In its 2019 market view half year report for Sub-Saharan Africa, construction conglomerate, MMQSMace Consultancy (PTY) Limited said Tanzania remains one of the fastest growing construction markets in East Africa despite facing numerous challenges.
“Ongoing Chinese investment in large infrastructure schemes is a primary driver. Most recently, the Dar Rapid Transit agency awarded the China Civil Engineering Construction Corporation a U$160m contract to build the second phase of a rapid transit bus project in Dar es Salaam,” the report stated while referring to Mbagala to Gerezani BRT project. Another Japanese funded U$ 70m BRT project is being constructed by Japanese contractor, Nippon/Dai Contractors.
“Chinese investment is fueling bullish growth in industry activity and the volume of projects in the pipeline suggests this trend is likely to continue. The unpredictable political environment will weigh on industry growth and policies will continue to inhibit foreign direct investment in the region,” Mace’s report stated.
It further noted that in 2018, gross domestic product grew by an estimated 5.8 percent and that the pace of expansion is forecast to strengthen to 6.6 percent this year while noting that other indicators of activity paint a less positive picture citing recent tax revenues which fell short of expectations while credit growth stagnated.
In its recent review, the IMF identified several risks to this outlook. Notably, it raised concern about the nation’s ability to attract the level of private sector investment required to deliver the government’s development plan and highlighted the acute need for tax reform, Mace stated.
Doing business in Tanzania is relatively more difficult than in some of its neighbours, according to the World Bank’s Ease of Doing Business ranking. This is largely due to the time and costs associated with importing and exporting materials. In 144th place, Tanzania ranked behind Rwanda (29th place), Kenya (61st place) and Uganda (127th place).
The report further stated that against a relatively healthy economic backdrop, construction activity is forecast to grow across Sub-Saharan Africa (SSA), at an average rate of over 6 percent per annum over the next two years, according to BMI, although significant downside risks exist.
“Ethiopia, one of the region’s largest markets, is leading the charge. Here, construction activity is forecast to achieve double-digit growth through to 2020. Construction activity in Kenya, Rwanda, Tanzania and Uganda is also forecast to expand over the medium-term and, amid a return to economic growth, prospects for construction in South Africa may improve,” the report added.
This relatively bullish overall outlook relies on timely delivery of large infrastructure projects in the pipeline, but the ability and inclination to increase sovereign debt may impact on delivery. Over the past 12 months, high levels of sovereign indebtedness have weighed on credit ratings and planned public sector investment in countries with high exposure to debt denominated in foreign currency could be especially vulnerable if domestic currency were to weaken, the Mace report warned.
“2018 was a turbulent year for global commodities markets. Production disruption, together with an escalation in trade tension between major economies contributed to an acceleration in construction materials price inflation across the region. Currency fluctuation also played a role – especially in South Africa where the rand depreciated against the US dollar by over 10 percent during 2018. A slowdown in the pace of global growth and rising stock level will help to ease pressure on prices but, at over 5 percent the overall rate of inflation is still expected to be relatively high,” the report pointed out.
Dar es Salaam bus rapid transit has proven to be popular in the commercial capital with new project going on between Mwenge and Morocco; Mbagala and Generzani which will spur growth in construction industry. File photo.