EVERYTHING IS AWESOME

Zambia 2014 | CONSTRUCTION & REAL ESTATE | REVIEW: CONSTRUCTION

With a current housing deficit and pressing development needs, Zambia's thriving construction sector is positive news.

Charles Mushota is bullish about the prospects of the construction sector in Zambia, and he has the data to back it up. Speaking to TBY in 2014, Mushota, Executive Director of the National Council for Construction (NCC), explained that the sector had experienced growth rates of around 17.5% for the last few years, even hitting 23% in 2013. “That translates to about a 1.5%-1.6% contribution to the real GDP of the overall economy, because when you are looking at the construction sector, you are looking at roads, commercial and housing development, and also construction that is related to mining activity. In the end, you see gigantic growth in the sector." Other construction-related industries share his enthusiasm. Concrete producers anticipate growth rates of 10% through 2018, and steel plants expect to add thousands of jobs as well over the next few years.

THE INDUSTRY

The construction industry is one of the fastest growing sectors in the country. The sector was also quick to shrug off the effects of the global financial crisis. Construction sector jobs are also high-value compared to other industries. According to 2008 data published by the LO/FTF Council, construction sector jobs were 87,000, and yet contributed 21.1% of the GDP during that year. The agricultural sector made a similar contribution to the GDP of 21% in 2008, except employment was over 3.8 million. Put another way, construction's per-worker contribution to the GDP is exponentially higher than most other sectors.

SECTORS

Zambia's construction companies' activities can be broken down into four basic classifications, according to the International Growth Center. Heavy construction includes civil projects, infrastructure, roads, sewers, and railways. Commercial buildings make up the second niche within the country's construction sector; and these works include public schools, offices, retail, hotels and other public buildings.

Residential buildings make up the third category, such as houses flats and villas. In this category, international firms are getting in on the action, such as the American company, Enviro Board, which announced plans in 2014 to invest in Zambia and the region. The Enviro Board converts specific kinds of agricultural waste materials, such as wheat straw, rice straw, and elephant grass into concrete-like wall panels for construction of homes, as well as commercial structures, warehouses, hospitals, and schools. The entry of this technology into the Zambian market means a significantly lower cost of construction than pre-existing conventional building materials afforded. By opting for Enviro Board, Zambians will be able to construct an additional half-million homes over the next decade, which will reduce the current housing deficit. Enviro Board factories will also create 3,200 jobs and over 10,000 indirect jobs in areas such as construction and transportation, which will play a role in increasing employment levels in the country.

The fourth important part of the sector is energy construction, which includes power stations, renewable energy, and related physical infrastructure. Of these, the Kariba Dam is the most pressing project, with $280 million pledged for its rehabilitation. The EU will provide $100 million, the World Bank and African Development Bank have both pledged $75 million, and Sweden has pledged the remaining $30 million. Other dam and power stations for the Batoka Gorge started in 2014, and the estimated cost for the 1,600 MW projects is between $2.5 billion and $3 billion.

CEMENT

Four major operators comprise the majority of cement operations in Zambia: Dangote Cement, Lafarge, Oriental Quarries, and Zambezi Portland Cement (ZPC). Dangote Cement is a fully integrated cement company and has projects and operations in Nigeria and 14 other African countries. The Dangote factory in Ndola—completed in 2014, and currently embroiled in a legal dispute with Zambia's Labor Ministry—represents a major increase in the country's cement capacity, as well as enhanced international business ties. Built at a cost of $400 million, the plant has a 1.5 million tons per annum (mtpa) capacity and is expected to peak at 2.5 mtpa. Dangote is also building a 30 MW power plant that will operate in conjunction with the plant. According to company sources, at capacity the plant will employ around 700 workers, as well as adding around 800 indirect jobs. For example, the plant will source its limestone from the Ndola mines. ZPC has a daily production capacity of 1,400 million tons and is currently producing at over 95% of its production capacity. In early 2013, ZPC announced that it would reduce its exports by 50% to meet increased demand for their product on the local market.

Lafarge Zambia is also set for a bumper year. In August the company announced a 66% profit increase for the first half of 2014. Despite stiffening competition both at home and abroad, overall cement production rose by 13% to 600,000 tons. Lafarge Cement Zambia also announced plans to double its cement production capacity at its two local plants to meet the growing demand. The plants, one in Chilanga, and the other in Ndola, have a combined cement production capacity of 517,000 mtpa according to Cemnet. The Chilanga plant is located near Lusaka and serves the capital region's market, while Ndola serves the Copperbelt region. In 2013, the domestic market for cement grew by 17%, driven by continued increases in government infrastructure projects, mining expansion, and individual home building projects.

Lafarge is feeling the pressure from competition however. Its market share has fallen from a high of 80% in 2011, down to 68% in 1Q2014 at a production capacity of 1.23 mtpa. In 2012, 24% of Lafarge's total production was exported, which, along with 32,000 tons of clinker exports, accounted for 27% of total revenue. These rates were up 8.81% from 2011, representing ah 87% capacity utilization. Looking towards the future, cement companies in Zambia are optimistic. Lafarge management in Zambia estimate that demand for cement in the country will double over the next 10 years and the average pace of growth will be around 10% per year through 2018.

STEEL

Construction sector demand is an indicator of current trends, and steel is no exception. Over the last few years, domestic steel production has been ramping up, while international firms are pivoting towards the Zambian market. Trade Kings Zambia, a holding company with interests throughout the region, is in the process of boosting its output and plans to create 6,000 new local jobs by 2015. Most of this will take place at the Kafue Steel Plant, which employed only 1,200 in 2012. The plant has an installed capacity to produce 200,000 tons of steel per annum, and sources its and sources its raw materials from Sanje Hill, about 30 kilometers from the town. Universal Mining and Chemical Industries Limited, also owned by Trade Kings, invested in a 200,000 ton per annum integrated iron and steel works at Kafue, which is helping to reduce the country's reliance on imports. The Sanje Hill iron-ore project, which came online in 2013, was part of an investment nearing $200 million that included mining and other infrastructure developments.