Analytics and consulting firm GlobalData says sub-Saharan African construction output is poised to grow at a record 3.2% this year, on the back of Covid-19 reconstruction efforts; however, many downside risks to growth persist.
This follows on construction output in the region having grown by 1.7% in 2022, as revealed in GlobalData’s ‘Construction Market Size, Trends and Growth Forecasts by Key Regions and Countries 2022 to 2026’ report.
The firm finds that the region’s post-pandemic economic recovery has been halted since the second half of last year, with the International Monetary Fund forecasting gross domestic product growth in the region to remain subdued at 3.7% this year, following a deceleration to 3.6% in 2022.
This while public debt has reached about 60% of GDP, with several countries in sub-Saharan Africa experiencing debt distress or at high risk of becoming debt distressed.
“With the gloomy economic backdrop and additional challenges specific to the construction industry, notably high construction material costs, the region’s industry will remain subdued in the short term.
“Both public and private sector projects will face hurdles, with government’s revenue continuing to be directed at efforts to deal with immediate socioeconomic crises, while high construction material prices will make projects unviable for the private sector,” GlobalData analyst Dhananjay Sharma states.
The construction report further finds that Chinese funding has been a major source of growth for infrastructure projects in the region in the last two decades, helping Africa to narrow its $100-billion-a-year infrastructure deficit.
However, the post-pandemic Chinese economic slowdown – coupled with the substantial losses on the loans it granted to multiple countries – is resulting in a recalibration of Chinese focus on the Belt and Road Initiative and a slowdown in Chinese investment in the region.
Alongside this, a tightening of monetary policy across the developed countries is also affecting the region, while higher interest rates, driven by high inflation, are weighing on both business investments and household consumption.
Sharma explains that, over the longer term, growth is expected to pick up from 2024 onwards, with energy and utilities outperforming other sectors.
In the short term, growth will be driven by increased activity in oil and gas projects owing to continued higher prices, while longer-term investments will be driven by the shift towards green energy and the underlying potential of renewables in the region.
Along with energy and utilities, investments in infrastructure and the institutional sector will be driven by the continued realisation of the inadequacies of the current transport and utility systems and education and healthcare facilities.