International Construction Regional Report: North Africa

Many North African economies are still recovering from the turbulence of the Arab Spring uprisings which saw revolutions last year in Tunisia, Egypt and Libya as well as unrest in Algeria – events which continue to change the face of the region.

Director of research company Global Construction Perspectives Graham Robinson told iC that the construction industry in Egypt – by far the largest economy in North Africa – remains on a fragile footing, and growth elsewhere in North Africa depends to a large extent on securing internal and regional stability.

Mr Robinson said, “We expect growth in Egypt and Libya to pick up from 2013/14 onwards, but growth in construction will be particularly poor as a result of continuing difficulties.” But there are some potential growth spots – Cairo, for instance, is growing at an annual rate of +2.6%, according to Mr Robinson, and is expected to be one of the world’s largest 27 mega cities by 2025.

Libya, meanwhile, holds the largest proven oil reserves in Africa, but saw revenues dive last year amid the revolution and ensuing civil war. And the country hasn’t made anything close to a full recovery yet since efforts to establish a viable long-term political structure are still on-going.

Nevertheless, the African Development Bank (AfDB) said the longer-term outlook in Libya was good, providing its new leaders can ensure a peaceful transition to a new economic and political system.

“The lifting of sanctions in Libya will boost construction activities in the nation, in particular the energy sector,” the AfDB said in a report. But it also warned, “Libya has also used up about 62% of its oil reserves and urgently needs to find alternative sources of income to rebuild its economy.”

In Egypt, meanwhile, the AfDB is currently co-financing three power generation projects with a cumulative lending of about US$ 1.2 billion. When completed, they will contribute about 36% of the country’s targeted generation capacity increase until 2017.

Investment

Indeed, while development banks are ploughing ahead with some projects in the region, international investors are also on the look-out for opportunities. China’s presence in North Africa is expanding rapidly, for instance, with the energy and constructions sectors dominating.

Mr Robinson said, “Traditionally, foreign direct investment has been made into the region by the larger European countries, but during the financial crisis, more investment has come from China and other emerging economies.”

In Algeria, construction contracts worth US$ 20 billion have been awarded to Chinese contractors in recent years, making the country the biggest market in Africa for Chinese construction companies, according to the African Development Bank (AfDB).

These contracts went largely into the building of low-cost government housing as well as building parts of the 1216 km East-West highway between Algeria’s borders with Morocco and Tunisia.

However, while Chinese involvement can be readily seen in North African sectors like energy and infrastructure development, the AfDB warned that it could come at a cost.

“North African industry has experienced the fallout associated with Chinese competitiveness in manufacturing within their domestic market and in third country markets. This has contributed to the underlying structural problem of unemployment in the region and raised fears in some quarters that greater Chinese involvement would ultimately harm the development aspirations of North Africa,” the AfDB said.

Contractors from other countries are also competing for business in North African markets, where oil exporters like Algeria face ever-growing pressure to improve their infrastructure, not least in the energy and transport sectors.

The Algerian government’s current five-year plan envisages spending of US$ 290 billion by 2014, mainly on the construction, public works and service sectors. In October, it awarded a
US$ 105 million contract to extend the metro network in the capital, Algiers, to Colas, a subsidiary of French contractor Bouygues.

In Morocco, meanwhile, Spanish contractor Acciona is to lead a consortium contracted to construct a new, 160 MW Concentrating Solar Power (CSP) complex in Ouarzazate – a
€ 500 million (US$ 641 million) contract awarded by the Moroccan Government’s Solar Energy Agency (Masen).

Equipment

Equipment manufacturers are also making the region a focus,
with many of the major international brands now producing machines specifically tailored for the Middle East and North Africa (MENA) region.

In November, for instance, Doosan launched the DL550 wheeled loader – a 5.4 m3 bucket capacity model that comes equipped with a 294 kW Tier 2-compliant engine as standard. Designed to meet a wide range of material-handling needs from loading and transporting granular material (such as sand and gravel) to industrial, mining and quarrying applications, the machine is robust and easily-serviceable.

But the DL550 also includes a new ZF transmission and three engine working modes – Eco, Normal and Power – to adapt the machine to different applications. Other on-board technology includes load-sensing hydraulics and a new in-cab instrument panel featuring detailed operating information.

Meanwhile, Trimble appointed a Sitech-branded dealer for machine control instruments in Tunisia this October. Sitech dealers sell both Trimble and Caterpillar machine control systems but will work with contractors and their fleets regardless of the machine brand. They also handle Trimble’s portfolio of Connected Site solutions — site positioning systems, construction asset management services, software and wireless and Internet-based site communications infrastructure.

Trimble said the Sitech dealership in Tunisia would serve heavy civil construction contractors involved in a range of earthmoving applications such as the construction of roads, highways, railways and airports as well as site prep for large commercial, industrial and residential projects.

Caterpillar also showcased a range of Sitech-enabled equipment at its Construction Days event in Antalya, Turkey, earlier this year, which saw over 1,000 of its customers and 26 dealers from the Africa, Middle East and CIS region gather to get to grips with what is on offer in their regions, and to provide feedback on demand in their markets.

Emmanuel Feront, Caterpillar sales manager Africa, global construction & infrastructure said the company was working hard to widen its customer base in the North Africa region.

“Algeria is a booming market, and we are seeing a lot of investment here,” Mr Feront said. “In general, we have a good local presence in Morocco, Algeria, Egypt and Tunusia as well.

“The Arab Spring has put a stop to a lot of investments in infrastructure in Egypt, Libya and Tunisia, but some are coming back to life. There is lots of potential in Tunisia, and we think there will be increased demand for earthmoving in these countries in the near future because of the need to rebuild.”

Challenges

However, Mr Feront also highlighted regulation as a barrier to faster progress in the region, and in Africa as a whole.
“It is more difficult to do business in Africa – it is very hard to move machines from one country to another and issues connected with border duties and wider financing are very complex. Some countries are more open than others, but you can’t have machines standing for three weeks in customs.”

While there is a lot of interest in North Africa from contractors and equipment manufacturers, the region’s construction markets face a number of hurdles that are constraining growth.

The fact that Morocco and Algeria are the only two large economies in the region that have maintained relative stability over the last twelve months presents obvious short-term challenges for the region’s construction industries. That is not to say that there are no prospects at all for countries like Egypt, Libya and Tunisia – but the search for stability continues.