Rising heavy machinery rental rates, driven in part by the growing presence of international construction firms, are threatening the viability of fixed-price contracts and squeezing local contractors across Ethiopia’s infrastructure sector, industry leaders warned at a recent forum.
The concerns were highlighted during the launch of the Physical Performance Measurement Standard for the construction industry, co-organised by the Ethiopian Construction Authority (ECA), the Construction Management Institute (CMI), and MIDROC Investment Group alongside its affiliate MIDROC Consulting Architects and Engineers.
Participants said foreign contractors, often backed by international financing and capital-intensive operational models, are setting procurement and machinery rental benchmarks that far exceed domestic baselines. Because these firms can absorb or pass on higher rental costs, they are effectively establishing a distorted market ceiling that ripples through the entire sector.
The impact is being felt most acutely by smaller, lower-grade contractors, who make up the bulk of Ethiopia’s construction industry. Research presented at the event indicated that the vast majority of local operators have limited annual capacity and are especially vulnerable to market shocks and price distortions.
Operating under tight fixed-price contracts or with narrow capital buffers, domestic firms are struggling to compete in a machinery rental market where prices have diverged sharply from national economic realities. When project evaluations rely on these inflated benchmarks, overall cost structures become distorted, exposing mid-tier local contractors to severe financial liabilities.
Industry experts said machinery-centred operational models play a decisive role in performance evaluations. In a sector where physical performance metrics have long been overshadowed by financial expenditures, the absence of standardised, localised baselines leaves contractors exposed to undue risks and, in some cases, contract termination.
“When international pricing standards are imposed on a domestic market grappling with local inflation and foreign exchange shortages, the financial equilibrium required to sustain a fixed-price contract collapses,” one participant said. Many attendees pointed to unregulated spikes in machinery rental as a key driver behind widespread project suspensions and delays.
The foreign exchange crisis has intensified these pressures. The birr has lost substantial value against major currencies in recent years, making it harder for contractors to import materials, spare parts and equipment or to service international machinery leases.
Discussions at the forum also underscored broader regulatory gaps and weak coordination among stakeholders. Although major state-backed and private enterprises are driving urban corridor developments, housing projects and infrastructure expansions, speakers said the absence of synchronized accountability networks routinely generates friction among clients, consultants and contractors.
Representing the Ethiopian Contractors Association and the Association of Ethiopian Architects, Girma Habtemariam argued that performance evaluations and regulatory monitoring disproportionately target contractors, while institutional gaps and compliance failures by clients and consultants often escape scrutiny.
“When evaluating performance, we talk exclusively about time, budget and execution from the contractor’s side,” Girma said. “What about client authorities and consultants? Their legal limitations, responsibilities and occasional breaches of public procurement regulations should likewise be incorporated into any rigorous structural study.”
He added that macroeconomic volatility further exacerbates operational strains. Amid daily fluctuations in material and operational costs, standard weighting formulas used in project evaluations quickly become outdated. Contractors are often the first to bear the consequences of economic instability, absorbing price shocks, currency devaluation and supply chain disruptions largely beyond their control.
The absence of flexible adjustment mechanisms means rapid price escalation is not adequately captured, undermining the financial health of executing firms. In a context of limited institutional oversight and documentation gaps, recurring questions about the credibility of progress reports continue to weaken project management.
In response, the newly introduced National Construction Projects Physical Performance Measurement and Reporting Framework aims to address longstanding distortions between physical performance and financial costs. Its objectives include ensuring accurate data and measurement, implementing man-hour and machine-hour benchmarks, producing reliable reporting, and strengthening time and cost control.
By establishing localised baselines for physical performance, the framework seeks to create a more level playing field where domestic contractors can compete based on actual capabilities rather than against distorted international benchmarks.
Mesfin Negewo, Director General of the Ethiopian Construction Authority, said the authority is working with stakeholders to establish uniform quality standards and regulatory systems. He stressed that coordination is critical, as the construction industry involves multiple actors whose collective performance — not just that of contractors — determines project success.
Mohamed Abdu, Chairperson of the House of Peoples’ Representatives Standing Committee on Urban Infrastructure and Transport Affairs, said implementing such scientific frameworks is essential to modernising the construction sector and building domestic capacity. He urged stakeholders to adopt the standards with a sense of ownership.
While the initial orientation session focused on major industry players, organisers said further awareness-raising platforms will follow to operationalise the framework nationwide in collaboration with regional administrations and professional associations.
