Côte d'Ivoire's public works and transport projects bring new opportunities

While high nominal growth in some years was partially a result of inflation, real sector growth also ran in the double digits between 2013 and 2015, averaging 23.9% across the period and standing at 28.3% in 2015, according to the Ministry of Economy and Finances. In current prices, the construction sector’s value-added was equal to 5.9% of GDP in 2016, according to the BCEAO, up from 1.7% in 2010. Côte d’Ivoire’s construction sector has witnessed robust activity since the country’s political stabilisation in 2011, driven by strong overall economic growth, and heavy public and private investment. Plans for major infrastructure development in coming years – in particular for the transport sector – as well as efforts to reinvigorate a stalled government initiative to boost the supply of public housing are attracting substantial foreign investment and should help to underpin continued growth in the medium term. So, too, should increased domestic availability of construction materials, as local cement production capacity expands following several years in which it struggled to keep up with demand.

Sector Growth

The construction and public works sector recorded strong growth after political stability returned in 2011 following years of conflict. Nominal annual sector growth in 2012 hit 87.3%, according to figures from the Central Bank of West African States (Banque Centrale des Etats de l’Afrique de l’Ouest, BCEAO), and has remained in the double digits ever since. Growth was 26.7% in 2016, which brought sector GDP to CFA1.3trn (€1.9bn).

Côte d’Ivoire ranked 152nd out of 190 countries in the category of dealing with construction permits of the World Bank’s 2018 doing business index. This is a major improvement on 182nd the year before.

The industry is set to grow further, receiving a considerable boost from activity outlined in the 2016-20 National Development Plan (Plan National de Développement, PND), which puts a large emphasis on infrastructure building. Such works will receive 31% of planned investment under the initiative, equating to CFA9trn (€13.5bn). “While 2016 did not see much activity in terms of tenders, 2017 saw the start of several projects across the country,” Kinapara Coulibaly, CEO of the National Office of Technical Studies and Development, told OBG. “We expect this trend to continue through 2018.”

According to the Public Tender Directorate, the value of tenders awarded directly via discretionary contracts – not publicly advertised – increased from 5.9% of the total in June 2016 to 9.8% in June 2017, but represented 27.2% and 16.3% of all projects, respectively. Construction projects, meanwhile, accounted for over 70% of the total tender value. Furthermore, contracts provided to small and medium-sized enterprises (SMEs) accounted for 19.6% of total value, against 14.7% in 2016.

However, the sector got off to a more challenging start in 2017 than other years since 2011. Factors underlying this included a drop in the price of cocoa – Côte d’Ivoire’s main export commodity – on international markets, and a military revolt in January 2017 that brought concerns about political risk back to the surface, somewhat shaking investor confidence across all sectors. With government revenue negatively effected by the drop in cocoa prices, authorities issued CFA1.14trn (€1.7bn) worth of eurobonds in June 2017 to continue development under the PND, mainly in the form of infrastructure.

Business Environment

Côte d’Ivoire ranked 152nd out of 190 countries in the category of dealing with construction permits of the World Bank’s 2018 doing business index. This is a major improvement on 182nd the year before. According to the report, building a warehouse in Côte d’Ivoire would require 21 permits, compared to a sub-Saharan Africa average of 14.8 and an OECD high-income country average of 12.5. The process would also take an average of 162 days – down substantially on the 347 days recorded in the 2017 report, and more in line with 147.5 days and 154.6 days in the two comparative groups, respectively.

While Côte d’Ivoire has made great strides in shortening the permit process in 2017, obtaining the needed approvals can still be slow moving for developers. “There are specific deadlines that are meant to be adhered to by the administration, but which are often times not respected in practice,” Kazem El Khalil, country manager of Lebanese construction company and developer SEG, told OBG.

Furthermore, the construction permitting process costs around 5.4% of a warehouse’s value, compared to 9.9% in sub-Saharan Africa and 1.6% in developed countries, according to the World Bank. Côte d’Ivoire also performs relatively well in another construction and real estate-related category, registering property, in which it was ranked 113th in 2018, unmoved from the 2017 report. Indicators under this category include the number of procedures required, of which Côte d’Ivoire has six; how long the process takes, measured at 30 days; and the cost, approximately 7.4% of a property’s value. The cost and number of procedures are in the line with the rest of sub-Saharan Africa, but the 30-day timeline is significantly below the regional average of 59.3 days.

The authorities have undertaken a number of initiatives to improve the business environment in the sector, and on the issue of dealing with permits in particular. Prominent among these was the launch in 2016 of a one-stop shop for construction permits, known as a guichet unique du permis de construire. Applications through these facilities are meant to be dealt with within 21 days, compared to an average of 87 days previously, according to figures cited in the local press. This was followed in January 2017 by a move to make information on permits available via the Ministry of Construction’s public website.

