A budget prioritising infrastructure investment, one of the world’s fastest-growing economies and strong demand from demographic growth are the main factors driving the Ghanaian construction industry. Public projects to build and improve roads, railways and social infrastructure are in the pipeline, in addition to the $5bn in UN-backed investment in affordable housing to address the country’s shortage. The sector’s growth has led to renewed calls for the establishment of an official body to regulate and promote construction business, particularly to support domestic companies and tackle malpractice.
Though the spell of double-digit growth seen between 2011 and 2012 at the height of Ghana’s oil boom is firmly in the past, sector momentum is nevertheless on the up. According to the Ghana Statistical Service, the construction sector contributed GHS19.4bn ($4.2bn) to rebased GDP in 2017, up from GHS15.2bn ($3.3bn) in 2016.
The sector’s importance to the economy has grown accordingly, accounting for 8.1% of total GDP in 2017, up from 7.7% in 2016. In the first three quarters of 2018 the construction sector was valued at GHS14.2bn ($3.1bn). Given the strong push for investment by the government, and the need for modern housing and commercial, retail and industrial property, industry players are upbeat about the outlook for the sector. “In terms of the economic cycle, things are due to pick up,” Hussein Fakhry, co-owner and managing director of Key Architectural Group, told OBG. “In terms of stability and resources, the economy is getting stronger and the infrastructure is improving.”
Ghana is enjoying a strong recovery after a slowdown in the middle of the decade. Rebased GDP growth stood at 5.4% in both the first two quarters of 2018, according to pan-African bank Ecobank, and the IMF expects that full-year growth for 2018 will reach a pace of 6.3%. The government is targeting a growth rate of 7.6% in 2019, which would make Ghana one of the world’s fastest-growing economies two years in a row. Meanwhile, Ecobank expects a robust growth profile and potential for long-term stability after a decade during which a boom was followed by significant cooling, attributable in part to the slump in global oil prices starting in mid-2014. Lower government debt and a reduced fiscal deficit, combined with inflation being brought under 10%, all bode well for the country’s outlook.
There have been some concerns about the end of a support deal with the IMF in April 2019, but the fact that the agreement is coming to an end can be seen as an indication of its success in encouraging fiscal consolidation and structural reform.
“The economy should be quite supportive to the construction industry,” Kwame Nyantekyi-Owusu, executive chairman of Inter-Afrique Holdings, a Ghana-based company involved in sectors such as real estate, construction and financial services, told OBG. “The government has the capability and discipline to deliver, and hopefully the end of the IMF deal will not lead to greater volatility.”
Nonetheless, there are risks. Ghana is expected to be affected by the escalated trade war between the US and China, partly because China is a major investor and trade partner, and partly due to the impact that it would likely have on global growth and appetite for investment in emerging markets.
Several government institutions are involved in the construction sector, including the Ministry of Transport, the Ministry of Roads and Highways, the Ministry for Sanitation and Water Resources, and the Ministry of Works and Housing. This allows each ministry to focus strongly on its own remit, although it occasionally leads to fragmentation in overall sector oversight.
The Ministry of Special Development Initiatives (MSDI) was established in February 2017 and is responsible for the development of infrastructure at the constituency level. The MSDI operates through the Infrastructure for Poverty Eradication Programme, a government initiative that aims to allocate $1m to each of Ghana’s 275 constituencies to meet infrastructure development needs. The ministry coordinates the work of its three development authorities, which are divided into the coastal region, the central region and the northern region.
Generally, the legislative and regulatory framework is regarded as well devised and clear. However, the implementation and enforcement of policies is not always as strong as it could be. Moreover, improvement is needed in the coordination between sector stakeholders in the public and private sectors.
In September 2018 Mavis Hawa Koomson, the minister of MSDI, signalled the government’s strong support for the creation of the Construction Industry Development Authority (CIDA) at the 10th annual conference of the Association of Building and Civil Engineering Contractors of Ghana (ABCECG). The CIDA would act as an overarching regulator and supporter of the construction industry.
The government would work with the ABCECG to enhance the competitiveness and profitability of the sector as a whole, and the CIDA would ensure better compliance to building regulations and standards. The authority is also expected to advise the government on the construction sector, as well as register contractors, consultants and other enterprises involved in the sector, such as materials providers.
The ABCECG sees the creation of an authority as essential to the transformation of the sector and to boosting the sector’s contribution to Ghana’s economic development. Prosper Yao Ledi, president of the ABCECG, told local media in October 2018 that a draft bill to establish the regulator was being carried out in cooperation with other sector stakeholders, including the Business Sector Advocacy Challenge Fund, a programme supported by international donors to boost business advocacy.
Additionally, Ledi stated that the authority would be able to help clamp down on one of the biggest challenges that the sector faces, namely delayed payments to contractors. In conjunction to its licensing and regulatory role, the CIDA would be tougher on delayed payments to contractors and ensure that debtors pay interest on the payments that take longer than the stipulated time.
