North African construction equipment market on the rise

Optimism is slowly returning to the troubled region

PHOTO: Spending on Egypt’s construction sector could top $7.3bn by the end of 2015, according to analysis released by Collaboration, Management and Control solutions. Credit: Shutterstock

The effect of geopolitical events on the construction machinery market in North Africa should not be underestimated, says David Semple, VP of sales for the Middle East and English- speaking Africa at Manitowoc. “Recent regional events have significantly impacted our sales, and we are coming out of three to four years of low sales volumes in this region.”

The infrastructure story in North Africa remains a world apart from the dynamics of other African regions, according to Deloitte’s ‘African Construction Trends Report 2014’. Attributable to the recent, and in some cases ongoing political challenges in the region, investor confidence varies, the report claims. However, North Africa is rebounding, EY claims, noting that political uncertainty is fading, and North Africa is becoming increasingly attractive as an investment destination. On the whole, the African economy is expected to grow by 5.7% in 2015, yet North Africa currently accounts for only 3% of total infrastructure projects on the continent by number of projects, as per Deloitte’s research.

“The period between 2011 and 2014 has been highly unstable and not conducive to any private or public investments,” Semple says. He added that Manitowoc did fulfil a small number of orders for cranes to Egyptian state companies – mainly in the oil and gas sector – during that time period, but not the volume that a market like Egypt is capable of absorbing.

Despite the low percentage of total infrastructure projects in North Africa, the project value totals $9 billion, showing an increase from $7 billion in 2013, indicating that demand is returning to the region.

Speaking on the level of demand in the North Africa region, specifically for construction machinery, Dawei He, director of the sales division (in the Middle East, Africa and Asia Pacific) at Dressta, comments: “The demand in this region remains comparably higher, supported by rich local resources and energy, and less-modernised civil structures.” Dawei also says Dressta is suffering a drop at the moment due to sharply decreasing oil and gas prices, but the company is seeing some positive trends, including reforming and opening policies, appropriate policies adopted for foreign investment and international cooperation, and growing demand for facility improvement. He adds that the leading markets at present for Dressta’s construction equipment are Algeria, Libya and Ethiopia.

Discussing the growth in the Egyptian construction market, Semple, says: “Construction activity and infrastructure development is growing, and there is a strong political desire to support the economy by the current president, Abdel Fattah el-Sisi.”

Speaking specifically of the construction of the New Suez Canal project, he says: “El-Sisi has set the stage with the expansion of the Suez Canal project, which was carried out by dozens of companies working in parallel, allowing this project to progress at a record pace.

“The extravagant grand opening of this new waterway… demonstrates how El-Sisi intends to rescue the economy by putting Egypt back on the geopolitical and economic Middle Eastern map. While the other projects under discussion [Cairo, metro, desalination plant] might seem less iconic or symbolic… they will for sure be generating significant new construction machinery and equipment enquiries.”

On geopolitical tensions and the potential for a healthy construction sector in the future, Dawei says: “Only a stable social and reforming environment can guarantee the market growth and sales consistency, unrest will continue to block the projects and sales leads.”

EY’s research into the African economy discovered that an unstable political environment is most commonly cited of as the top perceived barrier to investment in Africa. In light of the easing political tension in the region, the geopolitical trends influencing sales are a key topic in the market. This view point is developed in research conducted by KPMG in the construction sector in Africa, which identifies that from a political perspective, infrastructure and construction investors require a stable political environment, given the long-term nature of such investments.

Yong Yue, sales director at LiuGong Middle East, says: “The level of demand in this market for construction machinery is quite strong in this area, however the demand has dropped due to the unstable political issues in last couple of years.” He also adds that in his opinion, future health and prosperity in the sector will require “years to make a full recovery”.

While geopolitical tensions and weak economic growth led to a 3.1% decline in FDI projects worldwide in 2014, and 8.4% in Africa in 2014, African investments still remained well above pre-2008 levels, according to EY’s analysts.

In terms of future major announcements in North African construction projects, Dawei says that some projects remained “pending or delayed due to lack further financing”, citing uncertainty as having caused additional setbacks.

Deloitte agreed that there was a marked withdrawal by Foreign Institutions and African DFIs in project funding, possibly due to the volatile security and political situation in parts of the region.

