African construction has long stood in the shadow of its Middle Eastern neighbours. But booms in tourism and population mean UK building expertise will get a warm welcome. Emily Wright goes exploring
The Middle East boom and bust has left UK construction firms bruised and badly shaken. To the firms and individuals affected - particularly those who worked in Dubai - memories of cancelled schemes, unpaid work and huge financial losses are still fresh in the mind. With the scars still so raw, the thought of going overseas again may feel like too much of a risk.
But fortune favours the brave and, looking beyond the Middle East, the view over the other half of MENA (Middle East and North Africa) is looking bright. There are plenty of fresh opportunities to tempt construction professionals - in North Africa, particularly Morocco and Egypt. And the work doesn’t stop there. For those looking a little further afield, South Africa is shaping up into a hotbed of building activity. According to UK firms like Turner & Townsend, which is currently operating in the region, business in the country post-World Cup is still booming. And these firms are desperately seeking new recruits to help with the growing volumes of work in project and facilities management, infrastructure, residential and commercial construction.
Here Building gives you a rundown of the need-to-know facts, figures and projects across north and south Africa. And to help you keep your wits about you when you get there, we also have asked a specialist lawyer to advise on how best to do successful, safe business in the continent.
North Africa - separated from sub-Saharan Africa by the desert itself - is made up of seven countries: Egypt, Algeria, Libya, Morocco, Sudan, Western Sahara and Tunisia.
GDP for the region is £374bn and the most significant countries economically are Egypt, Algeria and Morocco which together account for over 70% of GDP for North Africa, with Egypt accounting for over 30% of GDP for the region in 2010, at £120bn.
According to research by Global Construction Perspectives, the population of North Africa is expected to grow by 50% by 2050 - to 321 million. Egypt’s capital Cairo is expected to be one of the world’s largest 27 megacities by 2025. In the next 10 years, growth in GDP for Egypt is forecast to average 5%pa, while GDP growth in Morocco is expected to grow at an average of about 4%pa.
This is a region where the construction industry is growing fast. Egypt and Morocco will be among the world’s top 10 fastest growing construction markets from 2009 to 2020. The market in Egypt is currently worth £15.3bn and is estimated to grow to £28.6bn by 2020, with infrastructure and affordable housing the key areas for development.
This work is likely to become much more readily available now since a law was passed in Egypt in May this year regulating the use of PPP. This will allow the private sector to construct and operate public infrastructure for between five and 30 years. There are now 10 PPP projects at bidding stage in Egypt and over 20 projects in the pipeline. The public schools PPP programme alone will include over 2,000 schools in the country.
The construction market in Morocco is worth £10.2bn but by 2020 is expected to be closer to £19.3bn. There is an estimated shortfall of 610,000 homes in the country and out of 300,000 houses built during 2008 some 129,000 were government-funded social housing.
Also on the horizon is Plan Azur, a government-backed masterplan to increase the number of tourists visiting Morocco. This will consist of six new resorts, five on the Atlantic coast and one on the Mediterranean coast, at a cost of £3.8bn.
Some UK firms are already involved in this work in Morocco - and there are opportunities for others to get stuck in (see case study below).
Morocco’s plans for construction don’t stop there. The government aims to build 15 new cities across the country as part of the New Cities Programme and wants infrastructure to match, with £3.3bn of road upgrades and the construction of a new £1.6bn high speed rail line by 2015. Two nuclear energy plants are planned to open in Morocco during 2020 to 2030 and an estimated £2bn is expected to be spent on wind and solar thermal energy projects by 2020. So whatever your specialism, North Africa may have a job for you.
(Statistics are provided by Global Construction Perspectives.)
Forging a career in Morocco
James Bailey, 27, is chief executive of Prince’s Club Holdings
He left London to become a property developer in Agadir in Morocco in 2006. He is currently working on developing The Prince’s Club Agadir, a sporting, leisure and residential development over 254 hectares.
Do you think that North Africa, and Morocco in particular, will live up to expectations that it will become a booming market for property and construction?
I think that people have been seeing a buoyant property market in Morocco for the last 10 years. Places like Marrakesh and Casablanca have seen extraordinary rises in both residential and commercial property prices. The last two years have seen a significant correction in the prices of second homes, bringing average home prices more into line with underlying values.
On the other extreme, the low-income social housing development market provides a solid investment proposition as government legislation means that the ever-increasing middle class are provided credit to buy and the banks are forced to lend to the developers.
Do you think the problems in Dubai - and, more recently, Qatar and Abu Dhabi - have had a knock-on effect on the North African market?
The problems experienced in the Middle East have clearly had an impact on buyer confidence and made the central banks more wary about providing cheap and easy credit. That being said, the level of speculation experienced in most North African countries has been far more limited than in Dubai. There is underlying value in investing in places like Casablanca and Marrakesh where the product is destined for the growing middle classes and newly-created wealth in these countries.
Which are the fastest growing sectors in this part of the world?
The main growth stories from the North African countries revolve around the burgeoning middle classes. Morocco had GDP growth of over 5% last year. The wealthy are extremely wealthy, but now the middle class office workers have serious purchasing power as well. This has meant that retail firms, commercial property and internal tourism are high-growth areas.
Over the last year the Moroccan tourism figures have been extremely robust despite the slowdown in Europe. North African countries are seen as a cheaper alternative for holiday destinations. This is a trend seen throughout North Africa.