Furthermore, the regulator could help ensure that no projects are started until funding had been obtained, and that it would help local businesses compete more strongly with international players. The establishment of the new regulator would also create a more level playing field, and an environment in which construction companies could grow stronger and compete at an international level.
The 2019 budget contains several projects that are set to boost the construction industry as the administration of President Nana Akufo-Addo looks to upgrade Ghana’s social and physical infrastructure. The budget statement and economic policy for 2019 was presented by Ken Ofori-Atta, the minister of finance, in November 2018 and outlines the government’s commitment to supporting the development of infrastructure.
The Ministry of Education has pledged to start work on the construction of 20 new technical and vocational education and training centres, and 10 new science, technology and maths centres, according to professional services company PwC in its “2019 Budget Highlights” report. The ministry also expects to upgrade 34 vocational training institutions and 50 schools classified as “collapsing”, and complete delayed building projects in the senior high school segment. In 2019 the education sector was allocated GHS12.9bn ($2.8bn). The 39% increase in spending on the previous budget is partly attributable to growing investment in infrastructure.
For the Ministry of Health, the budget allocates spending for the construction of one district hospital and five polyclinics in the Western Region, and 15 Community-based Health Planning and Services compounds countrywide, as well as for the upgrade of the Hohoe Municipal Hospital. Meanwhile, the Ministry of Food and Agriculture is set to build 30 new warehouses to increase storage capacity, and to establish cattle ranches in a number of locations across the country to reduce conflict between cattle herders and arable farmers. Five new rural technology facilities are also in the pipeline, under the aegis of the Ministry of Trade and Industry. As part of the government’s agriculture transformation programme, 100 new greenhouses are due to be constructed by the end of 2019 to bring the total number of greenhouses in Ghana to 175.
As expected, some of the biggest projects are in the transport sector, where a significant increase in budget allocation is set to lead to a wave of new contracts and the acceleration of existing developments. Some of the most significant initiatives for the Ministry of Roads and Highways in 2019 include the construction of new key roads totalling 1150 km. The ministry will also undertake routine maintenance of 42,600 km of trunk, urban, and feeder roads, while extending rehabilitation works to 515 km of roads, up 12% on 2018.
The government has engaged China’s hydropower engineering and construction company Sinohydro Corporation to construct many of the roads, bridges and interchanges under a $2bn agreement signed in July 2018. The deal will see the Chinese company build crucial infrastructure in exchange for revenue from a bauxite project under development in Ghana. The government will also continue to use public-private partnerships (PPPs) to bring the crucial Accra-Takoradi and Accra-Tema Motorways, and the Accra-Kumasi dualisation project to completion.
Overall, the government allocated GHS1.3bn ($280.9m) to the transport sector, up 142% from the GHS533m ($115.2m) allocated in 2018. According to PwC, the budgeted expenditure for the sector would ensure a more reliable and extensive road network, improved accessibility, job creation and the prospect of sustained economic growth.
Established in February 2017, the Ministry of Railways Development (MRD) has a budget of GHS544m ($117.6m) for 2019, up 17% on GHS636m ($137.4m) in 2018. Its key initiatives for 2019 include the complete rehabilitation of the 56-km narrow-gauge line from Kojokrom to Tarkwa in the south-west of the country via the Nsuta corridor, a mining and cocoa-growing region.
The ministry also aims to complete the construction of the Western Line, which will run from Manso, north of the port and oil city of Sekondi-Takoradi, to Kumasi, with a branch line from Awaso to Dunkwa, and launch the first phase of the 596-km line from Kumasi to Paga on the Burkina Faso border. Thanks to its location in the heart of the south of the country, Ghana’s second most-populous city and capital of the Ashanti region, Kumasi is a strategically important site and economic powerhouse, as well as a hub for national and international transport and logistics. The MRD also seeks to select a concessionaire for the construction of the rail link between the Tema Port – Ghana’s largest port – and Ougadougou, the capital of Burkina Faso. This north-south corridor is at the heart of Ghana’s goal of becoming a regional transportation and logistics centre. Currently, the country lacks a railway network linking it to the landlocked countries to the north, while neighbouring Côte d’Ivoire and Togo both have railways from their coastal ports to their northern borders, giving them a competitive advantage in international transport.
Another aim of the MRD is to complete feasibility studies in 2019 for a range of other projects that are expected to provide substantial opportunities for contractors, suppliers and service providers in the construction sector. These include the development of metro and light rail transit systems in Accra and Kumasi, and the Trans-ECOWAS rail line from Aflao on the Togolese border through Cape Coast to Elubo on the border with Côte d’Ivoire. The latter is part of a broader regional system linking members of ECOWAS, and could play a central role in supporting greater regional economic development and integration. The MRD also expects to complete a study on the redevelopment of the long-neglected Central Line from Kotoku in the Greater Accra Region to Huni Valley in the Western Region.
