Playing catch-up: Significant housing demand and a slew of public projects fuel growth

After a decade of under-investment, Côte d’Ivoire’s construction sector has sustained double-digit growth over the past three years as private reconstruction and public investment continue to rise sharply. With a strong portfolio of public projects, particularly in transport infrastructure and low- to middle-income housing, the demand for construction materials is set to grow further. However, new domestic capacity to produce key construction materials will be required to curb the impact on the country’s current import bill.

Driven by major public works, the construction sector grew by 25.3% in 2013, according to the African Economic Outlook. Building and civil works accounted for 7.5% of GDP in 2013, up from 6% in 2011, and as a result of the increased construction activity, the secondary sector expanded by 13.3% in 2013.

Planning Ahead

After more than a decade of armed conflict, investment in construction had until 2012 largely stalled. Yet, with the return to stability and strengthening economic recovery, activity has picked up again in earnest. The main impetus comes from public spending, with CFA565.2bn (€847.8m) earmarked for housing and urban development under the 2012-15 National Development Plan (Plan Nationale de Développement, PND). However, the PND estimates another CFA11trn (€16.5bn) is required to meet infrastructure and transport targets, and while the private sector is playing an increasing role in rolling out new infrastructure, a large proportion of financing is expected to come from foreign donors. Following a convention in Paris 2012 of the Consultative Group to Assist the Poor, a global partnership including the World Bank, international donors committed $8.75bn, with several projects, including the construction of roads and bridges, already the recipients of donor financing.

Market Structure

From real estate to large public works, global construction firms are active in all segments. Traditionally dominated by French and Lebanese investors, the construction sector has seen significant diversification in terms of both sources of capital and contractors themselves. In the residential real estate segment, Côte d’Ivoire has seen the entrance of several international firms, including Moroccan groups Addoha and Alliances, both of which have a presence in the affordable housing segment (see Real Estate overview). Further, Chinese contractors, such as the state-owned engineering company Sinohydro, have also made inroads, building the Soubré hydroelectric dam in the south-west of the country. “We have benefitted from globalisation and have diversified our trading partners, including among emerging countries,” Prime Minister Daniel Kablan Duncan told OBG. “China is investing massively in Africa – including in Côte d’Ivoire – and we look forward to seeing more of that.”

Notwithstanding this diversification, major French firms retain a large footprint in terms of civil engineering and public works projects. Under its subsidiaries Bouygues Construction Concessions, Colas, SOCOPRIM, DTP Terrassement and Foxtrot, French conglomerate Bouygues is one of the main investors in the country, while Vinci, through its subsidiary Sogea-Satom, and Razel-Bec are also active in building port infrastructure and rehabilitating the nation’s roads.

Local Content

Domestic firms have a relatively minimal presence in the large and more technically demanding projects, in part due to the difficulties faced by smaller and non-blue-chip firms in accessing capital, although the government is hoping to change this (see Economy chapter). A new mobile collateral registry backed by the World Bank could help improve the ability of Côte d’Ivoire’s smaller contractors to tap into larger projects (See Banking Chapter).

“Local construction firms face chronic difficulties in accessing to finance, and it therefore affects their ability to win tenders,” Sédjougou Coulibaly, general manager of local building firm Banibah, told OBG. “At best, international firms outsource some of their work and call for local firms’ expertise,” he said. CASH FLOW: Another challenge for contractors has been the government’s arrears in payment, which can often drag into a year, thereby pressuring the balance sheets of small and medium-sized enterprises (SMEs). Public procurement contracts officially apply a 90-day payment deadline for public authorities, whereas only 45 to 60 days are required in Europe, for instance. And while the payment deadline is a contractual obligation, it is not consistently enforced, according to the Confederation of Businesses of Côte d’Ivoire. “Local SMEs find it difficult to finance construction projects, hence the country’s over-reliance on international companies,” Badou Yao Kouadio, director-general of Entreprise Nationale du Bâtiment et des Travaux Publics, told OBG.

To ease constraints on SMEs in construction and boost their participation in public tenders, the government has been working on a classification system to allow preferential procurement.

The goal is to better include SMEs in public projects using performance criteria on their assets, facilities, human resources and technical capacities. Each SME will be classed into one of three groups: building, public works or consulting. As of early 2015, the project had yet to be finalised. “As local SMEs can hardly compete with international firms, categorising tenders according to companies’ size is crucial for the future well-being of Ivorian companies,” El Hadj Drame Youssouf, director-general of GECOB-CI, told OBG.

New PPP Initiatives

The government has been proactive about restarting construction activity on infrastructure and housing projects, not only to address existing deficits but also to stimulate job creation. However, Côte d’Ivoire has limited fiscal space for manoeuvre, and while foreign donors have already made sizeable commitments to help underwrite a spate of new projects, the private sector is also expected to finance around 60% of the PND budget through various public-private partnerships (PPPs).

One of the most visible examples of this is a 6.7-km urban highway that includes the 1.5-km Henri Konan Bédié toll bridge – the third bridge through Abidjan connecting Marcory to Riviera – which opened in December 2014. Designed as a build-operate-transfer (BOT) scheme over 30 years, the flagship PPP was awarded to Société Concessionnaire du Pont Riviera-Marcory, known as Socoprim, in a non-competitive tender.