Local Pressures

Among challenges facing firms in the sector are frequent payment delays, in particular by the government to SMEs on public works projects, which reduces their liquidity and leads them to take out loans to pay suppliers. Local construction companies also face high costs for some raw materials, most of which are imported. However, domestic cement production is expanding rapidly in order to address a recent shortfall (see analysis).

To improve liquidity and allow companies to have more cash to better execute projects, Williams Bella, partner at real estate services and management firm Alleb Group, suggests introducing a law allowing developers to reclaim value-added tax (VAT) on their expenses. “Developers and investors are, in specific cases, exempted from VAT in many countries like Morocco, Mauritius, France and Belgium. Considering that housing is a national priority, this should also be the case in Côte d’Ivoire. Failure to do so adds a lot to costs,” he told OBG.

Local Content

Badou Yao Kouadio, director-general at the Entreprise Nationale de Bâtiments et Travaux Publics, said that local content rules could also help to develop the construction sector, which is dominated by larger foreign contractors when it comes to major projects. “The state should become involved with local firms to help them develop and become national champions, as has occurred in Morocco,” he told OBG. “Revising the tender process and reserving a percentage of projects for local companies would be a step forward in this regard.”

However, for those companies already in a strong financial position, decreasing interest rates can be taken advantage of to expand and develop parts of their operations. “For developers with a certain level of financial stability, banks have lowered interest rates from 12-13% back in 2011 to 7-8% today,” Abdallah El Khalil, chairman and CEO of Société Ivoirienne de Promotion Immobilière, told OBG. “The main driver behind this is the strong demand for housing, seen across all segments, as well as the progressive creation of a middle class able to afford new homes of a certain standard.” If interest rates continue their downward trend, construction firms as well as end-users could increasingly turn to bank loans over savings or other forms of financing in the coming years (see Real Estate overview).

Boosting Quality

While local companies can face finance challenges, the quality of some of their work has also come under criticism. This is particularly the case in the road construction segment, with several major newly built sections of the network having rapidly degraded in recent years, leading to a public outcry. In an effort to improve the quality of public sector construction works, Amédée Koffi Kouakou, the minister of infrastructure, announced in April 2017 that firms that deliver work not up to par will be barred from receiving public tenders for a period of five years. The move also applies to managers of poorly executed projects.

However, Mariam Mahama, commercial director at property agency and developer Kalimba Immo, told OBG that despite such instances, high-quality contracting work is on offer, provided clients are willing to pay for it. “There are a lot of poorly built projects going up, as clients often restrict the budget, so the contractor cannot maintain high standards. However, if a client wants something built well and provides an adequate budget, there are companies capable of doing good work relatively cheaply, as labour costs are very low,” she told OBG.

Sector Opportunities

Public and private investment in a number of sectors, particularly national infrastructure, is set to continue the drive of strong construction growth in coming years. Prominent among the areas to watch is transport infrastructure. Côte d’Ivoire’s 2016-20 PND allocates CFA7.12trn (€10.7bn) to the sector – some of which is to come from private investors through public-private partnerships (PPPs) – including CFA2.61trn (€3.9bn) to build new roads and pave some existing dirt roads. The road programme includes the construction or extension of several critical motorways to better link cities around the country, as well as the building of two new bridges across the Ebrié lagoon in Abidjan, which already has three.

Other major transport-related projects in the pipeline include the construction of new container terminals at the Port Autonome d’Abidjan and the Port Autonome de San Pedro; a new dry port in the northern town of Ferkessédougou; and the development of a metro system in Abidjan, work on which broke ground in November 2017, according to local media reports (see Transport chapter).

Energy is another sector set to deliver large-scale projects in the near future. In April 2017 Reuters reported that a consortium led by French oil and gas major Total would start work on the construction of a liquefied natural gas terminal in mid-2017 at a cost of €120m, citing an official from Azerbaijan’s SOCAR, a member of the consortium.

Côte d’Ivoire’s hosting of the 2021 Cup of African Nations (CAN) football tournament is also spurring activity in the construction sector. Work on a 60,000-seat stadium being built for the competition in Anyama-Ebimpé, slightly to the north of Abidjan, began in December 2016 and is due to be completed by autumn 2019. Two more stadia are due to be built in preparation for the event, at San Pedro and Korhogo, while existing sporting venues at Yamoussoukro and Bouaké are to be renovated.