Enrico Angiolini, sales director for South Europe at Manitowoc, discusses the impact this has had on sales. Commenting specifically on the current state of the Libyan crane market, Angiolini says: “The civil war has had a detrimental impact on sales, which came to a virtual standstill during the war, and we do not foresee activity levels resuming until the country reaches a certain level of political stability.”

Concentrating on the future of the construction industry, Angiolini says, “We have not seen any sign of a construction industry pick-up. Foreign contractors from Europe, Turkey, the Middle East and China have been managing most of the major projects in Libya in recent years, and they have mostly now left the country. There is little hope of them returning any time soon.”

However, in addressing the positive growth and demand in the Algerian market, Orlando Mota, sales director for the Mediterranean, Iberia, Israel, Angola & French-speaking Africa at Manitowoc, says: “Algeria is one of the most active markets in Africa today, with several new projects planned as the Algerian government undertakes massive investment plans for oil and gas infrastructures.”

Due to current oil prices, spending has slowed down, he says. “Considering that oil and gas accounts for nearly all of Algeria’s export value, spending is slower at the moment. On the other hand, China is continuing to expand its influence in the region, especially in Algeria. A number of projects have been given to Chinese contractors and these are helping Algeria continue its momentum of growth.”

“As we continue to see a slowdown in oil prices, and with China’s increasing market presence, we trust that Algeria will remain an active market but at levels that are a bit below previous levels.”

Commenting on the situation in Morocco, he said: “Morocco is slightly different, as the economy was deeply affected by the European recession in 2009, and has failed to recover properly.”

But on a more positive note, Mota explainsed how that Mohammed VI, King of Morocco, announced several new infrastructure projects at the end of last year.  “Over the last few months, we have seen a gradual increase in residential construction, which has revitalised the market,” Mota says.

“As far as Tunisia is concerned, the construction market remains stagnant, with the economy relying heavily on the tourism industry, which dropped in recent years. The construction industry has suffered a slowdown. Tunisia and Morocco are the two countries that have been most affected by the recent geopolitical trends. However, we do predict that Algeria may also encounter problems in the future.”

Foreign investment in Africa

The economic boom in the Middle East region has resulted in Arab investors spreading their investments to north and sub-Saharan Africa in search of the returns that are becoming increasingly difficult to find in saturated Western markets, according to Business Guide Africa. Consequently, there have been many joint ventures, mergers, acquisitions and reverse takeovers in African nations, backed by capital surpluses in the Gulf.

According to the White House website, the US government has launched programmes to facilitate trade and investment in Africa, most notably President Barack Obama’s 2013 Trade Africa initiative, aimed at expanding US-Africa trade and investment. The US’ American Doing Business in Africa campaign is backed by $7 billion of funding.

However, European investors continue to launch the largest number of direct investment projects in Africa. European nations, led by the UK, remain keen investors overall, though British companies eased back last year, Deloitte research claims. The European Union (EU) is currently looking to promote growth in Africa by negotiating economic partnership agreements (EPAs) with regional blocs in the continent. Three of these EPAs are intended to create duty-free and quota-free access for African goods to the EU market.

African megaprojects

Investment in African megaprojects jumped 46% to $326 billion in 2014. This growth was led by heavy investment in transport, energy and power, according to the third annual Deloitte African Construction Trends Report. The report identifies Africa’s rapidly growing middle class as driving demand for sustainable social infrastructure, claiming that Africa is en route to a brighter future and overall will see the opportunities surpassing the challenges facing the continent. Of the construction projects mentioned, 143 were led by the public sector; a further 88 were private-sector initiatives and 26 were classified as public private partnerships (PPPs). Energy and power accounted for 37% of the mega projects undertaken during 2014, followed by transport (34%), mining (9%), property (6%), water (5%), oil and gas (4%), mixed- use facilities (2%) and health care (1%).

Africa’s infrastructureal development is being propelled by increased output in the natural resources sector, which in turn underpins rising fiscal expenditure on infrastructure projects, the report claims. This has facilitated rising international trade with the continent. Rapidly growing urbanisation and rising domestic demand in Africa has simultaneously ushered in a new wave of foreign direct investment in the continent’s biggest and most dynamic economies. The report concludes by confirming continued, intensive construction activity across the continent.

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