April 20, 2018//-The Sub-Saharan Africa region will see the second-fastest construction industry growth of all regions globally over the next five years, driven in particular by strong growth from 2020 when the region will pass the Middle East and North Africa region as the global growth leader, latest report from BMI has revealed.
The report also disclosed that: “While key markets such as South Africa will continue to lag behind the regional average, a strong project pipeline with an API 1169 certification and pressing infrastructure needs across the region will keep growth elevated on a global comparison with a number of markets including Ethiopia, Rwanda and Cameroon set to outperform.
“Sub-Saharan Africa (SSA) is set to see a robust expansion of its construction industry over the next five years, with our forecasts calling for annual average growth of 6.8% y-o-y in real terms between 2018 and 2022, second globally only to the Middle East and North Africa (MENA) region, which we forecast will see average growth of 7.1% over the same period.
“While this marks a slowdown for SSA relative to average growth of 7.6% y-o-y between 2013 and 2017, the acute need for infrastructure development across the region, combined with rising commodities prices, robust Chinese investment and a strong project pipeline, will maintain SSA’s position as a growth outperformer.
“Indeed, we expect the region to become the fastest-growing region globally over our medium-term forecast period, retaking the top spot from MENA from 2020. While growth will slow in several key markets, including Ethiopia, Rwanda and Cameroon, these three countries – alongside Nigeria and Uganda – will nonetheless be the top growth markets in the region.
In contrast, South Africa, the third largest market in SSA in USD terms, will continue to lag its regional peers in terms of construction growth, becoming the slowest-growing market regionally over the coming five years”.
Country to country analysis of the report
Nigeria
“We forecast Nigeria’s construction industry, the largest in the region, will see average real growth of 7.9% y-o-y between 2018 and 2022 as investment recovers from relatively weak average growth of 5.4% y-o-y over the previous five year period (2013-2017).
In particular, our forecasts will be supported by an expected uptick in commodities prices which will provide a boost to government finances and support an increase in infrastructure investment in the coming years.
“Major projects moving forward include a $12bn refinery operated by Dangote Group, a USD8.3bn rail line from Lagos to Kano under construction by China Civil Engineering and Construction Company, and a $6bn port and free trade zone in Lagos.
Nonetheless, we highlight that Nigeria’s construction industry will continue to underperform previous construction industry growth experienced during the commodities boom of the 2000s, when annual double-digit expansion was the norm, due to a range of wider economic risks including ongoing liquidity problems, high inflation and a poor business environment.
These factors will deter private investment and limit the ability of the government to realise ambitious infrastructure projects”.
Ethiopia
Ethiopia will remain the growth outperformer in the SSA region over the next five years, as major infrastructure projects in the road, rail and power sectors continue to progress under the country’s second Growth and Transformation Plan (GTPII), which runs from FY2015/6 to FY2020/21.
We are forecasting average construction industry real growth of 11.7% y-o-y between 2018 and 2022, ensuring Ethiopia remains the fastest growing market in the region, despite a significant slowdown from the 25.0% y-o-y average growth recorded from 2013-2017.
Construction activity will be sustained by fiscal support from the government, which is committed to infrastructure development in order to boost job creation and economic inclusion, as well as Chinese investment, which will remain elevated as Chinese firms seek growth opportunities abroad.
Although there are downside risks to our forecast from ongoing social and ethnic unrest, we believe that a combination of government efforts to contain protests and increasing economic opportunities as a result of ongoing development will limit the impact on the construction sector (see ‘Social Unrest No Threat To Construction Outlook’ February 21 2017).
Rwanda
Despite its small nominal size, with construction industry value forecast at USD0.7bn in 2018, Rwanda’s construction sector will also stand out among countries in the region over the next five years with average annual growth forecast at 8.2%, making it the second-fastest growing construction market in SSA.
Infrastructure development will be driven by funding from the government, multilateral aid agencies, Chinese SOEs and private investors, directed by the framework of the ‘Vision 2020’ national development plan and underpinned by the country’s relative political stability.
The government’s development strategy prioritises power, transport and ICT infrastructure, as part of efforts to bridge long-standing infrastructure gaps and diversify the economy.
Some of the major projects currently underway include a new dry port and logistics centre in Kigali being developed by DP World, a new international airport at Bugesera and ‘Kigali Innovation City’, a mixed development containing retail, leisure and housing space as well as a branch of Carnegie Mellon University.
Cameroon
With real construction industry growth forecast to average 8.2% y-o-y between 2018 and 2022, Cameroon will offer considerable opportunities to investors as the joint-second fastest growing market regionally, alongside Rwanda.
Upgrades to logistics and utilities networks, as well as the development of necessary infrastructure for hosting the Africa Cup of Nations in 2019, will keep construction activity elevated over the coming years.
China is heavily involved in many of the projects currently underway, either through financing, direct investment or the provision of technical expertise – with Chinese firms or banks associated with 60% of the projects currently under construction, according to our Infrastructure Key Projects Database.
Most of these projects relate to road construction as the country seeks to improve its supply chain linkages, including a dual-carriageway road project from Kribi to Lolabe and a new road bridge over the border to Nigeria at Ekok.
External funding will be a key driver of growth in the industry as the government’s finances have come under sustained pressure from expansive infrastructure spending in recent years, although an Extended Credit Facility signed with the IMF in June 2017 will provide some stability and reassurance for investors.
Uganda
We expect Uganda’s construction industry will expand by an average of 7.8% y-o-y in real terms between 2018 and 2022, making it the fifth-fastest growing industry in the region over that period.
Construction sector growth will be primarily driven by oil-industry related projects, with production due to commence at the country’s oilfields in 2022 and considerable supporting infrastructure, including a 1,400km pipeline, required in order to bring oil products to market.
Financial support from development agencies and Chinese firms will be crucial to delivering on infrastructure projects in Uganda, as government finances are strained and unlikely to see much relief until oil revenues begin to feed through post-2022.
As such, the African Development Bank, the World Bank and the EU are all involved in power projects which are needed to bring stability to the power supply in time for the commencement of oil production.
Meanwhile, Exim Bank Of China is helping to finance transport infrastructure improvements including a new expressway between Kampala and Entebbe and an upgrade to the country’s main international airport.
Growth To Slow In Key Markets Despite Continued Regional Outperformance
Although SSA construction industry growth will outpace most other regions over the medium term, growth in numerous markets will slow compared to previous years, including in top performing markets Ethiopia, Rwanda and Cameroon.
Other countries set to experience a slowdown include Tanzania, Kenya, Cote d’Ivoire, and Namibia, while South Africa will continue to underperform relative to its regional peers.
The factors driving this slower growth vary across markets, but are generally due to the dificulty governments face financing and implementing ambitious infrastructure projects, the potential for political and security risks to disrupt operations, and dwindling project pipelines.
In South Africa in particular, budgetary pressures, investor caution due to potential implementation of populist policies, and sluggish economic growth will weigh on construction activity over the coming years.
As a result of this slowing growth, the gap between the fastest and slowest growing economies will shrink, though Ethiopia will remain the clear regional growth outperformer
African Eye Report/ Independent.ng
