The East African construction market

Made of 20 countries, East Africa has witnessed an impressive real estate boom which has changed the region’s skylines, transforming its landscape.

 A closer look at the construction opportunities in the East African Region

If you build it, they will come. — Field of Dreams

This is the beauty of investment and vision. And this holds true for the stunning East Africa that is home to the highest of peaks and the great grasslands.

Made of  , East Africa has witnessed an impressive real estate boom which has changed the region’s skylines, transforming its landscape.

Therefore, it doesn’t come as a surprise when the East Africa cement market touched a volume of 35.5 Million Tons in 2020.

The Africa construction market as a whole is expected to register a compound annual growth rate (CAGR) of 6.4% during 2019 – 2024, according to Africa Construction Market – Growth, Trends, and Forecast (2020 – 2025 by IMARC, a leading market research company.

The East Africa region has had the largest number of recorded projects with 139 projects in 2018 alone.

Market Trends and Growth Factors in East Africa

The major factor for East Africa emerging as target destination for most large economies is the huge gap in infrastructure and the rapid growth in population. Another major factor is the increased consumer spending with economic growth.

And this is not a new development either. In 2017, 11 of the 43 major infrastructure projects in East Africa were in Kenya alone. The African Development Bank’s portfolio for the EA region in 2016 included 217 projects with a total commitment value of UA 7.12 billion. Infrastructure dominated the portfolio, with 69 % of approvals.

The trends have seen a clear trajectory. And this also reflects in the region’s economic growth as well.

East Africa led the regional growth with estimates of 5.3% in 2016, as per Africa Development Bank Group. The GDP in East Africa rose by 5.7 percent in the year 2018, slightly less than 5.9 % in 2017 and was considered as the highest among African regions

In 2019, East Africa, with Ethiopia, Tanzania and Rwanda, maintained the lead as the fastest growing region in the continent with growth averaging at 5.0 %.

And while the pandemic has disrupted the growth trajectory, East Africa continues to show great promise. As per a Statista 2020 report by Julia Faria, East Africa’s economic growth is expected to bounce back from the effects of coronavirus in 2021.

The pre-Corona GDP forecast for the EA region for 2021 was estimated to be 5.4 %, a small increase as compared to 2020 (5.1 percent).

The report added that the EA region is expected to grow at 3.7 percent in 2021 and 2.8 percent in 2021 in the worst case scenario.

Market Advantage in East Africa

The Africa construction market brings growth opportunities during the forecast period and this is being seen as a driver for market competition.

As mentioned above, factors such as population and economic growth, coupled with the infrastructure gap are the major driving forces for the growth of the construction market in East Africa region.

Other East Africa’s Construction market advantages are seen as conducive business environment, favourable economic development policies, cheap labour and a fast-growing consumer market.

In 2017, the IMF upgraded countries like Kenya, Nigeria, Tanzania, Mozambique, Uganda and Zambia to “emerging markets in Africa.” (IMF, 2017).

As per the World Bank, Ethiopia has been one of the fastest-growing economies in the world in the last decade, with its annual GDP growth rate average at 9.8% a year up until 2019. But post the pandemic, the government now is looking to expand the private sector in the country “through foreign investment and industrial parks to make Ethiopia’s growth momentum more sustainable.”

And the aim is echoed by other EA countries as well.

Vision Djibouti 2035 is another such example. This goal aims to make Djibouti a logistics and commercial hub building new deep-water harbors and expanding existing ports.

In addition, the development of roads and urban infrastructure due to traffic safety concerns and population growth have driven the market growth of cement in East Africa countries.

In Uganda, the Entebbe International Airport, the Bukasa port construction project, the rebuilding of the Malaba-Kampala railway route into a standard gauge line are actively providing opportunities to the growth of the cement industry in the region.

In the last few years, many large-scale infrastructure programs have been initiated across many countries in the EA region with respect to the long-term development goals of the respective governments. Many countries in the region are looking at improving their residential sectors as well.

Take Kenya for instance. The Kenyan Government aims to build 500,000 affordable homes in all major cities by the year 2022. This, no doubt, will also create about 350,000 jobs. It has been observed that the national Kenya Vision 2030 is also aimed towards propelling “Kenya becoming Africa’s industrial hub.”

As per “Kenya Construction Industry Databook Series – Market Size & Forecast (2015-2024) report, the construction industry in Kenya is projected to reach a CAGR of 10.4% to record KES 1,023.4 billion by 2024.

Similarly, the construction industry in South Africa is projected to record a CAGR of 13.2% to record ZAR 286.2 billion by the year 2024.

Therefore, in the next five years, construction industry is going to see a significant growth, not just in East Africa but across the continent.

International investment in East Africa

But from the investor’s point of view, the market advantage comes from the fact that the market is less competitive due to the major international players with substantial market share.

Egypt’s new capital city, Kenya’s Konza Technology City and Kenya Standard Gauge Railway, Nigeria’s Dangote Oil Refinery, The Mambila Hydroelectric Power Project and Lagos-Calabar Railway, Tanzania’s Bagamoyo Port South Africa’s Modderfontein and Grand Ethiopian Dam are the biggest construction projects in Africa right now.

The abovementioned projects under construction in Africa are clear example of how harvesting natural resources can build investment opportunities in complementary sectors such as energy and infrastructure in the construction industry.

It is also not surprising that majority of them are being funded by China.

As per the Africa Construction report, the major players in the Africa construction market are:

1. China communications construction group ltd.
2. Vinci
3. Bouygues
4. TechnipFMC
5. China railway construction corp. Ltd.

In December 2018, Chinese President Xi Jinping announced that China will be providing USD 60 billion in financial support to Africa. In the past few years, China has invested massively in the continent. It has been found that Africa is now the third-largest destination for Chinese investment after Asia and Europe.

As it can be observed above, railways is a big part of the Chinese construction in Africa.

China is building railways in Ethiopia, Kenya, Zambia and others. The Chinese Export-Import Bank invested 85 percent of the USD 475 million for the Addis Ababa Light Rail that serves 4 million residents of the city. The investments in energy though oil and gas also comprised investment in clean energy such as hydropower.

But it is not China alone.

FDI stock data 2018 demonstrated that Netherlands firms’ $79 billion left behind their French counterparts

(Source: https://unctad.org/system/files/official-document/wir2020_en.pdf)

When it comes to share of construction projects in terms of value in East Africa, it has been found that East Africa and other African regions (North, West and South Africa) have a significant share, as mentioned in the 2018 Deloitte report.

To conclude, with a few players holding a significant share, the Africa construction market does have an observable level of consolidation but if these numbers are to be considered, there is no doubt that the Africa construction market has clear opportunities for growth and investment, and it would be a loss to not explore construction opportunities in the continent.