{"id":11581,"date":"2015-07-27T10:53:57","date_gmt":"2015-07-27T10:53:57","guid":{"rendered":"http:\/\/decraafrica.com\/?p=506"},"modified":"2019-01-29T13:05:50","modified_gmt":"2019-01-29T13:05:50","slug":"is-there-a-slow-down-in-sub-saharan-africa-construction","status":"publish","type":"post","link":"https:\/\/www.decraafrica.com\/en-gh\/blog\/is-there-a-slow-down-in-sub-saharan-africa-construction\/","title":{"rendered":"Is there a slow-down in sub-Saharan Africa construction?"},"content":{"rendered":"

There is no argument that construction in sub-Saharan Africa is enjoying a renaissance.\u00a0 Property prices in cities across the region have been climbing steadily for several years and speculation that these prices were indicative of a \u2018bubble\u2019 has not been substantiated.<\/span><\/p>\n

Demand for housing in particular continues to grow and with the rising numbers of middle income families, the number of people able to afford them is also on the increase.<\/span><\/p>\n

Prices are subject to supply and demand.\u00a0 For a long period during the 80\u2019s and 90\u2019s the supply of new housing stock remained low, while populations grew.\u00a0 Consequently there remains a huge pent up demand for residential construction.\u00a0 This fact is well supported.\u00a0 For example, in Kenya, government statistics state that the current supply of housing is 40,000 units per annum, while demand stands at 150,000 units, forecast to grow to 340,000 units per annum by 2030.\u00a0<\/span><\/p>\n

The construction industry looks like a \u2018safe bet\u2019 for some time to come, but from time to time, certain environmental factors may cause a slowdown.\u00a0 I believe that now is one of those times and there are a number of factors at play.\u00a0<\/span><\/p>\n

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  1. The fall in oil prices has had a huge impact on those countries reliant on oil exports from government income.\u00a0 The two countries most affected by this are Nigeria and Angola.\u00a0 In both cases oil exports account for over 80% of government income and in both cases, government spending accounts for a huge proportion of GDP.\u00a0 Fall in income equates directly to falls in expenditure and subsequently less money in circulation.\u00a0 Construction is seen as non-essential expenditure and is often one of the first areas to be hit.<\/span>Ghana\u2019s construction boom has also experienced a rude awakening.\u00a0 The country\u2019s\u00a0 glittering economic rise, heralding its drive to middle income status on the back of petrodollars is instead suffering from the largest currency fall this year (with the exception of the Zambian Kwacha).\u00a0 Falling prices and mismanagement of funds has led the government to approach\u00a0the IMF for help.<\/span><\/li>\n<\/ol>\n
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    1. Another impact of falling revenue is a fall in foreign currency availability.\u00a0 In Ethiopia this has been an on-going problem for importers.\u00a0 The government prioritises funds to its major infrastructure projects and the private sector has to wait for the leftovers.\u00a0 As a major agricultural exporter, crop prices can have a major impact on FX availability in Ethiopia.<\/span>Recently however, other countries have found themselves with similar restrictions, especially those countries reliant on mineral and mining exports.\u00a0 Companies supplying Angola are experiencing long delays in payments, so the supply of products to the market is drying up.\u00a0 Major housing and other construction developments now find themselves on hold indefinitely.\u00a0 Almost all new projects are currently suspended.<\/span>The new government in Nigeria has already put a restriction on certain items that the central bank is forbidden to provide FX for.\u00a0 Some construction products are included on the list.\u00a0 Companies looking for FX to fund purchases are turning to the black market for funds and paying rates up to 15% higher than official bank rates. Across the region, most African currencies are suffering against the high US$ exchange rate which is driving up the imported cost of materials.[su_spacer size=”10″] [\/su_spacer]<\/span><\/li>\n
    2. At the same time, a softening of international demand for minerals has also seen prices tumble.\u00a0 \u00a0Anglo American, the mining giant have recently had a write down of $4 billion due to sliding commodity prices.\u00a0 Precious metals prices are also in decline, with Gold reaching a five year low and silver following similar pattern.\u00a0 Economies reliant on mineral exports are perhaps in the worst position.\u00a0 In Liberia, one of Africa\u2019s poorest countries, \u00a0Arcelor Mittal have just completed a residential project to house its overseas workers, only to announce at the same time their withdrawal from Liberia because the cost of extraction is now greater than the price of ore.\u00a0 Goldman Sachs are predicting Iron Ore price will settle at $50 per ton, falling to $40 per ton by the end of the decade.\u00a0 This compared to highs of over $130 per ton less than 18 months ago.\u00a0 Rio Tinto too has seen share prices falling towards 5 years lows.\u00a0 In Mozambique coal mining has been dramatically impacted; while in Sierra Leone, London Mining\u2019s\u00a0 Marampa mine has had to be sold by administrators PWC at a knock down valuation.<\/span><\/li>\n<\/ol>\n
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      1. Politics in most African countries can also have an impact on activity in the short term and elections almost always have an effect.\u00a0 \u00a0New construction investment tends to run slow prior to the election.\u00a0 Following peaceful outcomes, there follows a mini-boom, as pent up demand comes back on stream. \u00a0\u00a0The pre-election effect is currently being experienced in Tanzania, where a certain change in Presidency and no fore-runner in the pols, is causing much speculation and uncertainty.\u00a0 Such uncertainty is also effecting post-election Nigeria.\u00a0\u00a0\u00a0 The pre-election drop in construction happened on schedule, but the post-election lift has not appeared.\u00a0 During President Buharia\u2019s first term in office as a military ruler in the 1980\u2019s, he was known for austerity and controls.\u00a0 Nigeria\u2019s many trading companies may be seeing the intervention and restrictions placed by the Buharia government on central bank financing of imports as a step in the wrong direction (so far as their business are concerned).\u00a0 There is without doubt a very real slow down in the construction sector in post-election Nigeria.<\/span><\/li>\n<\/ol>\n

