no overhang, page-2

infrastructure market: New market research published


London 2/02/2013 08:11 PM GMT (WooEB)


Botswana will continue to post double digit construction industry value growth in 2013 and 2014, driven by investment into infrastructure. Whilst we do expect the industry growth rates to gradually slow over the forecast period, this is more due to base effects than any winding down of momentum. Demand from a booming mining sector, especially for expanded electricity capacity is driving new investment into the sector. We anticipate annual average growth of 10.7% between 2013 and 2017.

We have upgraded our 2012 forecast based on H1 real growth of 22%, and are now anticipating 21.9% real growth for the year. Growth is expected to remain in the double digits in 2013 and 2014 at 15.9% and 10.5% y-o-y; however, we do anticipate real growth to slow to a more consistent but still strong rate over our forecast period.

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 being developed by IPPs which are due to come online over the medium term. These projects 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 the most attractive infrastructure business environment in the Sub-Saharan Africa region according to our Infrastructure Risk/Reward Ratings. The country posts the strongest Industry Rewards score owing to strong growth outlook. The country also displays very low risk to investors, therefore offering an attractive investment destination.

- 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.