Published On  Dec 04,  2011




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While activity in the construction sector has slowed down reasons vary in each sub sector for the cause, however, the impact on income remains even construction materials whose price been at an all time high plummet, writes EDEN SAHEL, FORTUNE STAFF WRITER.

Slowing Construction Activity Contracts Income

Construction sites like this, which are sitting idle with hardly any construction activity, are a common sight on plots owned by individuals.

Tadesse Berhanu, in his mid thirties, is an architect who works out of his condominium apartment. He left the firm he was working for two and half years ago after being employed for six months deciding to work on his own during a time when the construction in Addis Abeba was booming.

What started out as a smart decision then earning him a decent income for some time, has become something he regrets now. Having started as a draftsman, he had pursued his education in India to become an architect. It was after he came back and saw the industry that he decided to leave his job.

Before he left his regular job, he used to earn 6,000 Br a month on top of what he makes on side projects. His income tripled when he started to work on his own full time.

“I used to get around 30,000 Br a month,” he told Fortune.

However, what had been a good run for him, has now slowed down along witch the decline in the construction sector. The past six months have particularly been difficult to secure new projects, according to Tadesse.

“I hardly worked during the rainy season,” he told Fortune. “That happens sometimes with construction slowing down due to weather, but it did not pick up as it usually does after that.”

This is a sentiment felt by many of the architects who complain that the designing projects they used to get from individuals for homes have declined.

Indeed the growth of the sector has been slowing down. The contribution of the sector to the Gross Domestic Product (GDP) in 2006/07, around the time when it was considered booming, was 5.8pc. This has come down to 4.2pc in 2010/11.

The latest figures is considered insignificant when compared to Kenya, Uganda, and Tanzania where the sector contributed 12pc, 18pc, and 19pc, respectively, to GDP in the same period. Ethiopia’s figure is also less than the sub Saharan average of eight per cent.

The recent slowdown by local standard is not something seen by the decrease in the number of homes being built by individuals. It is also felt by the real estate sector, which saw many developers get into the market spurred by the increased activity a few years back. 

This was felt by Habesha Construction & Martials Development (HCMD), a new entrant in the sector.

“Our sales volume now is not as much as when we first started,” Bekele Gadisse, manager of the company, which started selling houses around a year ago, told Fortune.

The company, which has a leased 70,000sqm plot from the city and individuals, offers different units of apartment with prices ranging from 400,000 Br to 1.2 million Br while its villas go for 3.6 million Br. The villas are not attracting many buyers, while the apartments still attract some, according to Bekele.

However, Country Club Developers (CCD) a real estate with a 540ht plot around Legetafo on the outskirts of Addis Abeba, claims that is not for lack of buyers for its decreased activity.

The reason is shortage of construction finishing materials which are imported from abroad, according to Gurmesa Eregeta, finance department head of the company, which sells villas from 3.8 million to 5.9 million Br. 

“It is because of lack of foreign currency required for the import,” he told Fortune.

But there are some who claim that the recent decline has to do with the price increment of inputs of construction materials over the past year. Indeed, cement price had reached 500 Br for a quintal and price of an eight millimetre bar has increased from about 80 Br last year to 140 Br two weeks ago while the price for 16mm bar increased from 260 to 450 Br.

However prices have taken a downturn trend over the past two weeks due to lack of demand.  The price of cement has now come down to as low as 250 Br while eight and 16mm bars come down to 65 and 350 Br, respectively.

The slowdown in construction and particularly in the real estate sector is a seasonal phenomenon, argues Tsedeke Yihunie, director general of Flint Stone Homes.

“September to November have been slow months for the sector over the past three years,” Tsedeke told Fortune.

He argues that this is related to the harvest season where trading means more money in the market and hence more buyers.

However, he agrees that trading has been slow lately with the efforts the government to formalise the market.

“As is usually the case with any change it takes time for the market to adjust itself,” he told Fortune. “In the meantime the velocity of money, the rate at which money changes hand, slows down.”

Clearly the slowdown in the market for housing is not due to lack of demand. This can be seen in the demand for the condominium housings built by the Addis Abeba City Administration.

Although the Housing Development Project Office of the Administration has constructed over 78,000 condominiums and transferred 50,000, it hardly fulfilled the demand. Only 2.2pc of it has been met, according to the feasibility study of Habesha Construction.

However, the real estate sector has not been good in delivering homes it has sold despite existing demand. Poor delivery performance along with increasing price has been the characteristics of the sector in the capital.

This explains the decline in the purchase of villas while interest for apartments remained on those on offer at Habesha.

All on in all activities in the private sector investment has been declining. The growth of requests of investment permits from the Ethiopian Investment Agency (EIA) has declined from 49pc in 2006 to 37pc in mid-2009, according to a research conducted by Access Capital Research (ACR) in 2010. 


Construction Sector Contribution to the Gross Domestic Product (GDP)

In 2006/07 fiscal year when the nominal Gross Domestic Product (GDP) of  Ethiopia stood at 171.8 billion Br, the contribution of the construction sector was estimated at 9.3 billion Birr, which is 5.8pc of the GDP, according to 2010/11 GDP estimates published by the Ministry of Finance and Economic Development (MoFED) in September 2011.This contribution of the construction sector became less and less in consequent years reaching to 4.2pc of the GDP which was 611.2 billion Br in 2010/11.


However, construction projects of the government are bound to dominate the market. Especially since the announcement of the five-year economic plan of the government, in which projects in road, housing and railway as well as sugar factory construction are included.

Experts at the ministries of industry and urban development argue that the seemingly slowdown in the construction sector will change once these projects commence, which will involve contractors in the private sector. But a change in the budgeting of government projects is already having an impact.

The Ministry of Finance & Economic Development (MoFED) has changed its line item budgeting where advance payments were made to program budgeting. In the new system, which became effective this year, contractors are not paid directly at first with relevant institutions paying for the materials they need to start directly to suppliers.

After that payment are made based on the progress of the project over a fixed period.

This has become a blow to many private construction companies who use some of the down payment to start other project.   

The Ethiopian Roads Authority (ERA) is one of those institutions that have started using this new budgeting. This will ensure that project capital is spent on the planned projects and are finished on time, according to Samson Wondimu, director of communications at ERA.

Those who have been working through the old system with the Authority have now come into a liquidity crunch with some becoming unable to pay their project managers.

This will definitely affect contractors, agrees Abraham Befekadu, construction supervision project director at Core Consulting & Engineers.

“However this is a good way of ensuring projects, especially road, are completed on time using the money,” he told Fortune.

But road constructions are not the main concern of Tdesse nor are government projects. His livelihood depends on the activities of those in the private sector. But the sector has become somewhat uneasy about venturing into new projects due to the land lease proclamation that was passed two months ago.

Ambiguity is felt about what the new provision putting old property holdings in urban areas under lease really means. However, more important is the term limit to commence and finish constructions on lands that have been leased.

About 18 to 48 months are given to finish projects on lands that have been leased depending on their scale.

Many people have already passed that time limit while they are still at the foundation level or not having constructed at all, according to an architect who runs his office and wished to remain anonymous.

“A lot of my clients who I have designed projects for are waiting to see what new developments arise in the matter,” he told Fortune. “They are afraid that if they continue with it they might lose their investment on the land as well.”

With these kinds of sentiments and the developments in the construction sector in general, all Tadesse can do is wait it out while he helps out a friend who works at an architect’s office for which he is paid some money.





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