market share and being exposed to business closure. Rwanda is no exception. This situation is very detrimental to the economy of Rwanda. This is the motivation for this study. The objectives of the research were to describe severity of the determinants of construction company closure in Rwanda, to assessing the failure trends of the construction company leading to closure in Rwanda and to develop a framework to salvage the local contractors’ businesses from failure and/or collapse. An online questionnaire survey of 132 respondents was adopted in this study. From review of the literature related to business performance, a list of determinants of business closures was made. Based on those determinants, research instruments were developed and used in data collections within several firms’ managers and other important stakeholders such as engineers and architects. Subsequently, data were analyzed using descriptive methods in order highlight severity of various determinants of contractor business closures in Rwanda. Additionally, expert views of the respondents were outlined. Finally, the data analysis results were used to formulate a framework for salvaging contractors from failure or collapse. Financial challenges were observed to be the most severe cause of contractors’ closures, followed by managerial challenges at the corporate and site levels. From the study findings, it is recommended that the construction industry adopts the project management procurement method in project planning and implementation, as amplified in the schematic framework developed in the study. Accordingly, more effort should be devoted to development of human resources for financial and operational management. Additionally, clients should consider more seriously provision of advance payments in construction projects in order to strengthen the contractors’ cash flow from the very onset of the project implementation. Further research in this area should investigate more causes of failure of the contractors in general