Egypt Construction Market Report 2Q 2023
Construction market overview
Introduction
The industry has not experienced as many changes during the second quarter of 2023, in comparison to the start of the year.
Due to the stability of the Egyptian pound against the US dollar, some construction materials prices have slightly increased.
Inflation in Egypt has risen by approximately 5% compared to the last quarter, negatively affecting construction activity as cement, steel and other raw materials costs increase. Companies may see their budgets squeezed due to rising input cost prices, resulting in key project dates being pushed back or abandoned.
In addition, the rising cost of living impacts upon wages; construction companies may see an increase in labour expenditures, accounting for a significant amount of their overall costs. Due to the increased prices of imported materials, as well as challenges faced at the ports, some suppliers are now relying more on local manufacturing.
Though the Egyptian economy has struggled, the industry is experiencing growth; construction of new highways, bridges, ports, airports and public transit systems are just some of the infrastructure improvements in which the Egyptian government has been making significant investments.
These initiatives seek to boost logistics, increase connectivity and support national economic expansion. Moreover, due to urbanisation and population increase, housing and real estate are in greater demand throughout Egypt. Construction for both residential and commercial projects are booming, especially in populated places such as Cairo and Alexandria.
Meanwhile, the Egyptian government has sought to attract foreign investment to the construction sector, striving to enhance the business environment by streamlining regulations and incentivising international construction companies and investors.
Gleeds insights and analytics specialists have been closely monitoring the situation and have collected data over the course of this period. This report aims to give the best possible forecast of construction materials cost inflation in the immediate and medium term, based on the data currently available and the experience of our resident experts.
Construction materials represent the main portion of the bid and tender price submission. By examining changes in construction materials prices, Gleeds has provided a forecast of the inflation impacting the market. Compiled with key construction materials data from January 2008 until April 2023, the inflation forecast is based on indices compared to our starting baseline.
Construction materials inflation history/forecast
Data informed by Gleeds experts and CAPMAS indices.
Values for May and June are estimated based on Gleeds view of the market since the CAPMAS indices had not been issued at the date of publishing the report.
Figure 09
Construction materials inflation rate
Recommendations
Considering the current situation, the inflationary wave is expected to ease through the remainder of this year.
The high inflation trends of 2008, 2013 and 2016 suggest that 2023 is expected to have a higher-than-normal construction inflation rate, dependent on the proportion of imported materials required in current and potential projects. Inflation rates are expected to stabilise by the beginning of next year.
Gleeds recommends that clients reassess their financial models to accommodate current inflation rates and perform sensitivity analyses for different inflation scenarios expected during 2023. It should be noted that most construction materials will be affected either directly or indirectly by this wave, and as such, detailed risk assessments should be carried out according to project requirements.
Clients should examine their use of imported materials within projects to avoid delays or shortages. It is also recommended that inflation risk is shared between clients and contractors to avoid any high premiums during this period of market volatility. Establishing an ongoing discussion is advised, to ensure contractors are not burdened to the extent where existing projects ultimately suffer.
The construction market in Egypt is currently witnessing a surge of activity, reflecting its ability to rapidly recover from unpredictable events. However, unforeseeable external factors present risks that may affect current forecasts and data; developers and clients are advised to make adequate contingency to accommodate these risks.
Marassi Resort, Alamein, Egypt: Gleeds provided Quantity Surveying/Cost Management services
