Laying the foundations: Construction fuels growth as government implements development priorities in key economic sectors

Aided in large part by preparations under way for the 2012 Africa Cup of Nations, Gabon’s construction sector has witnessed a boom in recent years. Construction has been at the heart of government plans for economic development, with the expansion of energy and transport infrastructure intended to help realise President Ali Bongo Ondimba’s overarching goal of diversifying the economy.

The construction of housing, too, has been a government priority in light of an estimated shortage of about 200,000 houses, 160,000 of which are needed in Libreville alone. Ambitious goals have been established for this and other key sectors of the economy, and despite a number of enduring challenges, work continues to move forward, offering opportunities for local and international construction firms alike.

NATIONAL PLAN: Launched in June 2012, the National Infrastructure Master Plan (Schéma Directeur National d’Infrastructure, SDNI) identifies 21 priority projects to be carried out until 2025 in key sectors as energy, transport, special economic zones, tourism, telecoms and urban development.

For transport alone, the government seeks to generate over $13bn in infrastructure investments by 2016. Of this, $6bn would be dedicated to building new roads, while $5.5bn would go towards the renovation of the country’s main rail line, the Trans-Gabon Railway, as well as two new lines of about 300 km. The first of these lines will connect the Trans-Gabon Railway to the north-eastern iron ore mine of Belinga, and the other will link agricultural areas in the south to the future deepwater port of Mayumba in the southwest. Finally, $2bn would be allocated to the construction of new airports and harbours.

The National Public Works Agency (Agence Nationale des Grands Travaux, ANGT), a collaboration between the government of Gabon and US-based firm Bechtel, is responsible for the plan’s implementation. Overall, the ANGT expects to generate about $20bn in new investment from the private and public sector between 2012 and 2025 for at least 175 projects. If successful, the agency would ensure a steady flow of projects that should have clear knock-on benefits for the rest of the economy. According to the IMF’s March 2013 Article IV report on Gabon, “Real GDP was expected to rise about 6% in 2012, with non-oil GDP growth making the major contribution at almost 9% based on construction and public works, transportation and other services related to the high level of public investment.”

FUNDING: Funding for major infrastructure projects contemplated in the SNDI would ideally come from multiple sources, including public and private investment. The government’s own contribution to this end has been rising in recent years, with a year-on-year increase of 74% in the 2013 national budgets for development and equipment, up to CFA1.11trn (€1.7bn) and CFA108bn (€162m), respectively, reflecting in part a growing commitment on the part of the government to the development of national infrastructure through major public investments.

Using the capital markets for funding has also been an option for Gabon in recent years. The government issued both a regional bond and a Eurobond in 2007 of CFA100bn (€150m) and $1bn respectively, and is now preparing to collect a total of CFA508.7bn (€763m) via the regional stock exchange through three bond issues, one in July, a second in October and a third in November 2013. According to the economy minister, Luc Oyoubi, the funds are essentially meant to finance SDNI projects in such areas as transport, energy and telecommunications. I NTERNATIONAL SOURCES: Other sources of funding, critical to the implementation of infrastructure development projects, have so far comprised lending and official development aid from such international actors as the African Development Bank (AfDB), the Islamic Development Bank (IDB), the World Bank (WB), the French Development Agency (Agence Française de Développement, AFD), the European Union (EU), and a number of additional financial institutions, including among others the international China Exim Bank and the Spanish arm of Deutsche Bank, as well as Ecobank and BGFIB ank. However, the ANGT and the government are open to other means of financing as well, such as public-private partnerships (PPPs) and build-operate-transfer concessions.

INFRASTRUCTURE PROJECTS: While a number of infrastructure projects are currently under way, some sectors, as energy and transport, have seen a particular surge in construction activity of late. The ambitious goals laid out under the SDNI have caught the eye of larger foreign companies, which can contribute their expertise to major infrastructure projects, while small and medium-sized projects have seen a greater degree of involvement from local firm.

In the energy sector, for example, the government is set on raising electricity production capacity from 374 MW to 1200 MW between 2010 and 2020, with a focus on producing clean and renewable energy. The share of clean energy in total production during this period should rise from 72% to 100%, 80% of which would be from hydroelectricity.

To achieve these goals, the Gabonese government is encouraging the development of clean and renewable energy projects (see Energy chapter). This includes a number of ventures in hydroelectricity, namely the Grand Poubara dam (constructed for about $400m), and two run-of-river dams, Fe 2 and Chutes de l’ Impératrice, for approximately $133m each. China’s Sinohydro is been responsible for building the first dam, while the latter two involve a diverse set of actors, ranging from the local Compagnie de Développement des Énergies Renouvelables and Tahiti-based Société d’Etudes de Développement Polynésienne to France’s Alstom-CGE and Spain’s Acciona.