        While the impact of this slowdown is not as devastating as the effect of the Global Financial Crisis was on the construction industries of Spain, Portugal and Ireland, it is none-the-less very real.\u00a0 Since\u00a0 current market conditions are expected to continue and long term oil and mineral price forecasts remain at or around present level, there is no reason to believe that there is any light at the end of the tunnel.\u00a0 We are rather more likely to see a medium term contraction on investment as government income; FDI, resource income and circulation of money in many economies all remain low.<\/span><\/p>\n

        There are some exceptions.\u00a0 The industry in Kenya for example, despite falls in the currency, has remained robust.\u00a0\u00a0 There will always be exceptions, but it seems at the present time in sub-Saharan Africa there are few.<\/span><\/p>\n

        Wise investors and property developers will not have left themselves too exposed.\u00a0 If they can sustain themselves through the short term, they will emerge from the slowdown in a strong position.\u00a0 As described at the beginning of this article, the long term demand drivers all remain in place and will continue for many years, even decades to come.\u00a0 Industry participants should now be consolidating their business and positioning themselves for the inevitable rise, although no-body is predicting the recovery any time soon.<\/span><\/p>\n

        Joe Collins \u2013 Director at African Supplies Ltd and African construction industry consultant.<\/strong><\/p>\n

        \u00a0<\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

        There is no argument that construction in sub-Saharan Africa is enjoying a renaissance.\u00a0 Property prices in cities across the region have been climbing steadily for several years and speculation that these prices were indicative of a \u2018bubble\u2019 has not been substantiated. Demand for housing in particular continues to grow and with the rising numbers of […]<\/p>\n","protected":false},"author":1,"featured_media":507,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[109],"tags":[],"class_list":["post-11581","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/posts\/11581","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/comments?post=11581"}],"version-history":[{"count":0,"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/posts\/11581\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/media\/507"}],"wp:attachment":[{"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/media?parent=11581"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/categories?post=11581"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.decraafrica.com\/en-gh\/wp-json\/wp\/v2\/tags?post=11581"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}