The special-purpose vehicle Socoprim is owned 49% by French conglomerate Bouygues, 22.03% by the Pan-African Infrastructure Development Fund at the African Development Bank (AfDB), 18.65% by the Ivorian government, and 3.78% by French oil major Total. The €192m project raised €28.8m in equity from the Ivorian government, Bouygues, Total, Banque Nationale d’Investissement and South African fund-manager Harith; and €125.5m in senior syndicated debt from the AfDB, the Dutch development bank (FMO), the ECOWAS Investment Bank, the African Finance Corporation (AFC), Morocco’s BMCE Bank and the West African Development Bank (BOAD); and €40m in subordinated debt from Bouygues, FMO, AFC and Harith.

Besides the construction of the third bridge in Abidjan, other bridge projects have been launched outside of the economic capital. Roughly 40 km west Abidjan, the Jacqueville Bridge will connect Jacqueville Island to the mainland by road for the first time. Initially planned to open by December 2013, the project was postponed for technical reasons and is still under construction. A pool of international donors, including the BOAD, the Arab Bank for Economic Development in Africa, the OPEC Fund for International Development and the Ivorian government, is financing the CFA18.58bn (€27.9m) project. Awarded to Egyptian state-owned group Arab Contractors, the project started in July 2009 and is slated for completion by February 2015.

Port Project

Another PPP in the pipeline is the construction of a second container terminal, TC2, at the Port of Abidjan. After a heavily contested tendering process, a consortium comprising Netherlands-based APM Terminals, French firm Bolloré Africa Logistics and Bouygues won the bid to build and manage the terminal in December 2013. Based on a BOT scheme, the consortium plans to invest CFA300bn (€450m) over the 21-year concession, and will pay the government an annual concession fee of CFA14.5bn (€21.8m). Complementing TC2, the port authority will build a 1.1-km dock alongside an embankment spanning a 37.5-ha area and deepen the channel. The work is scheduled to be completed by 2018 (see Transport chapter). ROAD NETWORK:Among the major segments that are driving construction activity are housing (see Real Estate overview) and road works. With an 82,000-km road network, of which about 6500 km is paved and 230 km is high-speed motorway, Côte d’Ivoire has the most extended road network in the West African Economic and Monetary Union. Nonetheless, as the network is ageing fast, much rehabilitation needs to be done. According to the Road Management Agency (Agence Nationale de Gestion des Routes, Ageroute), which is responsible for public road works, around 75% of paved roads (4875 km) were built between 15 and 35 years ago, hence the ongoing need for maintenance and rehabilitation. On the basis that 1 km costs about CFA150m (€225,000) to rehabilitate, a total of CFA731bn (€1.97bn) would be required to refurbish the entire network, according to Ageroute (see Transport chapter).

The Road Maintenance Fund (Fond d’Entretien Routier, FER), which was set up in 2001, is the body in charge of financing Ageroute’s projects. Hampered by years of political unrest, neither Ageroute nor the fund has been able to ensure full maintenance of the country’s road network. However, with the return to stability in recent years, private financial institutions as well as international donors seem willing to jump-start road maintenance and construction activity.

Funding Improvements

In early 2014 the FER had raised a total of CFA130bn (€195m) from a consortium of seven banks. To accommodate the fund, loan was structured in two tranches – one short term and one medium term. While one-third of the CFA130bn (€195m) total will be reimbursed over a two-year period, at a rate of 7%, the remaining two-thirds is payable over five years at a rate of 8%. The fund will use its own resources, which includes transport licences, a tax on petroleum products and car tax discs, to pay the debt.

In June 2014 the BOAD extended a credit line of CFA34bn (€51m) to the Ivorian government, CFA24bn (€36m) of which allocated to FER to build 855 km of bitumen roads, and roughly 4200 km of dirt roads. The other CFA10bn (€15m) is part of a co-financed project between the state and donors, including the BOAD and ECOWAS Investment and Development Bank, to build the Tiébissou-Didiévi road in the centre of the country. The road project aims to better integrate central regions by connecting them to large road axes and, in the process, boost internal trade.

Also supporting trade is an agreement between the Ministry of Agriculture and Ageroute signed in June 2014 to develop and maintain 3332 km of farm tracks to facilitate the supply of crops, especially cocoa, from farmers to processors and exporters, (see Agriculture chapter). Designed with the support of the World Bank’s Agriculture Sector Support Project and the French Development Agency, the Debt Relief and Development Contract will release financing of CFA8.57bn (€12.9m) to help upgrade the farm-track network.

Construction Materials

The uptick in activity has seen a subsequent jump in demand for construction materials. According to the IMF, as of June 2013, sales of construction materials had increased sharply. In addition to a strong demand for bitumen and cement, concrete sales rose by 69.4%, sheet metals by 42.7% and gravel by 23.7% in 2013. While growing demand for construction materials is a key indicator of the sector’s expansion, new investment in the production of those materials is central to meet the country’s needs.