In addition to hydroelectricity, investments in clean energy also include the development of natural gas plants, with two thermal power plants currently under construction and being built by the Israeli company Telemania in Libreville (70 MW) and Port-Gentil (105 MW) for around $160m in total. These facilities will have the capacity to use either diesel or gas.

WATER WORKS: The development of water distribution infrastructure has also attracted investment of late, and is likely to continue doing so in the medium to long term, as the existing clean water supply and sanitation infrastructure struggle to keep up with rising domestic demand. Recent investments have involved both foreign and local companies, with Acciona in charge of building the seventh water treatment station at Ntoum for €50m and local SOGEA, a subsidiary of the French firm SOGEA-SATOM, responsible for building a third water pipeline connecting Ntoum to Libreville at a cost of €89m.

TRANSPORT: The transport sector also has a number of major infrastructure projects planned or under way, such as the 112.4-km Fougamou-Mouilla road (see Transport chapter). The major airports are also being renovated and, in some cases, expanded to receive international traffic. The Port-Gentil International Airport is being renovated for $60m, with its runway set to be extended from 1900 to 2600 metres by local construction company Colas Gabon. The Libreville and Franceville airports are similarly the focus of a number of works designed to increase operational capacity. An additional airport is also currently planned for construction at Andème, 65 km from the capital.

Several road projects are either in progress or planned – crucial improvements, given the heavy reliance on road transport. The goal of the government in the medium term is to have an additional 3600 km of paved road (currently, only 1055 km of the 9170 km of roads are paved). The priority at present is to improve a number of key domestic connections: those between Libreville and provincial capitals, as well as connections between the provincial capitals themselves. There is also a need to reinforce and develop connections with regional neighbours, in order to facilitate inter-regional trade.

Funded by the AfDB and the government, the Programme Routier comprises a number of road segments whose implementation is currently under way in two phases, corresponding to investments of roughly €280m and €295m, respectively. Construction contracts under this programme have been awarded to a diverse set of companies, from Chinese players like the Chinese Construction Company Corporation, China Overseas Engineering Corporation and Sinohydro to the local firm Santullo Sericom. They include, for example, Fougamou-Mouila (105 km) and MouilaNdendé (70 km) road segments, which integrate a key north-south axis connecting Cameroon, Gabon and the Republic of the Congo. Work is also under way between Ndendé and Tchibanga, the capital of the south-western province of Nyanga.

Once completed, construction on the aforementioned segments should connect the capital, Libreville, to the provincial capital of Tchibanga. To this end, work is also being carried out to renovate the Libreville-Bifoun road, which is at present the only way out of the capital towards the interior, ultimately connecting Libreville with the north-south axis. The local subsidiary of the Chinese firm Entraco is currently responsible for the road under contract with the Spanish company Ceddex.

PORT WORKS: Maritime transport is also a priority, especially since new economic projects geared towards export-oriented extractive industries are expected come on-line in the coming years. At the port of Owendo, for example, the construction of a fourth quay and extension of the main terminal are planned, costing $79.2 and $59.4m, respectively. Other major maritime infrastructure projects currently under consideration include a deepwater port at Mayumba, which is expected to require an investment of about $340m.

URBAN DEVELOPMENT: The development of major urban centres, and the capital in particular, has been a particular focus of the government in recent years. The overriding priority here has been addressing the housing shortage in urban areas, an issue linked to both rapid economic growth and regulatory red tape.

A number of projects have been oriented towards urban renovation as well. For instance, a major contract for the renovation of Port-Môle was awarded in June 2013 to China Harbour Engineering Company (CHEC) for CFA450m (€675,000), which will convert the old port area into a city centre combining leisure, commercial and working spaces. The project is part of a larger plan by the ANGT to renovate key parts of the city, such as the Boulevard de Mer and the Glass road, both of which stretch along Libreville’s estuary.

Some of these projects require displacing informal dwellings that have sprung up over the years as the city received waves of rural migrants. In order to house both the displaced and those in need, the government is pushing for the development of social housing in the country. Angondjé, an expanding urban area north of Libreville, is one of many spots selected for social housing. The government originally had planned to add 5000 houses in this neighbourhood by the end of 2013, but a number of delays have slowed down progress and led the ANGT to reduce its estimate to for the year to 1000 units.

