Range of investments in Cote d'Ivoire set to sustain high activity in construction sector

As Côte d’Ivoire continues to recover from the instability of the previous decade, construction remains a key driver of growth, with a swath of new projects either launched or planned in various sectors, including several that form part of the government’s main infrastructure programmes. There have been some bottlenecks, however, particularly in terms of project delivery. As availability of materials has constricted in the face of growing demand, many real estate developers are setting up or expanding their own production units on the ground, such as cement-grinding plants or factories for pre-fabricated housing parts (see analysis). The outlook for the short and medium term is encouraging, with the government stressing capital spending and the economy posting strong figures. IMF data show GDP growth above 8% in the four years to 2015, and forecast it to stay at or near that level through to 2018.

Indicators

The construction sector has seen high levels of growth as the result of a strong public sector push to renovate, expand and build national infrastructure as well as tackle a large housing deficit following a prolonged period of conflict. Public works and construction were the major drivers of secondary sector growth in 2013, with an estimated increase of 25.3% according to the African Development Bank (AfDB), slowing to 15.5% in 2014, according to the IMF.

The government’s top growth scenario, described in the 2016-20 National Development Plan (Plan National de Développement, PND), foresees average sector growth of 22.3% over the four-year period based on the pursuit of state-supported public works and a presidential housing programme. Christian Bardin, deputy general manager of road construction firm Colas Afrique, told OBG, “Construction activity should start to pick up again by the end of 2016, especially following government discussions with international donors, international financial institutions and other actors on which projects to prioritise.” Construction’s share of the economy has also grown in recent years. Data from the Official Directorate of the Economy put the GDP contribution from public works at between 1.7% and 2.4% during the 2010-14 period, and at an estimated 2.8% in 2015. By comparison, the construction sector as a whole represented 5% of GDP in 2008, rising to 7.3% in 2013, according to the AfDB.

Public Spending

Infrastructure and housing development are government priorities. Under the PND 2016-20, the largest share of the infrastructure budget was allocated to electricity networks, at 12.43% of the total, or CFA3.73trn (€5.6bn). This was followed by road services at CFA3.6trn (€5.4bn) and transport services at CFA3.05trn (€4.6bn). Other important allocations included CFA754.8bn (€1.1bn) for water, CFA580.8bn (€871.2m) for hydrocarbons, CFA304.6bn (€456.9m) for tourism and CFA151.4bn (€227.1m) for sanitation. Housing has been allocated a total of CFA89bn (€133.5m). Despite these sizeable expenditures, the country’s infrastructure deficit is still significant.

The government is looking to the private sector for help. Côte d’Ivoire has long history of public-private partnerships (PPPs), such as the CFA262bn (€393m) contract with Bolloré Railway’s local subsidiary, Sitarail, to repair and operate the Abidjan-Ouagadougou-Kaya railway and the CFA656bn (€984m) deal with French-Korean consortium Société de Transport Abidjanais sur Rail (STAR) to construct and operate Line 1 for the Abidjan Metro. The government’s list of new PPPs, released in May 2016, includes a series of initiatives, with costs ranging from CFA10bn (€15m) to rehabilitate and supply new equipment at Abidjan’s Cardiology Institute, to CFA690bn (€1.03bn) to build and operate section 2 of the Abidjan-San Pedro Highway. Sidibé Souleymane, CEO of real estate developer Oribat, told OBG, “Given the housing shortage in the country, PPP projects are very attractive to foreign investors – especially in the social housing segment.”

Market Structure

Construction in Côte d’ Ivoire is a competitive industry. As in many West African markets, foreign contractors carry out the bulk of large construction projects, such as oil and gas or transport infrastructure, often in collaboration with local partners. This is partly due to the technical and financial requirements of such investments. Less demanding projects, including residential, industrial and commercial buildings, attract a wider variety of companies, ranging from local firms to foreign-local consortia, depending on project requirements. The sector’s professional association, the Ivorian Public Works and Construction Group, has around 50 members and, among other things, lobbies on behalf of contractors at the government level. Its members include not only local contractors but also multinationals, specialised construction firms and building materials producers.

