Construction output growth forecast for sub-Saharan Africa (SSA) in 2020 has been adjusted further to -5,2% from the previous forecast of -4,9%, according to GlobalData, a leading data and analytics company. The current revision reflects the deep impact on the region’s economic activity and investment growth stemming from the wider global slowdown, the outbreak of COVID-19 in the region and possibly a lack of available external financial support.
Yasmine Ghozzi, economist at GlobalData, comments: “There are key downside risks for this outlook, particularly regarding the ongoing COVID-19 pandemic, the resilience of the region’s healthcare systems and the accessibility to an effective and affordable vaccine, political instability and possibly climate-related shocks such as floods or droughts.
“Key drivers for growth in 2021 include improvement in exports and commodity prices as the global economy recovers on the back of rolling out the vaccine, along with pick-up in both private consumption as ease of restrictions slowly materialise and in investment supported by a return to foreign direct investment (FDI).”
Construction output is expected to grow by 3,7% in 2021, as, once the industry is permitted to operate at normal or near-normal levels, there could be a sharp recovery in output levels compared to periods when works were not permitted or were severely restricted. This will particularly be the case when comparing Q2 2021 output levels with those in Q2 2020 in South Africa and Nigeria, where activities were completely halted due to strict lockdown measures. However, despite the expected growth in 2021, output will still be below 2019 levels.
In line with GlobalData’s expectations of a sharp decline in construction output in South Africa (SA) in Q2 and Q3 2020, SA’s construction industry is forecast to contract by 16,5% in 2020. A key constraint in 2021 will be a shortage of electricity, which will limit economic growth affecting all sectors of the economy, notably manufacturing.
GlobalData has eased back on its growth rate cut for Nigeria’s construction industry, from an earlier estimate of -12,8% to -7,7% as recovery in activity in Q3 has been stronger than anticipated. However, weak public investment alongside limited foreign direct investment (FDI) amid the global economic downturn is pushing Nigeria into a steep recession.
Ghozzi comments: “Providing some scope for support for the energy construction sector, the government has taken small steps towards improving logistics including advancing the Petroleum Industry Bill (PIB) to be discussed in the Nigerian Senate, which has faced legislative delays since 2007. In addition, pressured by the pandemic-related economic crisis, the government removed a fuel subsidy that strained its public purse, raised electricity tariffs and is making concerted efforts to move to a market-driven exchange rate.”
GlobalData expects Ethiopia’s construction industry growth to stand at 3,1% in 2020, rising to 4,7% in 2021.
Ghozzi adds: “Investor sentiment will be weighed down by political tensions stemming from a number of issues, notably military action against the Tigray People’s Liberation Front (TPLF) in the Tigray region, which is a key industrial area, and a dispute between Egypt-Sudan-Ethiopia over government plans to fill the Grand Ethiopian Renaissance. Capital projects such as railway and road construction are expected to regain momentum from the second half of 2021 once the election is over (now postponed to mid-2021 due to the pandemic) and global economic conditions normalize.”
GlobalData still maintains a positive outlook for Tanzania throughout the forecast period, as it expects the sector to grow on average by 7,7% from 2021-24. This is reinforced by President John Magufuli securing 84% of the valid votes and the Chama Cha Mapinduzi (CCM) party winning 257 of 264 elected seats in the National Assembly in the October presidential and parliamentary elections, hence the expectation that his broad policy will continue throughout the forecast period.
GlobalData expects Ghana’s construction industry to contract by 5,9% in 2020 and 1,1% in 2021. The country adopted early lockdown measures compared to its peers in the West Africa region. In response to the pandemic, the government also kick-started its ‘Ghana Beyond Aid’ vision, an initiative to diversify the manufacturing base and overhaul the taxation structure, which allowed the country to be more resilient.
Ghozzi comments: “The government had a Eurobond road show in January 2020 to raise US$3-billion, which provided a buffer to support the country's currency. The funds raised from the issue are designed to finance infrastructure projects and help the government manage its rising debt stock.”
GlobalData has cut its forecast for construction output growth in Angola to -10,1% in 2020 and -3,5% in 2021. The economy contracted by 8,8% year-on-year in Q2 2020, drastically down from growth of 0.5% in Q1 2020. The downturn was broad-based, although the biggest drops in activity were registered in transportation (given restrictions on mobility to curb the spread of the virus), construction and mining sectors.
For Zambia, GlobalData has further cut its construction output growth forecast to -10,8% from an earlier estimate of -8,0% in 2020. In November 2020, Zambia announced it had defaulted on a portion of its debt. While the ongoing COVID-19 pandemic has hit the country hard, the main reason for default is mainly attributed to the government’s poor fiscal management.