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We have upgraded our outlook for Botswana's construction industry growth over the medium term, based on exceptionally strong growth seen in 2011. Real growth of 25.4% is estimated for the year, driven primarily by ongoing investment into the electricity sector. In light of this, we are pricing in the upside potential, with annual average growth between 2012 and 2016 forecast to come in at 10.8%. A project pipeline with significant potential to create value in the industry is driving this optimism. .
The biggest source of value creation is likely to remain electricity investments. The country is working hard to reduce its reliance on South Africa, which has proven to be an unreliable source of electricity, and cater to growing demand domestically from its mining sector. There are a number of ongoing projects in the sector and we anticipate investments in this area will buoy construction sector growth. In general, Botswana is a fertile ground for construction industry growth and our medium-term outlook is optimistic for a number of reasons:
- Botswana has an attractive business environment. The country ranks second in BMI's Sub- Saharan Africa (SSA) risk/reward ratings (RRRs) and has the most attractive risk profile in the region. Most sectors are open to foreign investment and, while there are some restrictions on investment in transport infrastructure, Botswana has a relatively transparent operating environment and suffers from only limited corruption.
- Strong economic growth is expected to continue. This is driving GDP per capita growth, which is leading to greater demand for infrastructure. Rising demand for residential electricity and water supply will see added pressure placed on utilities and lead to additional investment. Roads and railways will have to expand in order to meet rising demand from passengers and freight as consumer purchasing power grows.
- One of the government's key goals is economic diversification. The government wants to ease its reliance on mining and channel investment into other sectors. Demand for infrastructure should therefore increase, with projects to build access roads, railways, electricity generating capacity and water facilities (particularly important in the energy intensive mining sector) all set to benefit.
- Coal mining is driving investment into Botswana's infrastructure sector, with freight transport and access to ports both designated as high priority areas as coal production expands. Coal mining also provides a cheap and readily available source of fuel with which to generate electricity, and is prompting investment into coal-fired power plants in an effort to diversify the power mix (away from hydropower) and boost capacity. At the same time, the development of a new railway linking the country to either the Atlantic Ocean through Namibia, or the Indian Ocean through Zimbabwe or Mozambique, will be crucial if Botswana is to secure an efficient export route that will allow it to price coal competitively when selling it in the global market.
Click for Report details:Botswana Infrastructure Report Q3 2012