The construction market in North Africa has been growing steadily, following a period of heightened socio-economic instability in 2011. New investment opportunities are opening up as geopolitical tensions gradually ease and governments rebuild their economies. According to the BNC Project Intelligence Database, there is approximately USD 473 billion worth of active projects in North Africa come from Egypt. This report gives an overview of the construction activities in North Africa, focusing on Algeria, Egypt, Morocco, Sudan and Tunisia. The report excludes Libya due to the continual political unrest, which is affecting project investments in the country.
Basic infrastructure investments are ongoing in North Africa as government sponsored projects are aimed at promoting economic and social development. Foreign investors and private contractors are also taking part in lucrative contracts, which is supporting some construction activities in the region.
Several of the main drivers of the construction market are economic growth, population and urbanization and regulatory reforms.
Economic growth
The GDP of North Africa has been growing since 2011 with a six-year estimated growth rate of approximately 20%; although economic growth is not consistent among all countries. Egypt is the leading contributor to GDP growth in the region, having a strong industrial sector, which is the largest recipient of non-government bank loans. Moreover, in November 2016, Egypt devalued its currency against the dollar, which is expected benefit its export sector and had caused stock markets to rally. On the other hand, Algeria’s oil-dependent economy has resulted in a negative GDP performance between 2014 and 2015 due to low energy prices.
Some regional economies are dependent on commodities, leaving them vulnerable to external price shocks. As a result, governments are investing in other sectors such as tourism and hospitality to diversify economic activities. The North African tourism sector has been affected in recent years due to the geopolitical unrest. Morocco and Tunisia aim to build a thriving tourism market; Morocco aspires to become a top-20 tourism destination by 2020, while Tunisia is in investing in areas of medical and cultural tourism, and ecotourism offering a diversity of experiences for different travelers. North African countries have dealt with several challenges over the past few years including the Eurozone Crisis and the Arab Spring. The international perception of the region is improving, and policymakers have been taking steps to unify their governments in supporting reform policies and long term economic objectives.
Population growth and urbanization
Population growth and high urbanization rates are resulting in greater economic and social inequalities in the region. North African countries have been investing in infrastructure and upgrading urban settlements which have resulted in better living standards than in other parts of the continent.
The demand for infrastructure and housing is growing in highly urbanized countries such as Algeria and in densely populated cities such as Cairo, which has nearly 19 million people making it the largest city in North Africa.
An increasing population will continue to drive the demand for construction activities in many areas including infrastructure, residential and commercial properties, hospitality and healthcare.
Regulatory reforms
The construction market in North African has been making big advances following a period of socio-economic instability in 2011. Strict capital controls were put in place to prevent a massive outflow of funds in some countries such as Egypt, which introduced restrictions on the value of international transfers to USD 100,000 per person. While this was loosened in 2014 to USD 100,000 per person each year, African governments are creating investment platforms to increase infrastructure financing by removing policy and technical barriers altogether. Many of the region’s infrastructure projects are backed by bilateral and multilateral lenders notably in areas of energy, transport, water, and information and communication technology.
Regulatory reforms are still necessary to improve the flow of capital and increase investor confidence. The World Bank Ease of Doing Business Ranking offers some indication of a country’s regulatory environment to facilitate business activities. A low ranking score indicates the regulatory challenges of increasing private sector engagement in local economies. Some North African countries such as Tunisia, have been working toward a unified government, which will help put in place the needed reforms to meet the country’s social and economic objectives.
The construction market in North Africa is primed for growth
The construction market in North Africa is primed for growth, despite the geopolitical and economic challenges. Given the environment of low oil prices, governments are investing in different sectors to promote economic diversity and growth. The buildup and improvements of facilities and infrastructures in different industries create a more efficient operating environment for enhancing business activities.
The economic transformation will also have long-term effects on the sustainability and future growth of local economies, especially among oil exporters. Egypt is the main contributor of project investments in the region. The Egyptian government is on a path toward economic adjustment and reform with the aim of creating long-term stability and growth.
The urban construction and utilities sectors constitute the two largest sectors in the region. An increasing population and urbanization are driving many of the projects in these sectors. Governments are investing in the utilities sector to address the pressing constraints of the existing powers systems such as planned outages and load shedding arising from insufficient infrastructure. Technological innovation such renewable power is also driving change, especially since the cost of renewable power is reducing and thus becoming more economical for widespread use.
The following analysis is based on data from the BNC Project Intelligence Database:
▪ There is approximately USD 473 billion worth of projects in North Africa, of which 60% are in the initial stages of construction (i.e. concept and design), indicating a healthy flow-through of new investments. It is also noteworthy to mention that only 14% of the project values are on hold, which demonstrates a strong pipeline of ongoing activities.
▪ Egypt constitutes approximately 71% of the total project investments in North Africa, following the announcements of several high-value projects in the urban construction and utilities sectors.
▪ Urbanization trends and population growth will continue to support a pipeline of new projects.
▪ The urban construction and utilities sectors have a combined estimated value of nearly USD 300 billion and constitute approximately 63% of all project investments in North Africa.
▪ Developing new utilities infrastructure and upgrading aging infrastructure are necessary to keep up with the growing number of urban developments.
BNC Report
14 March
