The impact of Covid-19 on construction in Sub-Saharan Africa

12 May 2020 (Last Updated May 12th, 2020 10:20)
The impact of Covid-19 on construction in Sub-Saharan Africa

Inflation, spending cuts, widening fiscal slippages, and project suspensions are all impediments to the expansion in construction output in Sub-Saharan Africa (SSA), and the Covid-19 outbreak is exacerbating these problems. However, there are some promising sectors in construction that could present opportunities for investors after the pandemic is over.

SSA arguably responded to the Covid-19 outbreak more quickly and decisively when compared with many countries in the world. In February, when the outbreak was spreading, health ministers of the 15-member Economic Community of West African States (ECOWAS) met in Mali to develop a regional preparedness plan and boost cross-border collaboration to promote rapid diagnosis and containment. The African Union’s Centers for Disease Control and Prevention (Africa CDC) is taking a leading role in the response of the virus outbreak. African governments learnt their lesson well with Ebola, so in cooperation with communities and international actors, they are taking steps now to limit the damage. Assuming African governments are able to prevent outbreaks and are protected by demographic or climatic factors, the road to recovery could be faster than anticipated. The financial assistance from multilateral organisations and official bilateral creditors, including provisional debt relief, could also lessen the impact of the pandemic and give some fiscal space for governments in the region to pursue infrastructure development. The African Continental Free Trade Area (AfCFTA) will effectively kick in July 2020 (assuming no delay for that date as a result of the outbreak and borders restrictions are eased), which could provide a boost to deal activity across the region.

Nigeria’s economy, however, has been badly affected, and had already been suffering economic challenges since late last year. The oil price shock has adversely hit the country with the government possessing very limited buffers to handle the shock. GlobalData expects the economy to dip into recession in 2020 as economic activity worsens from a full lockdown in the country’s capital (Abuja) and finance centre (Lagos), which is set to last for at least four weeks. In addition, the economy will suffer from sharp spending cuts as the government moves to offset the impact of the collapse in oil prices, which will curtail growth in the construction sector. The fiscal situation will be challenging to the extent that some states would not generate enough revenues to cover their current spending. In South Africa, the negative impact of the outbreak will persist as the industry continues to be hit hard by the impact of high national debt, labour shortages, and little infrastructure spending amid a depressed economy. Construction industry could be further affected as all construction works have been put on hold during the lockdown, which ended on 1 May. This will cause a cash flow crunch and will further depress the sector.

The pandemic is expected to widen fiscal deficits across the region, particularly in commodity-exporting countries and countries dependent on tourism revenues. While the region embraces economic and fiscal challenges, this will likely prompt shifts in government policies, which will open opportunities for investors despite a slow recovery overall. GlobalData expects there to be some sectors that will receive investor attention even long after the pandemic. Healthcare infrastructure is the most obvious. Many African countries currently have lockdowns in place knowing that their under-resourced healthcare systems cannot deal with large-scale outbreaks. Healthcare expenditure in SSA has been modest (5% of GDP) compared with a global average that is almost double that. Ghana’s president Nana Akufo-Addo addressed the nation recently announcing plans to construct more than 90 hospitals, saying that the Covid-19 pandemic highlighted flaws in the system resulting from years of under investment in the sector. The president detailed his plans that 88 district hospitals, six regional hospitals and three infectious disease centres will be built in coastal, central and northern Ghana. There are around nine hospitals for every 10,000 Ghanaians according to the World Health Organisation (WHO).

Local manufacturing is another promising sector given the disruption to global supply chains and the impact of depreciating currencies on import costs, re-emphasising to the importance of building domestic capacity, which will drive up industrial construction. Meanwhile, the Covid-19 outbreak has also revealed the importance of investment in communications infrastructure, already a sector seeing rapid growth in SSA.