Several building projects in Egypt will support investments in the infrastructure and petrochemical sectors and are expected to drive growth across the construction value chain.
Egypt was one of only a few emerging market economies whose GDP continued to grow in 2020, according to JLL, a global commercial real estate services company.
Egypt tracked a stronger construction projects awards value from Q1 to Q3 2021 compared to the same period in 2020. The residential sector was the busiest market with significant awards associated to the new capital and the north coast developments. The building boom will establish 37 new smart cities and supporting infrastructure, including a high-speed rail link from Ain Sokhna to Alexandria.
Assessing commodity and construction material trends against general inflation on a month-by-month basis, JLL anticipates a tender price inflation growth of between 2.5% to 6.5% for 2021.
Oil prices (Brent & WTI) have continued to gain this year with a current per barrel forecast of $69 for Brent and $66 for WTI for Q4 2021. Metals, which have recently seen prices reach a 10 year high with copper increasing by 89% (May to May) and Iron Ore by 116%, will likely stabilize, supported by global economic activity returning to a new post-pandemic norm. JLL anticipates that commodities, especially steel, will decrease from recent highs during the end of 2021 and into 2022.
Egypt’s new capital
Situated nearly 45km east of Cairo, Egypt’s New Administrative Capital has already taken shape and played host to several glitzy events. Relocation of some 50,000 state employees is planned to begin within a few months.
The first phase of construction work has been underway for the past five years, with $20bn of investments pumped into an area spanning 16,800 hectares (ha). When all three phases are complete, the fully-developed new capital should be able to accommodate up to 6.5 million people on 70,000 ha.
China State Construction Engineering Corporation won a deal in 2017 to build 20 big towers there and they are due to be completed by next year. The building boom is also a boost for Orascom Construction, a local company that signed $1bn in projects in the last quarter of 2020, with almost two-thirds of them in Egypt.
Germany’s Siemens signed a deal with the government to build a high-speed rail link.
Hundreds of kms to the west, New Alamein, Egypt’s second most eminent mega-development, has been growing since 2018 on a 20,160-ha parcel of land and is designed to house two million people. Like the new capital, New Alamein bristles with towers and skyscrapers.
Both projects are part of 37 smart cities that are either at the planning stage or are already being built under the auspices of the government and the military, which is heavily entrenched in the contracting business.
These projects are meant to alleviate congestion in existing urban areas. Their infrastructure is advanced and eco-friendly, and their green spaces are considerably larger than those in the old districts.
The real-estate market primarily targets the wealthiest 10% of the population, and will continue to do so with the new smart cities, says Salma Hussein, an Egyptian economic researcher. “Until before corona[virus], 80% of the wealth in Egypt was concentrated in real estate,” she tells The Africa Report.
In August, the government revealed that $1.9 bn has been earmarked for refurbishment works in historic Cairo.
Short-term growth, long-term investments
Ratings agency Fitch predicts that Egypt’s construction sector will grow by 10% year-on-year in 2021 and continue at nearly that pace for the rest of the decade, as the government continues to roll out its mega-infrastructure projects.
Egypt’s construction industry expanded by 3% in 2020. The industry’s output value increased from $33.7 billion in 2019 to $34.7 bn in 2020.
The industry is expected to rebound with a growth of 10.7% in 2021, before registering an average annual growth of 10.2% between 2022-2025.
In November 2020, the government allocated $5.2 bn for the development of infrastructure of fourth-generation cities in the country.
Of the total, $3.3 bn is allocated for the construction of electricity, roads, water and wastewater, and housing projects across 21 existing urban cities. The government also plans to invest $32 bn on the Cairo metro expansion over the next four years, and $19 bn on the implementation of 11 new petrochemical projects until 2035.