Limited access to funding, particularly in the local banking sector, makes it challenging for local small- and medium-sized contractors to finance costlier projects or to ride out cash flow problems resulting from delayed payments. Youssef Amri, CEO of Société Ivoirienne de Béton, told OBG, “Delays in payment to construction companies are having a trickle-down effect throughout the sector, as they are finding it hard to pay material producers and heavy matching providers.”

According to local news site Abidjan.net, the construction sector receives only 2-3% of all bank loans in Côte d’Ivoire, a lower ratio than in the rest of the region. In 2014, for example, Burkina Faso allocated 13.6%, or CFA215.5trn (€323.25bn), of total banking credit to the construction sector, and in Senegal the figure was 7%, or CFA1427trn (€214.1bn), compared to 3.2%, or CFA71.trn (€107.6bn), in Côte d’Ivoire. Antoine Dossou Vidjanagni, CEO of Enterprise Dossou, told OBG, “In recent years, the construction sector has been affected by repeated payment arrears and delays, which has significantly worsened the cash flow situation for local sub-contracting companies.”

State Institutions

Construction activities are overseen by a wide range of state bodies. Following a government reshuffle after the October 2015 presidential election, several cabinet-level ministries are now involved in the direct tendering and commissioning of projects, including the Ministry of Construction and City Planning (Ministère de la Construction et de l’ Urbanisme, MCU), the Ministry of Economic Infrastructure, the Ministry of Housing and Social Housing, and the Ministry of Urban Hygiene and Sanitation.

Several other agencies play a role in supervising public works projects: the National Bureau of Technical Studies and Development is charged with managing major development projects through conception studies, as well as project advisory services and oversight; the Public Works and Construction Laboratory is responsible for carrying out construction and public works, as well as research and data collection; and the Land Management Agency manages the concession, development and lease of land on behalf of the state. The government also operates as a developer and landlord through Société Ivoirienne de Construction et de Gestation Immobilière, which works on affordable units.

Doing Business

As with many African countries, Côte d’Ivoire’s construction sector lags in terms of key business indicators. Bourgi Khodor, CEO of construction firm LGI BTP, told OBG, “As in many African nations, the three main challenges facing the construction sector concern tax policy, land acquisition and financing.”

Overall, the country ranked 142nd out of 190 economies on the World Bank’s ease of doing business index for 2017. In terms of registering property, the country dropped three places from 2016, to 113th. Its ranking for getting electricity remained stable at 132nd, while the mark for obtaining credit slipped five places to 139th. Compared to the rest of sub-Saharan Africa, Côte d’Ivoire ranks lower in terms of dealing with construction permits and getting credit, but more favourably in terms of registering property and getting electricity.

However, there has been steady improvement. While Côte d’Ivoire fell two spots in the ranking for dealing with construction permits, to 182nd out of 190 countries, in April 2016 the government inaugurated a “one-stop shop” for these, known as the Construction Permit Single Window. Announcing the new unit in early May 2016, Mamadou Sanogo, head of the MCU, said the move should reduce delivery times from 60 days to 21, which could improve 2018 rankings.

Major Projects

Given the role of public works spending in sustaining the country’s recent growth, it is unsurprising that infrastructure accounts for a large proportion of construction activity. Also planned is a section of the Abidjan-San Pedro Highway at an estimated cost of CFA690bn (€1.03bn). One of the more keenly awaited PPPs, however, is the extension of the North Highway, which has been under way for over three decades. The long-term goal of the project – in the works since the 1980s – is to establish a highway connection between Abidjan and Ouagadougou, the capital of neighbouring Burkina Faso. In April 2015 the government made some headway by signing a CFA77.4bn (€116.1m) loan with the Islamic Development Bank to fund construction of a 37-km section running from Yamoussoukro to Tiébissou.

Road & Rail

Côte d’Ivoire is also rehabilitating and expanding its paved road network, one of the largest in West Africa. Yet it faces the challenge of meeting financing needs. Speaking in October 2014 at the inauguration of the Bouna-Doropo road in north-east Côte d’Ivoire, Vice-President Daniel Kablan Duncan said road rehabilitation and expansion needs are estimated at CFA500bn (€750m) per year – about 4% of GDP. Local companies are looking to be involved in these projects. “The authorities and operators are currently studying the legislative framework for tenders, in an effort to enable local companies to play a larger role in construction projects. Co-contracting, instead of subcontracting, must be developed further as part of this,” Philippe Eponon, CEO of La Route Africaine, told OBG.

