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
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
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
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)
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
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 &
“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
“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.