Higher levels of infrastructure investment in the coming months should help Ghana’s construction industry rally after a slow start to 2016, although rising costs risk squeezing profit margins.
The industry grew by just 0.3% year-on-year (y-o-y) in the first quarter of the 2016, well below the annualised GDP increase of 4.9%, and by just 0.1% on the previous quarter, according to data released by the Ghana Statistical Service in late June.
By contrast, Ghana’s construction sector expanded by 6.2% y-o-y in 2015, with growth easing in the fourth quarter.
Rising input costs
With a number of public works projects currently in the pipeline – ranging from housing developments to port upgrades – Ghana is likely to see an uptick in spending on construction projects in the coming months. However, increased costs and limited supplies are proving to be increasing challenges for contractors.
According to Ebenezer Denzel-Amanor, business development lead at Around the Clock Contractors, a Ghana-based engineering and construction firm, the price of raw materials used in construction, such as cement and water are rising, along with an increase in electricity tariffs and labour costs.
“Quality raw materials for construction are becoming increasingly difficult to obtain. To ensure a reliable supply, a proper value chain must be put in place,” Denzel-Amanor told OBG.
In late December Ghana saw its first major price hike in electricity and water tariffs since 2013. Electricity prices increased 59.2% while water increased by between 69% and 89% depending on usage, according to Ghana’s Public Utilities Regulatory Commission; media reports indicate that prices have in some cases risen even higher.
Meanwhile, Ghana’s cement producers increased the price of cement by 9.6% last year, resulting in a 50-kg bag costing GHS29.3 ($7.3), citing the depreciating cedi as the primary factor for the price change, according to press reports.
Those prices may come under further pressure, following the government’s move to impose a ceiling on annual cement imports. Both local cement producers and the Cement Manufacturers Association of Ghana have called on the government to address what they consider unfair competition from imports.
Imports currently amount to approximately 1m tonnes, in spite of the fact that Ghana’s production capacity of 9m tonnes surpasses local consumption of 6m tonnes, according to a statement from Ekwow Spio-Garbrah, the minister for trade and industry. Starting in August companies importing cement from outside the ECOWAS region will now need to apply for an operating license.
The government has sought to help mitigate some of the problems in the sector by rolling out new incentives and waivers for contractors participating in select large-scale infrastructure developments, which should help to reduce costs.
The $1.5bn expansion of the Port of Tema, which is being carried out by the Ghana Ports and Harbours Authority, Netherlands-based APM Terminals and French firm Bolloré Africa Logistics, is one such project.
Announced in mid-June, tax concessions for the venture, which are valued at $832m, include waivers on materials and equipment taxes, as well as a 10-year corporate tax exemption, according to press reports.
The fiscal incentives are part of a broader push by the public sector to stoke an uptick in construction activity, and industry growth in the medium term is expected to be supported by increased government investment in infrastructure, particularly transport projects.
“Foreign direct investment in construction will increase in the second half of 2016 through to 2017. There are road infrastructure and harbour expansion projects in Tema and Accra, and ongoing expansion work at Takoradi Harbour,” Kojo Brompong-Mensah, managing director of design and building firm BM Construction, told OBG.
Source: This information was originally published by Oxford Business Group (OBG),the global publishing, research and consultancy firm, appearing in The Report: Ghana 2016. Copyright Oxford Business Group 2016. Published under permission by OBG.For economic news about Ghana and other countries covered by OBG, please visit: http://www.oxfordbusinessgroup.com/economic-news-updates