In February 2014 the Road Maintenance Fund, which maintains existing roads and manages financing for new ones, successfully raised CFA130bn (€195m) from a seven-bank consortium led by Ecobank Capital and Africa Link Capital. The fund plans to procure another CFA280bn (€420m) annually over a 10-year period.

Of all the projects already concessioned or under way, perhaps the most expensive is the development of the Abidjan Metro at a cost of CFA656bn (€984m). STAR – a private consortium comprising France’s Bouygues Construction and Keolis and South Korea’s Hyundai Rotem and Dongsan Engineering – is responsible for financing, building and operating Line 1 under a 40-year PPP concession. The 37.5-km section will connect Anyama in north Abidjan to Port-Bouët in the city’s south, with plans to eventually link to the Port Bouët Airport in Abidjan. Jeune Afrique, a regional weekly, reported in July 2015 that Côte d’Ivoire’s Banque Atlantique, a subsidiary of Atlantic Business International, granted STAR a €40m, three-year loan at a rate of 5.5% to fund the project’s preparatory work, allowing it to move forward. Delivery of Line 1 is expected in 2019.

Public Housing

In 2010 President Alassane Dramane Ouattara committed to tackling Côte d’Ivoire’s estimated 400,000-600,000-unit housing deficit if elected, and to build 60,000 housing units in his first term in office, of which 50,000 would be in Abidjan. Demand for housing has increased in recent years as a result of a steadily growing population and high urbanisation rates. Speaking to Jeune Afrique in February 2014, Doumbi Brahima, director of the Centre for Formal Facilitation of Access to Housing, estimated that the housing deficit was growing by 40,000-50,000 units each year. Maximin Digbeu, general manager of real estate developer Batim CI, told OBG, “In Côte d’Ivoire there is a clear divergence between activity in the public works sector and the housing sector. Infrastructure investment has been steadily growing, while investment in housing has been trailing behind.”

Steel

Côte d’Ivoire is an important producer of steel, and has seen its production capacity increase in recent years. There are seven steel producers in the country, up from three five years ago. The most notable of these, Société des Tubes d’Acier et d’Aluminium de Côte d’ Ivoire (SOTACI), is the largest processor of steel products in West Africa, with an annual capacity of over 150,000 tonnes and turnover of CFA50bn (€75m). Despite this, Ali Achkar, commercial director of SOTACI, told OBG, “There has been a noticeable slowdown in local construction activity since the presidential elections took place in October 2015, resulting in collection difficulties for the majority of our clients. We have also observed the circulation of illegally introduced products.”

Bitumen

Société Multinationale du Bitumes (SMB) is the sole producer of bitumen in Côte d’Ivoire and a key provider in sub-Saharan Africa, exporting to various countries in the region. SMB’s annual turnover decreased by 5.5% between 2014 and 2015, from CFA141.1bn (€211.7m) to CFA133.37bn (€200m), according to the firm’s 2015 annual report. Annual commercial activity grew by 35% in 2015, led by a substantial increase in local markets sales, with this segment seeing a 90% spike in activity. Indeed, local sales increased from 30.3 kilotonnes in 2014 to 57.6 kilotonnes in 2015, while external exports by sea grew by 29% from 138.4 kilotonnes to 178.9 kilotonnes. According to SMB, export growth is likely due to a number of new clients and entrants in the market, as well as an increase in processed output, while the spike in local demand is likely due to the government’s infrastructure drive. The National Chambers of Licensed Builders and Developers took its first step in the promotion of sector training and education in February 2016, shortly after its establishment. Along with local real estate developer and builder OPES Holding, it secured a partnership with the Federation of Public Works and Construction in Loire, France, for the creation of an Apprentice Training Centre that will offer education for with various construction-related professions.

Outlook

Despite some signs of a slowdown in construction activity in recent years, the country’s long list of ongoing and prospective projects, programmed private sector investments and clearer government planning at present reveal a certain degree of confidence in sustained sector growth going forward.