Several entrepreneurs and investors, interviewed by How we succeeded in Africahighlighted the potential of the continent’s construction and building materials sectors.
Eliot Pence, co-founder of Tofino Capital – a $10 million venture capital fund focused on start-ups in frontier markets – maintains an optimistic view of the construction sector on the continent. His company invested in Nigerian startup Cutstruct, a digital marketplace specializing in the sourcing of construction materials.
“We see a lot of opportunity in the construction sector,” Pence notes. “The conventional estimate of growth in the African construction market is around 7%, which is not very attractive – except that we think this massively underestimates the scale and scope of what is happening. goes on the market. Africa’s infrastructure deficit is well known: around $100 billion a year would need to be spent just to maintain current infrastructure. China has been willing to fill this gap over the past two decades, but we are increasingly seeing it pull back, leaving more space for local entrepreneurs to resume their projects.
“At the same time, we are seeing this huge trend of urbanization across the continent; an estimated 500 million more Africans will become city dwellers by 2035. According to a recent Yale University study of African cities, the number of buildings in a city increases with population, with approximately one additional building for every 2, 6 people, and most of these buildings are smaller structures – not tall buildings. Based on projected population growth in Africa, this represents 300 million new buildings within 25 years, in approximately 60 cities across the continent. (Read our full interview with Eliot Pence: From Nigeria to Egypt – investor Eliot Pence on supporting frontier market startups)
Maris Africa, an investment holding company, also recorded strong performance in one of its portfolio companies, META Group, which specializes in the distribution of construction equipment across different countries on the continent.
“Over the past 12 months, we have seen good growth within our group of eight dealers in the eight countries where we operate (Angola, Zambia, Mozambique, DRC, Tanzania, Rwanda, Uganda and Kenya). The growth is part of a post-Covid recovery, but it is also supported by the continued infrastructure development and urbanization of these markets and a relatively strong commodities sector,” says Charlie Tryon, CEO and co-founder of Maris.
“The results of this division reflect the opportunity that exists to move away from more expensive Western brands like Caterpillar or Hyundai towards newer economical products from India and China. We’re increasingly turning to lower-cost producer brands, and it seems to be working for us. Many of our markets are very price sensitive and an Indian excavator 25% cheaper than the European one makes sense for them,” he adds. (Read our full interview with Charlie Tryon: African investor optimistic about electric mobility and affordable construction equipment)
In Nigeria, contractors have the opportunity to target either low-cost building materials for the mass market or supplies for high-end finishes. This view comes from Thessa Bagu, managing director of consultancy Commercium Africa. “The country needs construction materials and equipment, from cranes to tiles and everything in between, as most of them are currently imported. For example, businessmen can focus on the large mansions and apartments being built here in Lagos, which require beautiful finishes, such as faucets and door handles. (Read our full interview with Thessa Bagu: Opportunities in Nigeria – From Building Materials to Health Supplements)
Ivory Coast also has a vibrant construction industry. Private equity firm Adiwale Partners is excited about the sector, but its team lacks the expertise to invest directly in construction and development. However, Adiwale found a way to participate in the growth of the sector by investing in Maintenance Climatisation Technique, an air conditioning company focused on the installation and maintenance of industrial, commercial and residential air conditioning solutions. Demand for air conditioning in Ivory Coast is driven by significant new industrial and commercial developments as well as the renovation of existing buildings. (Read our full interview with Jean-Marc Savi de Tové: Opportunities in Francophone West Africa – A Private Equity Investor’s Perspective)
Although East African investment firm Ascent Capital Africa generally avoids direct real estate transactions, it supports businesses that are an integral part of the real estate value chain. For example, it has invested in Kisumu Concrete, a leading manufacturer of construction products like ready-mixed concrete and concrete blocks, which mainly serves Western Kenya. The company enjoys minimal competition due to the high costs and challenges associated with transporting building blocks from Nairobi or other areas.
Additionally, Ascent supported Metro Plastics in Kenya, a producer of PVC and PPR pipes, gutters and wastewater products. “These are not products that are going to make the news, but they are essential if you want to build a building or collect rainwater, which is very important in this part of the world. We are generally interested in these types of businesses that meet consistent local demand and are considered somewhat “safe” from potential threats from imports. For example, it is not cost-effective to ship pipes from China to Nairobi: they are light but take up a lot of space,” says David Owino, founding partner of Ascent. (Read our full interview with David Owino: Investor reveals East Africa’s most attractive opportunities)