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Energy boom can save ailing construction sector

2023-09-19  Edgar Brandt

Energy boom can save ailing construction sector

A bleak short-term outlook remains in sight for Namibia’s construction sector, but these misfortunes could be turned around by the green hydrogen and the oil and gas boom. These developments, should hopefully boost the ailing domestic construction sector in the medium- to long-term, particularly in the vicinity of Lüderitz and Oranjemund. 

Meanwhile, tight financial conditions for households and businesses due to higher interest rates are leading to less demand for mortgage loans. And, as households remain net borrowers of mortgage loans, they mostly invest in small projects such as renovations or additions to their residential properties. 


Regulation required

This is the assessment of local stock brokerage, Simonis Storm, who in its latest report on the construction industry, noted that the sector, represented by the Construction Industry Federation (CIF), has painstakingly advocated for the establishment of a regulator since 2008. 

“The absence of such a regulator has led to several adverse outcomes. Additionally, some real estate agents argue that the absence of a building council hinders effective quality checks on small-scale developments, thereby negatively impacting the overall value of the country’s housing stock,” reads the SS report. 

The SS report is published as the CIF and the Metal and Allied Namibian Workers Union (Manwu) have escalated calls for the cancellation of projects that exclude majority-Namibian-owned contractors. These exclusions, they say, are due to mostly steep financial pre-qualification or qualification requirements. 

“Following cancellations, the financial and technical criteria would need to be reviewed for each of the respective projects, and then subsequently be re-advertised, into smaller lots, as well as more with realistic technical criteria,” reads a joint statement from CIF and Manwu. 

The CIF and Manwu also requested for the capacitation and consideration of Namibian businesses to be prioritised when government accepts external finances such as loans or grants. 

“All the developments are extremely disappointing and undermine Namibia’s own contractors. Namibian contractors as well as professionals in the construction sector are in desperate need for work. There seems to be no understanding, and no deliberate attempt to optimally support our local industry. This not only includes majority Namibian-owned SMEs but also majority Namibian-owned mid-size contractors and majority Namibian-owned large size contractors,” said Bärbel Kirchner, chief executive officer of the CIF. 

Kirchner added: “On the contrary, it appears that our own contractors, in particular the large-size contractors are deliberately undermined. This can bring about the insolvency and eventually bankruptcy of our established and well capacitated contractors”.

Namibia’s much-hyped green project, spearheaded by government and Hyphen Hydrogen Energy, is touted to create up to 15 000 new jobs during the construction phase and 3 000 permanent jobs during its operation, with a target for around 90% of these jobs to be filled by Namibians. Hyphen is also targeting 30% local procurement for goods, services and materials throughout both the construction and operational phases. 

Moreover, the discovery of significant oil reserves off the coast of Namibia by Shell and TotalEnergies, in addition to anticipated green hydrogen infrastructure, has compelled the Namibia Ports Authority (Namport) to invest an estimated N$2 billion. The investment, to be made over the next five years for the anticipated energy boom includes the development of new berths and improvements in logistical infrastructure. 


Housing snapshot

In a bid to curtail Namibia’s intensifying housing crisis, government had set a target of delivering 20 000 housing units by the end of 2025. However, with only 29% of this goal having been achieved, SS cautions it is unlikely this target will be met, given the current pace of construction by the National Housing Enterprise (NHE) and with the Harambee Prosperity Plan deadline just two years away. 

SS further points out that with a weak pipeline and poor results for August 2023, the construction sector remains a weak contributor to GDP. 

The report emphasizes that according to the latest statistics, the number of building approvals decreased by 8.0% month-on-month (m/m), translating to a 15.7% year-on-year (y/y) decrease in August 2023. 

“As mentioned in our previous report, we maintain our view that growth in the construction sector for 3Q of 2023 will be minimal.  The year 2023, on average, records the lowest plans approved since 2020. This signals that the construction sector is contracting in Windhoek and Swakopmund. Year-to-date, 20.6% less projects were approved compared to the same period last year and 3.6% less than 2020,” the SS notes.  

The report continues that total construction plans approved have been trending well above the six-month average since May 2023, which SS believes could be a signal that a slight expansion is about to take place, albeit at a slow pace. Another contributing factor, the firm believes, could be due to relatively low approvals over the past six months. 

The report reads: “The value of plans approved has seen a significant decline (down 71.0% y/y), driven by both the value of plans approved in Swakopmund (down 92.8% y/y) and Windhoek (down 61.7% y/y) in August 2023. On a positive note, the value of projects completed saw an uptick in August 2023, driven by a higher value of projects completed in Windhoek (up 191.4% y/y), while Swakopmund weighed down on the growth (down 25.6% y/y) in August 2023. These two municipalities together recorded a combined value of N$147.9 million of projects completed, a combined increase of 89.1% y/y in August 2023. 

SS points out that the number of projects completed in August decreased by 18.8% y/y, compared to an increase of 39.4% in the prior month. 

“Windhoek – accounting for 72% of projects completed – decreased by 11.8% y/y, while Swakopmund – accounting for 28% of projects completed – decreased by 32.6% y/y in August 2023. Although the number of projects has decreased, this is a positive sign for construction because it indicates that bigger projects have been completed, contrary to the prior trends of more additions and alterations completed, which small, low-cost projects completed.” 


Housing financing

SS maintains that the construction sector has shrunk due to poor demand for new buildings, which it states is evident by businesses being net repayors of mortgage loans since mid-2022. This, the SS report states, indicates new investments in buildings have been slow. 

The latest statistics show the average mortgage loan demanded by businesses in 2023 so far is 9.1 percentage points lower than 2019, and 0.7 percentage points lower than 2020. As a result, credit for mortgages by businesses has decreased by 5.1% y/y and has increased by “a meagre” 2.9% y/y for households in July 2023. 

2023-09-19  Edgar Brandt

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