Egypt Construction Market Report 1Q 2024
Construction market overview
Introduction
The construction market in Egypt is experiencing exponential growth, primarily fuelled by the flourishing real estate sector. As the population expands and urbanisation accelerates, the demand for residential, commercial and mixed-use developments continues to surge. This growth in the real estate market has acted as a catalyst for construction activities, propelling infrastructure projects, residential complexes and commercial hubs across the country.
Moreover, government incentives and regulatory reforms aimed at attracting foreign investment have further stimulated construction activity, fostering an encouraging environment for both domestic and international developers to participate in Egypt's real estate landscape. Consequently, the relationship between the construction and real estate sectors has positioned Egypt as a regional leader in infrastructure development and urban expansion, driving economic growth and fostering social progress.
Additionally, it's noteworthy that the availability of liquidity in the market is consistently injected into the real estate sector, further fuelling the construction boom in Egypt. With investors seeking opportunities for capital appreciation and stable returns, the real estate market remains a preferred destination for investment, drawing substantial funds from both domestic and international sources. This influx of capital not only sustains the momentum of construction activities but also contributes to the diversification and modernisation of the built environment, catering to evolving consumer preferences.
Construction inflation
The unavailability of foreign currency has severely impacted the sector, leading to constraints in importing essential materials. Expectations for devaluation at the beginning of the quarter have further exacerbated the situation, prompting market participants to contend with uncertainty regarding future costs. Moreover, scarcity of raw materials coupled with challenges in the supply chain have intensified the pressure on construction material prices, constraining project budgets and timelines.
Economic challenges, including inflationary pressures and currency fluctuations, have added to the complexity of the situation, making it increasingly difficult for construction firms to navigate these turbulent waters. Notably, prices of some construction materials have nearly doubled, aggravating the financial strain on construction projects across the country.
Despite these hurdles, the construction sector faces mounting demand for materials as infrastructure projects and real estate developments continue to proliferate, underscoring the urgent need for innovative solutions and strategic interventions to address the escalating costs and sustain the momentum of Egypt's construction market.
While core inflation in Egypt has shown signs of slowing down, the construction materials prices have exhibited a contrasting trend in January and February. Despite the overall moderation in inflationary pressures, construction materials experienced a notable uptick in prices during the early months of 2024.
This surge in pricing can be attributed to various factors, including supply chain disruptions, currency fluctuations and increased demand amidst ongoing infrastructure projects and real estate developments. However, as February progressed, there were indications of easing pressures on construction materials prices.
In part, the explanation for this shift is due to the investments announced in the country, which injected optimism into the market and alleviated concerns surrounding future supply and demand dynamics. The investments not only bolstered confidence among industry stakeholders but also signalled a commitment to supporting the construction sector's growth trajectory. As a result, by the latter half of February 2024, there were early signs of stabilisation in construction materials prices, offering a reprieve to developers and contractors grappling with escalating costs.
This positive development underscores the interplay between economic policies, investment initiatives and market dynamics in shaping the path of inflation and construction activity in Egypt. Continued monitoring and strategic interventions will be essential to sustain this momentum and foster a conducive environment for the construction industry's long-term viability and prosperity.
At the beginning of March 2024, the Egyptian government announced a full floatation of the Egyptian currency, which resulted in the USD exchange rate moving from EGP 31 to EGP 49. While the prices of several construction materials have decreased during the month, other stakeholders are adopting a wait-and-see approach.
It's important to recognise that the full effect of the currency floatation on prices is yet to be realised. As the exchange rate continues to stabilise and market conditions adjust, we can anticipate further decreases in prices across the construction sector. This ongoing adjustment process underscores the transitional nature of currency floatation and highlights the need for continued monitoring and adaptation by industry stakeholders to navigate the evolving pricing landscape effectively.
Additionally, while there are indications of easing pressures on construction materials prices in 1Q 2024 following the announced investments, it is important to note that the full effect of this market relaxation may not be immediately realised in the near future.
Economic dynamics often involve lag effects, wherein the impact of policy measures and investment initiatives takes time to permeate through the market. Therefore, while initial signs of stabilisation are promising, sustained monitoring and proactive management will be necessary to gauge the extent of the market's response and ensure continued progress.
Moreover, external factors such as global economic conditions and geopolitical developments may introduce further uncertainties that could influence the trajectory of construction materials prices in the coming months. As such, stakeholders in the construction sector should remain vigilant and adaptive, prepared to navigate potential fluctuations and seize opportunities as the market evolves.
In addition, amidst the construction boom in Egypt, the industry is not immune to the ripple effects of global economic challenges and regional tensions. Economic uncertainties stemming from factors such as trade disputes, fluctuating commodity prices, and geopolitical tensions can profoundly impact investor confidence and market dynamics. The construction sector, heavily reliant on global supply chains and external financing, is particularly susceptible to these external pressures.
Shifts in investor sentiment or disruptions in international trade could potentially disrupt the flow of materials, inflate construction costs, and impede project timelines. Furthermore, regional geopolitical tensions may introduce additional complexities, affecting cross-border investments and introducing uncertainties that reverberate throughout the construction market.
Labour shortages
The construction market in Egypt is facing a significant challenge due to the increased unavailability of skilled labour across all levels. One contributing factor to this shortage is labour migration, further exacerbating the issue. As experienced workers seek opportunities abroad, local construction projects struggle to fill vital positions.
This scarcity of skilled labour not only slows down the pace of construction projects but also drives up costs as companies compete for the limited pool of available talent. Additionally, the lack of skilled workers could hinder the quality and safety standards of construction projects, posing risks to both workers and the public. To address this challenge, efforts to invest in local training programs and incentivise skilled workers to remain in Egypt are crucial to ensure the continued growth and development of the construction industry.
The shortage of skilled labour in the Egyptian construction market extends beyond just manual labourers; it also affects engineers and managers within construction companies. The exporting of talent has created a vacuum in leadership positions, leading to a shortage of experienced professionals capable of overseeing projects effectively.
Construction projects face delays, cost overruns, and quality concerns without skilled managers to provide guidance and expertise. Therefore, addressing this shortage requires not only a focus on training and retaining skilled workers but also on cultivating a pipeline of qualified engineers and managers to sustain the industry's growth and development.
Forward look
Looking ahead, there are hopeful expectations for the construction market in Egypt, particularly as expectations are that foreign currency will become more readily available. Support from international organisations like the World Bank and neighbouring Arab countries suggests a positive outlook, with the potential easing of economic challenges on the horizon.
As the availability of foreign currency improves, stakeholders foresee a more stable environment for construction activities, enabling smoother procurement processes and mitigating the constraints imposed by currency shortages. However, in the interim, stakeholders must remain vigilant and work collaboratively to confront the current challenges head-on. This necessitates fostering a spirit of cooperation and shared responsibility among all parties involved in construction projects.
Embracing collaborative approaches and implementing risk-sharing mechanisms in construction contracts can help alleviate the burden on individual stakeholders and promote resilience in the face of ongoing economic uncertainties. By adopting a proactive and cooperative stance, the construction industry in Egypt can navigate the current challenges and lay the groundwork for sustained growth and prosperity in the years to come.
Marassi Resort, Alamein, Egypt — Gleeds provided Quantity Surveying/Cost Management services
