03 Apr 2020
Posted in Construction
Sub-Saharan Africa construction sector highly vulnerable to ancillary impact from coronavirus pandemic
Leading data and analytics company GlobalData has revised its construction output growth forecast for Sub-Saharan Africa (SSA) in 2020 to 3.6%, down from the previous projection of 6% (Q4 2019 update).
The company’s latest report, ‘Global Construction Outlook to 2024 (COVID-19 Impact)’, states that the revision reflects the impact on the region’s economic activity and investment growth stemming from the wider global slowdown and the outbreak of the coronavirus (COVID-19) in the region.
GlobalData has further revised down its forecast for South Africa’s construction output in 2020 to -4.1%. The negative impact from COVID-19 will compound other challenges, notably high national debt, labor shortages and little infrastructure spending amid a depressed economy.
The South Africa Government launched an economic response with several packages to COVID-19, amongst is a R3bn (US$166.9m) package for industrial funding to help businesses combat the negative economic impact resulting from the virus outbreak. President Ramaphosa set up an independent relief fund – the Solidarity Fund – to support affected small businesses by providing R150m (US$8.3m) and invited the private sector to take part.
Yasmine Ghozzi, Economist at GlobalData, comments: “Lengthy power outages struck key mining and manufacturing sectors, which further impacted the economy in 2019 and will continue to occur in 2020. The president’s decision to restart the private-sector led renewable energy program is a positive step, as is the release in October 2019 of South Africa’s long-term energy plan, inviting more opportunities for public private partnerships, which will give a boost to the energy and utility construction sector. However, fixing the heavily indebted Eskom will be challenging.”
GlobalData has cut its growth rate for Nigeria to 1.3% in 2020. There is a risk that the country will enter recession in 2020 in light of the COVID-19 outbreak and plunging oil prices. Government revenues will drop by around 40% to 45%, which will push the government to prioritize spending, and that will have a direct impact on construction with many projects expected to delayed or canceled.
The construction industry will be dependent on the pace of implementing the Economic Recovery and Growth Plan, which has been jeopardized by the decline in oil prices. Moreover, high debt-servicing costs and the small size of the tax take will leave little scope for fiscal spending; growth in the economy will highly depend on monetary easing but that will be restrained by high inflation.
Ghozzi explains: “With fiscal policy being constricted, the Kenyan government will push for PPP and private investment. Only priority projects will now be eligible for risk-sharing incentives. Several advanced PPPs in transport and energy will go ahead, which will still give a boost to the infrastructure and energy construction sectors in the medium term, albeit at a slower pace. At the same time, government capital spending will be under pressure as part of fiscal consolidation efforts.”
Ghana’s hydrocarbon sector will continue to struggle in the short term owing to the sharp fall in oil prices. The government is expected to begin Eurobond roadshows this year to raise up to US$3bn; this comes after securing the required approval of the 2020 Budget. However, with the outbreak of COVID-19, this could be at risk as investor confidence and perceptions of bonds decline.
Ghozzi adds: “Ghana’s construction sector’s medium term outlook looks positive, supported by infrastructure investment, industrialization projects under the Government’s ‘Ghana beyond aid’, as well as developments in the oil and gas sector, with an expectation of oil price rebound, such as the continued expansion of oil and gas production from the Tweneboa-Enyenra-Ntomme (TEN) and Sankofa fields and the Pecan oilfield by Aker Energy, a Norwegian firm, which is expected to be operational in late 2021 or early 2022.”