M a r k e t N e w s

Construction boom brightens future for East Africa

Posted on : Friday, 22nd August 2014

 It is a ‘boom’ as many people are describing the growth of East Africa Construction industry. Many investors have taken the advantage of the boom by shaking off their pockets to invest in skyscrapers, shopping malls, roads, schools, hospitals etc.

 
Both private and public sectors are in a hurry trying to satisfy the rising middle class and regional integration, and the E.A. governments still have the high stake in the sector. According to Frost & Sullivan research service titled Growth Opportunities in East Africa’s Construction Industries, the construction industry in East Africa is expended to expand in a value of US$3 billion in the next six years due to increased investments. The progress will be accelerated by the finances from the governments into housing, roads and civil works.
The construction industries in Kenya, Uganda and Tanzania are primarily driven by government initiatives to eliminate urban slums.
 
What driving the industry
 
Both the governments and the private sectors have been putting their money in major construction projects across the region. Major projects where the gamble is involved include construction of major roads, power plants, shopping malls, skyscrapers, hospitals etc.
 
According to the Business Liner Manger of Atlas Copco’s Road Construction Equipment sector, Peter Kimani, East Africa States are the key players in the major road and railway construction projects.
 
“Governments have remained the main investors in roads and railways projects,” Kimani notes, adding that in Kenya, the State has embarked on many roads projects.
 
Currently, Kenya has set off for the construction of a Ksh327 billion ($3.8 billion) new standard gauge railway (SGR) railway between Mombasa and Nairobi. The country has also inked a partnership with the World Bank of Sh17 billion funding for the development of several key roads. The funds will go towards upgrading of northern and western road corridors.Among the roads to benefit include, the Athi River- Machakos turnoff, Bachuma Gate-Maji ya Chumvi sections and Kisumu-Kakamega-Webuye-Kitale road sections. Construction of interchanges at three major junctions along Nakuru-Nyahururu, Nakuru-Njoro and Mau Summit-Kericho roads will also benefit from the funds.
 
Recently, African Development Bank Group (AfDB) approved US$109 million loan to the Government of Uganda for the construction sector. The money will be used for the transport service levels in south-western and eastern parts of Uganda. To achieve this, the Rukungiri-Kihihi-Ishasha/Kanungu and Bumbobi-Lwakhakha roads will be upgraded from gravel to bitumen standard. This will help to improve standards of living of the beneficiaries, support the tourism industry and promote regional integration and cross border trade.
 
“Yes, States have been in the front line putting money on major infrastructure development areas in East Africa,” says Isaac Jones, the General Manger of Douglas Projects Ltd.
 
However, Isaac argues that the gambling field in the construction industry is marred with high costs of operating. This as a result has seen many potential investors shying away mainly due the high taxes slapped on the activities involved in the industry.
 
Forgotten contractors
 
Since the foreign contractors stepped in the East Africa construction sector the local contractors were sent to packing. Isaac says that the industry is now dominated by foreign construction companies like Chinese which are replacing the local companies.
 
His words were echoed by Kimani, who notes that nowadays many local contractors in Kenya are forgotten especially by the government. “Nowadays many construction projects in Kenya are given to foreign contractors a move which has continued to discourage our talented local contractors,” he says, adding that it’s high time the State starts engaging the local contractors in mega construction projects like roads, power plants etc and also provide accessible financial services.
 
safety photo
 
Healthy and safety
 
Is E.A construction industry offering healthy and safety environment so far? According to Atlas Copco, the sector has really improved by using healthy equipment. “Healthy and safety of employee is important and it’s something that many contractors in Kenya and E.A. Africa are now embracing in the construction sites,” Kimani says.
 
The new construction regulations have also helped significantly by ensuring the safety of workers on project site, agrees Isaac.
 
Expogroup Exhibition Manager, Neville Trindade, notes that the term health & safety is now being understood by everyone, and many key players in construction industry are enhancing the well being of employees and workers.
 