Paving The Way

Driven by road rehabilitation and construction projects, demand for bitumen rose sharply in 2013. According to the 2013 annual report by Société Multinationale de Bitumes (SMB), the country’s sole supplier and a major exporter, annual sales of bitumen in Côte d’Ivoire rose 72%, from 26,600 tonnes in 2012 to 45,700 tonnes in 2013, for a turnover of CFA19.06bn (€28.6m). Bitumen prices are highly dependent on oil price volatility; in 2013 the price of a barrel of crude Brent declined sharply, by $22 from February to April, and then jumped by $3 between April and August, to finally stabilise at around $110 per barrel at the end of the fourth quarter 2013, according to SMB.

With an annual production capacity of 450,000 tonnes, SMB, which is 72% owned by the state’s Ivorian Refining Company and 28% owned by private investors, supplies the entire Ivorian market. Operating the only large-scale bitumen plant in sub-Saharan Africa, excluding South Africa, SMB exports between 70% and 80% of its output to the continent, including to Nigeria and Ghana, among others. While its bitumen output fell in 2013, due to the refinery’s turnaround maintenance in the first quarter, this had no noticeable consequences for local building companies as SMB gave domestic clients priority over exports, which contracted from 189,900 tonnes in 2012 to 97,100 tonnes in 2013. Based on OBG surveys, local demand for bitumen weakened in the first quarter of 2014 due to delayed payments by the state, although SMB intended to supply the market with 60,000 tonnes in 2014.

Cement

According to data from Ecobank Research, the most available at the time of writing, Côte d’Ivoire’s cement production reached 2.5m tonnes in 2013. While still far behind the continent’s top producers, namely Nigeria (28.3m tonnes) and South Africa (19m tonnes), capacity has increased considerably, though the country still relies largely on imports. According to the IMF, cement imports surged by 371.6% from 2012 to 2013.

Cement prices, which are a factor behind rising competition in the sector, stood at CFA97,545 (€146) per tonne for artificial Portland cement and CFA79,560 (€119) per tonne for compound Portland cement, as of August 2014. Traditionally dominated by Société Ivoirienne de Ciments et Matériaux and Société des Ciments d’Abidjan, competition in the cement market has grown with the arrival of foreign investors. After commencing operations in Côte d’Ivoire in June 2013, cement producer Ciments de l’Afrique, a subsidiary of Moroccan property developer Addoha, expanded its grinding facility from 500,000 tonnes to 1m tonnes by year-end 2014, to supply the group’s low-cost housing development needs. In early 2014 the company invested CFA8bn (€12m) in a cement-packing plant at the Yopougon Industrial Zone. With a capacity to pack 80m bags, the group aims to supply all of its cement facilities in West and Central Africa.

In addition to building a cement import terminal at the Port of Abidjan with capacity to package and bag 1m tonnes of cement per year, Nigerian heavyweight Dangote is building a 1.5m-tonne-per-year grinding facility, which is expected to be operational by the second quarter of 2015. “The cement business is driven by massive construction projects throughout the country, notably with the government’s housing construction programme,” Guy Camara, general-manager at Dangote Côte d’Ivoire, told OBG.

In August 2014 Turkish industrial group Limak and Ivorian Afrikbat established the joint-venture Limak Africa, and plan to invest $50m in the development of an industrial complex to produce cement and concrete. The facility will have an annual production capacity of 1m tonnes of cement and a concrete plant with a capacity of 1m cu metres per year.

Steel Products

Created in 1978, the Société de Tubes d’Acier et Aluminium en Côte d’Ivoire (SOTACI), a subsidiary of locally based company Eurofind Participation, is – along with its sister company Les Aciéries de Côte d’Ivoire – the largest steel producer in the country, and one of the largest in the West Africa region.

SOTACI’s CFA17bn (€25.5m) steel mill had an original production capacity of 70,000 tonnes, but a capital injection of CFA3bn (€4.5m) in 2014 expanded that to 95,000 tonnes. Thanks to this new investment, the company aims to begin producing cast iron, according Adham El Khalil, CEO of Eurofind Participation. Already equipped with laminating machines, the company produces rebar, supplying major projects such as Abidjan’s third bridge (the Henri Konan Bédié toll bridge) and the Soubre hydroelectric dam. “The building and major works sector has been a key driver of growth for the sales of steel products”. El Khalil told OBG. “We have also recorded an increasing demand for steel products like rebar from real estate developers in recent years.” Competition is also expected to increase following the entrance to the market in 2012 of SOTRALCI, a subsidiary of industrial conglomerate Yeshi Group , which processes steel and aluminium to produce finished products such as rebar and welded mesh.

Outlook

Making up for lost time after a decade-long crisis, the country is now making genuine progress towards rebuilding the necessary infrastructure to support its development and future growth, creating a strong pipeline of projects for contractors. Substantially supported by international donors, Côte d’Ivoire has opened its doors to global construction firms and has diversified investments sources. However, further support for local SMEs is needed to sustain long-term growth, while the development of the country’s construction material manufacturing industry will be critical to controlling input prices and limiting imports.