PwC expects most of the projects to be funded through the Sinohydro deal and PPP contracts, providing considerable scope for foreign and private contractors to participate in railway development.
Private sector demand, meanwhile, is also robust, driven by Ghana’s sustained economic and demographic growth. In 2010, the latest year for which official census statistics are available, the population was growing by 2.5% annually, more than double the global average of 1.2% as estimated by the World Bank in 2010. According to Demographic Dividend, an organisation backed by Johns Hopkins University and the Bill and Melinda Gates Foundation, 38.8% of the population was under 15 in mid-2016, signalling a youth bulge that will see millions of young Ghanaians looking for their own homes and forming new family units in the coming years. Income growth over the past decade has already seen the World Bank move Ghana to middle-income status, and the growing middle class is increasingly demanding better homes.
Furthermore, GDP per capita has grown from $1096 in 2009 to $1692 in 2017, according to the African Development Bank (AfDB).“The Ghanaian middle class’ capacity to invest is increasing,” Fakhry told OBG. “The future of Ghana and Africa is based on this middle class, and business should be oriented to it. For many, living in the city is an achievable aspiration. Urbanisation is on the rise, which will keep pressure on cities to expand.”
Ghana’s urban population has risen from 43.9% of the total in 2000 to 55.3% in 2017, according to the AfDB. Demand continues to rise more quickly than supply. A housing deficit of 1.5m units in 2015 is expected to rise to 1.9m in 2019, according to official figures. In 2018 the deficit was estimated at 1.7m. Ghana builds 35,000 to 40,000 housing units per year. While estimates suggest that this could rise to 90,000 by 2020, more than 100,000 units a year are needed to meet current demand. During the 2019 budget speech, the minister of finance stated that around 200,000 housing units of various types would commence over the medium term.
As in many other markets, emerging and developed, one of the biggest challenges has been that a large part of demand is from the lower- and lower-middle-income segment, which private sector developers have often shied away from due to low margins. This issue is particularly acute in Ghana, where the cost of construction is relatively high, thanks partly to the cost of imported construction materials. Furthermore, disposable incomes at the lower end of the market are still fairly meagre.
With these factors in mind, the development of more affordable housing has grown in importance on the government’s agenda in recent years. In 2005 the government of then-President John Agyekum Kufuor started work on devising affordable housing schemes for government employees. Since then, the scale of demand has increased momentum behind the drive for greater affordable housing.
In February 2018 President Akufo-Addo pledged to push forward the efforts of improving affordability and boost housing supply. In addition to abolishing a 5% value-added tax on housing sales, the government is also focusing on improving the environment for mortgage lending and private-sector investment in housing.
A major boost to these efforts came in September 2018, when the government signed a deal with the UN Office for Project Services (UNOPS) to construct 100,000 housing units through investment of up to $5bn. The agreement is seen as a major step towards the UN’s sustainable development goals, and the agency announced that it would help the government make more sustainable, affordable and environmentally sound housing available to its citizens while also providing jobs and boosting the local economy.
The 100,000 homes will have energy-efficient solar rooftops, and the construction will entail the use of local materials, equipment and expertise. As well as lowering costs, this should also help support the development of the Ghanaian construction sector and its domestic supply chains. The construction would also utilise modern technology and help the integration of technology into the local building industry. “Though conventional construction methods still dominate, new technologies are on the horizon,” Kwaku Asuama Yeboa Abebrese, chairman and managing director of local Taysec Construction, told OBG. “Precast and cellular concrete techniques, which are starting to come on-line, will be effective in addressing the housing shortfall. However, one has to be careful about the climate. Given the high temperatures and humidity, certain technologies might not work in Ghana as they do elsewhere.”
The government will identify and allocate land for the developments, and is also expected to help create an environment conducive to foreign direct investment in housing development, following the UNOPS Social Impact Investment Initiative. This aims to reduce risk and structure infrastructure investment to help attract private sector financing while ensuring commercial returns.
The construction industry’s growth has picked up over the past couple of years, in line with Ghana’s economic recovery, demonstrating the strong link between sector performance and overall economic confidence, and the government’s willingness to invest in infrastructure. With another year of robust GDP growth forecast for 2019, the outlook for construction is promising. The strong pipeline of government infrastructure projects under the 2019 budget will provide a wide range of opportunities for contractors. Given the long-term nature of some of the projects, momentum should be sustained into 2020 and beyond, provided that the global economic environment does not suffer severe shocks. The UNOPS housing programme should also be a boon for domestic companies in particular, which are also expected to benefit from a long-awaited regulatory and development body that can provide a framework for the implementation of standards and legislation.
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