“We have managed to bring in a few international and local players in the health and safety sector in the Building & Construction Industry itself. Looking at health & safety, we get exhibitors in this field not only for BUILDEXPO, but also for our Power & Energy and Oil & Gas Events,” Neville adds.
 
 
 
Effect of Chinese
 
Currently many construction projects in East Africa are done by the Chinese contractors, starting with the roads in Kenya, Uganda and Rwanda. So what has been the effect of these contractors involvement in the industry?
 
“I think Chinese contractors’ involvement in the E.A construction industry has far has been positive. The major economic problem facing East Africa is poor infrastructure, which has been neglected costing the region greatly in terms of growth. The Chinese involvement in the infrastructure development is the right thing now,” General Manger of Douglas Projects Ltd notes.
 
However, Kimani notes that the region should not allow the technology change by the Chinese replace local contractors.
 
The Frost & Sullivan research highlights that intense competition from Chinese construction companies and the high cost of borrowing are some of the major obstacles to the development of the east African construction industries.
 
“Chinese construction companies are largely preferred over local companies due to their comparatively low bidding prices,” explains the analyst. “Major contracts are awarded to these companies that make the construction business highly competitive.”
 
Construction exhibitions
 
For the last ten years the E.A construction industry has been hosting exhibitions uniting investors who are key players in the sector.
 
According to Expogroup Exhibition Manager Neville, many local construction and building companies have been the main beneficiaries of the events especially the BUILDEXPO which is held once per year.
 
“Local participation at the events sees a 35% growth every year by companies that have been in the Industry for decades. We have repeat clientele that are big names in the Building Industry like Apex Steel, Athi River Steel Plant, Mantrac, Tata Africa, Alibhai Shariff, Atlas Copco, Car & General, Ryce East Africa, ELB East Africa, Techno Construct, Mabati Rolling, Auto Sueco, Elite Tools, Sika East Africa, Kenya Hydraulics, Nirmal Fabricators etc,” he notes.
 
Key benefits of participating at the construction events include: Find new Buyers / Distributors in East Africa. Establish / Promote Brand Name & Image. Update Existing Customers / Agents. Launch New Products / Services. Explore Export opportunities. Special offers & Promotions. Make local & foreign contacts.  Update yourself with the latest in the Industry.
 
“For our 2015 construction events we have already 80% sold out, foreign investors do not want to miss this opportunity as they get the maximum exposure,” he notes.
 
 
 
Future of the industry
 
As projected by many people, the future of East Africa construction industry is promising due to the new projects still coming up and more investments.
 
“I think the future of the construction industry in East Africa will be a tremendous. There is an incredible amount of development that needs to take place and the quality of what is being produced is advancing. There is huge potential for the construction industry in East Africa,” says Isaac.
 
Neville adds that the sector is and will always be the leading industry in Kenya as well the whole Africa.
 
Frost & Sullivan report says that stringent building planning regulations and high infrastructural standards are boosting companies to implement best practices for greater chances of receiving contracts in the east African construction industries. Therefore, participants that offer superior construction materials are more likely to receive government contracts in the long run. Furthermore, the projected high economic growth is expected to ensure continued growth of the construction industries in east Africa.
 
Kestrel Capital, a stockbrokerage firm, says that cement makers in east Africa are set to get a major lift from an expected surge in demand driven by double-digit growth of the construction sector in the region.
 
Kestrel’s analysts say that the construction sector is likely to outpace economic growth, expanding by up to 13%/yr compared to expected GDP growth of 6.0%/yr, 5.5%/yr and 7.0%/yr in Uganda, Kenya and Tanzania respectively.
 
The growth is expected to boost sales for regional cement makers and reverse the fortunes of Kenya’s East African Portland Cement Company (EAPCC), the performance of which has been damaged by management wrangles at the company.
 
As Che Guevara once quoted, “the revolution is not an apple that falls when it is ripe. You have to make it fall”. The E.A. region has to accept the revolution experienced in the construction sector.

Source : businessmirror.info
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