We have known since long before 1993 [efn_note] See related paper published by the UN Economic Commission for Africa, June 1993 [/efn_note] that you will not soon be out of work if successful in the construction industry in Africa. However, the substantially low base, lack of adherence to industry regulations (depending on where on the continent you find yourself) and most crucially lack of readily accessible funding make this industry extremely challenging for entrepreneurs to get involved in – if not THE MOST challenging.
“For a thing’s beauty we ought to compliment not its owner but its maker.” [But its owner carries its weight] ― Mokokoma Mokhonoana [Caveat supplied by us]
As a result, progress is slow and “big moves” remain the prerogative of the bankable 1-2%. Breaking into this industry is not for the faint-hearted and requires extremely deep pockets. This is exacerbated by the fact that many of the good opportunities are located in places that send shivers up bankers’ spines. “Too much of a risk” is the chorus (and often rightly so).
Obtaining Funding
So how do we bridge this divide? Well development banks, such as the West African Development Bank (BOAD – in French) or the Industrial Development Corporation in Southen Africa are an option. But the hoops that one needs to jump through to get a construction project to the level where it is “bankable” (fundable) are staggering, not to mention EXPENSIVE. For any project to be funded by a(any) bank you will generally need the following (this list is not exhaustive and the specifics depend on where on the continent you find yourself) [efn_note]This relates to private projects as opposed to public participation projects (PPP)[/efn_note]:
- A registered company – with not laughable declared capital (country dependent)
- Title or legal right to the property in question
- A project plan including:
- Architectural layout and design
- Bill of quantities, cost projections and profitability analysis and other details from quantity surveyors
- Environmental impact study
- Feasibility Study
- Off-take/lease undertakings (depending on purpose of eventual building)
- Interior design studies (industry dependent)
- Construction Permit (country specific)
- A significant pot of cash to serve as your own capital contribution [efn_note]Most private projects are funded on a 70%-30% Debt to Equity ratio, depending on the profitability of the type of the building being built[/efn_note]
- TIME: Project development on a sizeable development can take 2-5 years. That’s 2-5 years of SPENDING
As I said, this list is not exhaustive but each bullet (and sub-bullet) represents a wad of cash. Many a entrepreneurial explorer has shipwrecked on the treacherous boulders of “property developer island”. Simply because of the long lead times before seeing a cent of project funding. I have a friend who has been developing a project for over 7 years. 2 – or so – years ago, it officially reached a “bankable level”. A year – or so – ago, he found the funding to realise the project… And it’s been “next week” ever since. Which leads me to the other main problem you will face.
The impossible task of receiving money
Sounds like a good problem to have right? But who would have thought that this is such a “schlep”? I’m not talking about when you are sending or receiving a thousand dollars by Western Union or Moneygram – the only “schlep” you will experience there is if there is a queue or a particular over-zealous and meticulous agent *eyes rolling* who makes a big deal out of first and second names being switched around… *takes a moment to breath* … I’m talking about moving 10’s of millions of dollars from your funder’s bank account to your account. Like I said, this can take months (best case) and years (worst case).
I do not mean to sound like a “nay-sayer”, but these are the facts. And unfortunately, this is not changing soon. If your pockets are not very deep, maybe starting with smaller projects is the way to get into the industry and build over time.
Some facts about the industry are available here.[efn_note]2018 Construction Industry breakdown by region courtesy of Deloitte.[/efn_note]
At Unmask Africa, we help you to:
- Identify suitable businesses in countries on the African continent in which to invest
- Conduct market research and risk analysis
- Find suitable local partners OR set up your company/investment vehicle/Operation
- Ensure your venture is sustainable and future-proof
- Improve your bottom-line
- Rate your venture
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