Around the globe
General economic overview
African countries are showing significant recovery, but further growth will be needed to restore GDP to pre-pandemic levels across the continent.
Rates of inflation are above target rates in most regions, with higher transport, food and housing costs forcing banks to increase interest rates. This is likely to dampen consumer demand, causing growth to weaken during 2022.
South Africa has inflation of 5.9 percent per annum and three consecutive interest rate rises have raised the repo rate to 4.75 percent. Kenya has inflation of 7.1 percent and interest rates of 8 percent. In Nigeria, inflation has increased to 17 percent and interest rates to 13 percent. High rates of inflation, a high dependence on imports and weakening currencies are creating difficult economic conditions.
Construction sector performance
Weakened construction activity during the pandemic is yet to fully recover. Construction in South Africa in 2021 was around R450bn – 19 percent lower than the total for 2019. The number of construction plans approved in 2020 in South Africa fell by 37 percent and is only slowly starting to recover.
Nigeria has also seen construction values fall over the past two years, while in Rwanda and Kenya, the situation is more positive. Rwanda saw a number of projects get underway such as the Rusumo hydroelectric plant, infrastructure projects in Kigali and the start of the Kigali Tanzania railway. Overall, construction was up by 17 percent in 2021.
A major constraint is the cost of construction, which has been driven higher by supply-chain bottlenecks and rising energy costs. Nigeria experienced a 30 percent rise in construction costs in 2021, and this is looking set to repeat in 2022. South Africa saw construction costs rise by 11 percent but is expecting lower cost escalation in 2022. Kenya saw a 15 percent rise and this could shoot up to 30 percent in 2022, driven by higher prices for cement, steel and fuel.
The volatile pricing backdrop means the risk for contractors is elevated. Construction project schedules regularly increase as a result of material supply shortages. Project teams are having to take measures to surmount supply challenges including early procurement, early payment to contractors, or having contracts in which the client sources and issues material themselves.
Residential and social housing remains a strong construction sector in most regions. The industrial, manufacturing and logistics sector, however, is seeing some of the strongest rates of growth.
Warehousing and the movement of goods is boosted by the rapid growth in online marketplaces such as Jumia, the largest e-commerce site in Africa. With many companies forced to embrace remote working during the pandemic, there has been a growing requirement for data centres in most regions. Nigeria has a new 13MW data centre project underway in Lagos and is the second-fastest-growing region for data centres. South Africa is the leader, as many global tech companies see South Africa as a stepping stone for the rest of Africa.
Transport construction is also one of the fastest-growing sectors in Kenya, Rwanda and Nigeria. The 156km Lagos to Ibadan railway, the Lekki Deep Sea Port, the 35km Apapa-Oshodi-Oworonshoki Expressway and four new airport terminals are some of the megaprojects that Nigeria has under way.
Kenya has the Lapsset corridor as its largest project which includes Lamu Port, highways, rail, an oil pipeline and refinery, resorts and airports at Lamu, Isiolo and Lokichoggi. South Africa has a number of major strategic projects announced in telecommunications, electricity, road construction and mining. For example, Lanseria Smart Mega City is a proposal to build a new innovative, sustainable and green city just north of Johannesburg.
Progress of the environmental agenda
Growth in renewable energy is attractive for African countries because they are rich in hydro, solar and wind, and the use of renewables promotes improved energy security compared with imported fossil-fuel sources. Furthermore, there are many regions where the local population still has no access to electricity, and decentralised renewables offer the opportunity to provide cheap local electricity.
There are numerous solar and wind projects underway across the continent, with access to capital being the main deterrent. Organisations such as the International Renewable Energy Agency (IRENA), however, are putting in place the frameworks, mapping and financial structures essential to delivering large-scale renewable energy across the continent.
South Africa has the largest amount of renewable energy generation with around 3.8GW of solar PV and 2.5GW of wind power (Renewables 2021 Global Status Report). South Africa has awarded up to 25 contracts for renewables generation in wind and solar to complement the electricity system currently experiencing sporadic episodes of load shedding. The government of Nigeria has launched the Solar Power Naija project to enable up to 5 million homes currently not connected to the grid, to obtain access to home-based solar or connection to mini grids. Kenya has the continent’s largest wind farm at Lake Turkana and is investigating the potential for geothermal energy in the East African Rift Valley. Rwanda has a project start-up in 2022 to add 11.2MW of solar to its energy grid in Kayonza.
Higher inflation, energy costs, and construction costs present considerable challenges to a construction-led recovery in 2022. Vaccination rates remain some of the lowest worldwide and there are continued threats of outbreaks or new variants putting pressure on fragile health systems.
Some of the largest countries are the ones experiencing the slowest growth. According to the IMF, sub-Saharan Africa would need to double its forecast growth rate to match the growth seen in the post-pandemic period in other advanced economies. Financing conditions are becoming more difficult as debt levels have increased and foreign investment is being deterred by high rates of inflation.
2022 looks set to be another difficult year, but by year end, some of the drivers of inflation should have eased, including fuel and transport costs, steel and raw material costs and costs of imported goods held up in the supply chain. Reducing inflation should greatly assist the African economies in resuming economic recovery.
Current tendering condition
Future market outlook
“The volatile pricing backdrop means the risk for contractors is elevated. Construction project schedules regularly increase as a result of material supply shortages. Project teams are having to take measures to surmount supply challenges including early procurement, early payment to contractors, or having contracts in which the client sources and issues material themselves.”
Stephen McCartney, Managing Director
Top three regional
of respondents said that rising costs of construction had a significant or high impact on the delivery of construction projects
of respondents said that government red tape, bureaucracy, delayed approvals had a significant or high impact on the delivery of construction projects
of respondents said that excessive lead times had a significant or high impact on the delivery of construction projects
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