How easy is it for UK firms and individuals to break into this market?
Unfortunately, most UK firms are not very good at working in non-English speaking countries. So while certain North African countries have been huge successes for UK companies, Morocco has so far been a disappointing country for UK investment.
But the attitude to working with UK firms and individuals is very open. Most North African countries are looking for foreign investment.
How to do business in Africa
There are certainly exciting opportunities for construction professionals in Africa, but working in this part of the world can raise some questions about how best to do business safely and securely.
Kate Orviss, partner in infrastructure law firm Pinsent Masons, looks at some issues to consider if you are thinking of working in Africa, and some potential pitfalls to be aware of.
What legal issues should you consider if you are planning to work in Africa?
- Political risk/covenant. What commitment has been shown to the project in question? What is the history of procurement in the jurisdiction? Is there any form of support from institutions such as the World Bank? What is the strength of the covenant of the procuring authority?
- Legal framework. How is the project being procured? How is the procuring authority authorised to procure the scheme? How can you ensure that you can enforce any terms agreed? What are the mechanics for ensuring payment? Do you need to set up a legal entity in the jurisdiction in question? If so, how do you do that and what are the implications?
- Exchange rate and dividend expatriation risk. What currency is the project denominated in and what is the experience, pricing and liquidity of the banks in question? How can exchange rate risk be managed? Can you get any dividends out if the project is successful? If so, how and what are the tax implications?
- Licensing/environmental risk. Do you know what licences are required and how you go about getting them? How long does it take? What is the legal framework? What are your liabilities with respect to environmental matters?
- Health and safety framework and general working practices. Standards in the country may not meet the standards you require. How will you go about managing this to ensure that all workers and subcontractors adhere to the standards you expect?
What can companies do to mitigate these risks?
- Work with local partners who are familiar with local customs and practices. They will be able to offer you guidance about opportunities and the culture of the procuring authority.
- Work with experienced legal advisers, using both international and local counsel as required.
- Ensure you fully understand the risk profile for the deal as a whole before you commit. Do not assume that anything will operate on the same basis as you are used to elsewhere. Check with local counsel about dispute resolution procedures, governing law, property and licensing and environmental issues to ensure that you are fully aware of the risks. Make sure you are fully aware of the tax treatment of dividends and the ability to expatriate them, and whether and to what extent there are local issues concerning the ownership of share capital and employment of foreign nationals.
- Make sure you understand the rules of the procurement and what is expected of you at every stage - in particular whether bid bonds are required and how they can be called.
Working in South Africa
Mark Walmsley is director of Turner & Townsend, South Africa
I spent two years with Turner & Townsend, leading their UK PPP/private finance teams, but then as part of the company’s plan to grow the business internationally I was asked if I would like to transfer to South Africa to grow the PPP business in Africa.
On New Year’s Eve with my partner and our six-week-old son we flew out from Heathrow and arrived at Johannesburg airport on New Year’s Day to start new jobs and make some new friends.
Work in Africa - particularly South Africa - is booming. There was a lot of concern following the 2010 World Cup that the workload would reduce, but Turner & Townsend’s Africa business has never been so busy. In fact, we are looking to transfer staff from the UK to South Africa to help us deliver the secured and growing workload.
We are also looking for new staff to come over from the UK - particularly people with project and facilities management experience and knowledge of infrastructure, residential and commercial construction.
The advantage of working in South Africa is the different ways to enjoy life. We have the advantage of some of the world’s greatest game parks at the Kruger and near the Botswana border. The Drakensberg mountains, Cape Town offering amazing beaches for surfing and swimming, wine farms and tourist attractions like Table Mountain. The adjoining sub-Saharan countries such as Mozambique and Botswana also offer great holiday destinations.
Together with Nigeria, South Africa represents over 50% of sub-Saharan Africa’s regional GDP. South Africa is the biggest economy in Africa with a GDP of £176bn in 2009.
The construction market in South Africa is worth an estimated £15.9bn. Infrastructure is the fastest growing sector and accounted for 54% of construction output in 2008.
Key areas for construction include energy, telecommunications, transport, water and waste water.
Eskom, the South African state-owned utility company has estimated that electricity generation capacity will need to double by 2025 to 80,000MW, at an expected cost of £111.6bn.
A total of £29.4bn investment is needed for a new generation of power stations in South Africa, the first of which will come on line by 2013. Nuclear energy is expected to make up 50% of the additional capacity required in South Africa with the first reactors expected to start generating power by 2016 and further nuclear plants expected by 2025.
A 721km high-speed rail line, linking Johannesburg and Durban, aimed at relieving congestion on the N3 highway, is under consideration, while a high-speed rail link between Johannesburg and Cape Town is also being considered.
In the sub-Saharan region more generally, the population is expected to grow by 100% to 1.75 billion by 2050, and GDP in the region stood at £639bn in 2009. In terms of the construction market, fast urbanisation is predicted to drive the expansion of key sub-Saharan cities including Lagos in Nigeria, Dar es Salaam in Tanzania, Uganda’s Kampala and Ethiopia’s Addis Ababa. This would see a significant rise in construction opportunities over the next decade, particularly in infrastructure.
(Statistics are provided by Global Construction Perspectives.)