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Future of construction industry in Egypt

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The construction sector is a major contributor to the Egyptian economy and one of its fastest-growing sectors. This growth, estimated at an average of 20 to 22 percent annually since the 1980s, is fueled by the ever-increasing demand for housing and by the state's large infrastructure projects. Among these projects are the Greater Cairo Wastewater Project, considered one of the largest sewerage developments in the world, and the US$88.5 billion South Valley Development project, which aims to create an alternative delta along the Nile and relocate urban communities so as to ease the severe congestion in the major cities.

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Future of construction industry in Egypt

  1. 1. Future of Construction Industry in Egypt STRN122 2 Table of Contents I. Preface .............................................3 II. Introduction .....................................3 III. Market Overview .............................4 IV. Construction Market Statics ............5 V. SWOT analysis .................................6 References ............................................7
  2. 2. Future of Construction Industry in Egypt STRN122 3 I. Preface: The construction sector is a major contributor to the Egyptian economy and one of its fastest-growing sectors. This growth, estimated at an average of 20 to 22 percent annually since the 1980s, is fueled by the ever-increasing demand for housing and by the state's large infrastructure projects. Among these projects are the Greater Cairo Wastewater Project, considered one of the largest sewerage developments in the world, and the US$88.5 billion South Valley Development project, which aims to create an alternative delta along the Nile and relocate urban communities so as to ease the severe congestion in the major cities. Most of the material required for the construction sector is produced locally. Local cement production, amounting to 24 million tons annually and meeting more than 70 percent of domestic demand, is expected to increase over the coming decade due to heavy government investment in the sector. Private companies have also been allowed to compete in the production of cement, which continues to be dominated by state-owned companies. The construction industry is expected to continue its upward trend in the coming years as a result of continued government and private business expenditure, anticipated to reach 20 billion Egyptian pounds annually. II. Introduction: The construction sector is one of the most dynamic sectors in the Egyptian economy and has been growing rapidly since the 1980s. In 2000, the Egyptian construction market ranked 36th in the global construction market, constituting 0.4% of this market, for a value of $12.711 billion. Despite its fall from its 1998 ranking of 33rd, the Egyptian construction market actually increased in size by 23%. The sector has a significant impact on GDP, employment and investment. In 2001/2002 its GDP share reached a value of LE16.56 ($3.84)* billion, representing 4.7% of the total GDP. It also employed 8.3% of the workforce in the same year. Construction investments reached LE41.2 ($9.5) billion in 2001/2002 which represents 48.2% of the country’s total investment. The development and competitiveness of the Egyptian construction sector in the local and international markets is affected by factors that can be classified under five main categories: construction companies, government policies and strategies, available resources, institutional backing and supporting industries. Modifications
  3. 3. Future of Construction Industry in Egypt STRN122 4 and developments within these categories will lead to further growth and greater competitiveness for the sector. Official forecasts indicate that the Egyptian construction sector is expected to experience higher average annual growth rates, at 8.3%, than those of the total GDP (7.4%) and of the total commodity sector (7.8%) during Egypt’s fifth five-year plan from 2002/2003 through 2006/2007. The forecasted total investment in construction for that period is LE257 ($59.24) billion. III. Market Overview: A. Spending in the construction sector will increase at a CAGR* of 3.9%, from US$5 billion to US$7.3 billion during 2005-15. Increasing foreign direct investment (FDI) coupled with various government-initiated development programs, such as healthcare development, will boost the economic development of the country, which will drive the growth in this sector. B. Spending on residential construction will increase from US$443 million in 2005 to US$606 million in 2015 at a CAGR of 3.2%, owing to such factors as increased disposable income, the development of new residential regions, such as villages, and the formulation of government policies to develop the housing finance system during 2005-15. C. Spending in the nonresidential construction sector will grow at a CAGR of 4%, from US$4.6 billion in 2005 to US$6.7 billion in 2015. Government policies to encourage private investment in business as well as infrastructure development will encourage expenditure in this sector. D. Egypt is a high-risk country as its one-year risk score is above the world average and five-year risk score is comparable with the world average score. High bureaucracy and corruption levels, low income, rising unemployment, and continued security threats have increased the country risk. *CAGR stands for: Compound Annual Growth Rate.
  4. 4. Future of Construction Industry in Egypt STRN122 5 IV. Construction Market Statics*: Construction industry Growth in Egypt: Based on this graph we can conclude that the construction sector is going to be growing at a gradual rate until 2015 which creates a very attractive market for investors both in domestic. Egyptian Construction Market Outlook Summary: Years 2005 2006 2007 2008 2009 2010 2015 Total Construction (Billions of US$) 3.9 4.3 4.5 4.7 4.9 5.2 6.4 Residential 0.3 0.4 0.4 0.4 0.4 0.4 0.5 Nonresidential 3.6 3.9 4.1 4.3 4.5 4.8 5.9 Infrastructure 1.7 1.9 2.0 2.1 2.2 2.3 2.8 Structures 1.9 2.0 2.1 2.3 2.4 2.4 3.0 Egyptian Construction Market Risks: *This Statics are from Global Insight, Inc.
  5. 5. Future of Construction Industry in Egypt STRN122 6 V. SWOT* analysis: *SWOT Stands for Strengths, Weaknesses, Opportunities and Threats. A.Strengths: 1. Workforce: Construction accounts for around 8 per cent of the total employment in Egypt, with about 100 different industries linked to the sector. The local construction workforce of around 1.2 million is currently the largest in the Middle East. 2. Materials: Construction materials are in abundance is Egypt, e.g. large aggregates (gravel and pink limestone), small aggregates (sand), and cement constituent materials (limestone, sand, silt, ores). Admixtures are locally produced under license. Steel constituents are imported, locally manufactured, used, and sometimes exported. B.Weaknesses: 1. Quality: although that there’s clear quality standards and Egyptian code for construction industry there’s no real guarantees that contractors and sub- contractors will commit and execute it. 2. Strategy: there’s no clear urbanization and new cities construction strategy due to the current political situation and the past administrative failure. C.Opportunities: 1. Egypt has an abundant, competitive labor force. 2. Foreign investments. 3. Privatization program, improving the business climate, and introducing numerous investment incentives targeting upgrading of the business environment and modernization of the economy and construction sector. D.Threats: 1. Egypt is a high-risk country as its one-year risk score is above the world average and five-year risk score is comparable with the world average score. Shortcomings in the legal and political system, accompanied by terror threats and scarcity of skilled labor, have amplified the country risk in the past few years. 2. Poor infrastructure, low productivity, scarcity of skilled labor and other factors are adversely affecting the construction sector in Egypt. 3. The banking system is not yet capable of meeting the market needs.
  6. 6. Future of Construction Industry in Egypt STRN122 7 References:  http://enpub.fulton.asu.edu/cement/cbm_CI/CBMI_Separate_Articles/Article%2023 .pdf  http://www.nabc.nl/Portals/0/docs/Country%20information%20pdf/EGYPT%20BUSI NESS%20FACT%20SHEET.pdf  www.construction-int.com/article/construction-spending-analysis-and-forecast-for- egypt.html  http://www.nationsencyclopedia.com/economies/Africa/Egypt.html  http://library.medibtikar.eu/Med_docs/AX_4/27_SWOT_analysis/SWOT%20report. pdf  http://www.globaltrade.net/f/market-research/text/Egypt/Building-Products-and- Construction-Building-Construction-Building-Products-and-Materials-in-Egypt.html  www.amcham.org.eg/resources_publications/publications/business_studies/PDF%2 0Files/constructionsummarycontents.pdf

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