Residential & Industrial Plots

Housing is yet another growing area of construction activity. In 2010 the government announced plans for a major social housing initiative, offering a variety of incentives for developers to take part. The programme ran into a number of funding-related obstacles and was slow to take off, however, a number of major projects – including some backed by large foreign developers – are now either under way or due to begin shortly (see Real Estate analysis).

It is not just social housing in demand though, as mid-range and high-end offerings continue to come onto the market. Some developers even have their sights set beyond in-country buyers. “Demand for housing has been growing exponentially in recent years,” Abdallah El Khalil told OBG. “In that regard, the Ivorian diaspora offers great potential, as they have higher purchasing power than those in-country and often hope to return at a later date.”

A further pocket of opportunity relates to a government initiative to develop industrial zones in the country. The authorities launched rehabilitation works at the Yopougon industrial zone in Abidjan in January 2016, with the aim of completing them by April of the following year. While the project initially faced some delays, the restoration project was completed in January 2018.

The government is also developing 62 ha of parcels at an industrial zone at the PK24 marker of the country’s northern motorway, on the outskirts of Abidjan. Work on the project began in June 2015 and was 92% complete in January 2018, with 65 businesses already moved in. The programme represents the first stage of a total planned development of 940 ha. China Harbour Engineering Company is developing a further 200 ha at the site under a PPP agreement. Once the development of the first 62 ha of parcels at the PK24 zone are complete, the government also plans to upgrade the Koumassi and Vridi industrial zones, which are located in the greater-Abidjan area, as well.

Cement Materials

Côte d’Ivoire is among the best-developed production bases for construction materials in the region, and exports a number of key building products. The building boom experienced since 2011 has led to a shortage of cement for construction projects, pushing up prices and the amount of import tonnage. While gate prices have remained more or less steady, the inability of domestic supply to keep pace with demand has driven up prices charged by local cement distributors.

As of mid-2017, the price of cement was around CFA80,000 (€120) per 50-kg bag, although this can rise to around CFA90,000 (€135) per bag during the peak season. However, such pressures are set to abate in the near future, as major capacity expansions across the industry will lead to significant supply increases (see analysis).

Moroccan players have become increasingly active in the industry in recent years. Well-known names include Lafarge Holcim Maroc Afrique – a joint venture between Moroccan holding group Société Nationale d’Investissement and French construction materials major Lafarge Holcim – and Ciment de l’Afrique, which was founded in 2011 and is owned by Addoha, one of Morocco’s largest real estate developers. Addoha is an active participant in the government’s social housing initiative.

Two major Turkish firms have also begun investing in the construction materials sector, namely Limak Afrika, part of Limak Cement Group, and INCI Beton. The latter built a concrete plant in Morocco in 2016 and seeks to enter the cement business.

Other Inputs

The steel business is attracting growing investment as well. Côte d’Ivoire had eight steel producers in 2017, up from just three at the start of the decade. The largest of these is Société des Tubes d’Acier et d’Aluminium de Côte d’ Ivoire, which operates 170,000 tonnes per annum (tpa) of production capacity. Actual output was around 150,000 tpa in 2016, and the company exports throughout West and Central Africa. The group’s main shareholder is industrial holding firm Eurofind. Its sister firm, Acieries de Côte d’Ivoire, produces concrete and rebar. Another key producer of construction inputs is Société Multinationale du Bitumes, the only local bitumen manufacturer. The firm supplies the local market and exports regionally.

While demand for cement is currently stronger than supply, other construction materials segments are facing a number of headwinds. Industry players say that market rivalry as a whole is high, as a result of the large number of operators in areas such as steel and concrete, as well as competition from imported products, giving rise to tight margins. Furthermore, the poor performance of the cocoa harvest and an army revolt near San Pedro in January 2017 that brought renewed concerns about political stability have led to reduced demand for materials at a time when the cost of some inputs is rising. However, cement prices for their part look set to come under downward pressure in coming years, as national supply expands dramatically.

Outlook

Construction growth may see something of a slowdown in comparison to the high activity rates of recent years, as an indirect result of lower government revenue from cocoa sales and rising concerns around political risk as the presidential election in 2020 approaches. Moreover, in a direct hit to the construction sector, the trend of rising land prices has contributed to a slowdown in the number of real estate projects starting up (see Real Estate overview). In the October 2017 version of its World Economic Outlook database, the IMF predicted Côte d’Ivoire would record real GDP growth of 7.63% for 2017 as a whole, which – although strong – would be the lowest rate of expansion since 2012, which saw growth of 10.1%. Nonetheless, expected strong economic development, continuing public investment in infrastructure and social housing, projects involving greater private sector roles and the approach of the CAN 2021 tournament should all help to underpin healthy activity in coming years.