Other housing projects slated for construction in the vicinity of Libreville have brought in foreign firms and are likely to continue doing so as the government promotes efforts to tackle the existing housing deficit. The Tunisia-based Groupe Kontinental Conseil et Ingénierie will be building 5000 houses 27 km from Libreville for €300m, while the Indian firm RPP Infra Projects is in charge of a 10,000-house construction project, for which it secured a loan of about €250m.

LAND PLANNING: While the ANGT has been in charge of designing and implementing an urban development plan for the capital, the General-Directorate for Land Planning has been responsible for developing a plan for other cities, three of which (Booué, Mayumba and Milongo) are currently the object of pilot projects that involves a series of different state ministries.

The government is also working on a National Land Management Master Plan, the purpose of which is to inform the development of national land planning policy and contribute to both the coordination of sector policies and monitoring of priority projects. Expected to be ready by the end of 2013, the plan will bring together all sector studies so far carried out, including the broader SNDI designed by the ANGT, synthesising them within a national perspective to facilitate the identification of priority projects.

LAND TITLE ACCESS: In 2013, the World Bank ranked Gabon 170th out of 195 economies on the ease of registering property, down 35 positions from 135th in the previous “Doing Business” report. By way of comparison, the regional average for sub-Saharan Africa was 123. The downgrade, explains the 2013 edition of the report, reflects a more difficult process for registering property in Gabon as a result of longer administrative delays at the land registry. Overall time for property registration has grown from 39 to 104 days between the publication of the two latest annual World Bank reports. The ease of dealing with construction permits also has declined, with Gabon ranked 110th in 2013, down 12 positions from 98 in 2012, though it remained above the regional average of 117 for sub-Saharan Africa. In this case, it was the cost (measured in terms of the percentage of income per capita) that rose, going from 74.3% to 79.3%.

Obtaining land titles for development has proven difficult in the past for individuals and small-scale builders, with some processes taking up 10 to 15 years. A new system, introduced in 2012 by the National Agency for Urban Planning, Topographical Works and Land Registry (Agence Nationale de l’Urbanisme des Travaux Topographiques et du Cadastre, ANUTTC), coordinated all ministries and institutions involved in the administrative process for land title attribution, with the purpose of reducing it from 10 years to 180 days and 134 to seven steps CONSTRUCTION MATERIALS: Cement was one of the few construction materials primarily acquired from local sources. However, in 2006, total deregulation of imports unleashed cheap cement from China on the only local cement producer Cimgabon, a 25:75 joint venture between the government and Germany’s HeidelbergCement through it’s African subsidiary Scancem International. Privatised in 2000, the firm operates a clinker plant in N’toum and two grinding plants in Franceville and Owendo. FOBERD-GABON, part of Cameroon-based Groupe FOKOU and Chinese company Sogex BTP are the primary importers that have reduced Cimgabon’s market share from some 50% in 2011 to around 35% in 2013.

In light of the new competition, Cimgabon is in discussions with the government to expand its production capacity in order to supply the entire market, while also improving its competitiveness. However, in order to go ahead, the project would require a level playing field versus imports. Local media has suggested that that if the project were completed, it would reduce the price of a bag of cement down to around CFA4500 (€6.86). In spite of the new capacity offered by imports and the potential expansion of Cimgabon’s facilities, Morocco’s Ciments d’Afrique announced in June 2013 its intention to invest €30m to build a new 500,000-tonne-per-year cement plant, which would also include the capacity to double production.

WORKFORCE: As the government moves forward with plans to drive development in a variety of sectors, construction companies are having trouble finding enough qualified employees. Contractors are required by law to have a workforce that is 90% Gabonese, although this has proven a challenge given the small size of the population – around 1.6m – and the lack of education. As Eduardo Cejuela Antero, director-general of Acciona Infraestucturas, told OBG, “It is very difficult to find a qualified workforce, especially because a lot of new public works are beginning. On the top of that, we must have 90% of Gabonese in the company – that’s the Gabonisation.”

OUTLOOK: As the government works to build the key infrastructure needed to power the development projects linked to its Emerging Gabon strategy, there will likely be a steady stream of construction work for companies in the next few years. If properly addressed, pressing issues such as reducing the housing deficit and making room for development in the country’s major urban centres are also likely contribute to a rise in activity in the construction sector.

In the short to medium term, the high cost of construction materials, limited transport infrastructure and delays on payments from the public sector will likely translate into a higher construction costs. In the long term, however, as Gabon begins to produce a wider range of building materials locally, improves transport infrastructure and the overall level of investment in the sector rises, the price of projects could come down. Ultimately, given the pressing needs for infrastructure development and housing, investment opportunities are likely to continue to emerge for local and foreign companies both small and large.