Sector faces challenges and opportunities amid inflation and instability

By Eng Amanuel Mekonnen Hailemariam, introduction by Eamonn Ryan

The construction, cement, and concrete industry in Ethiopia has been one of the fastest-growing sectors in the country, driven by a booming economy and massive public investment in infrastructure. However, the industry also faced several challenges in recent years, such as inflation, foreign exchange shortages, the Covid-19 pandemic, and political unrest. In this article, Concrete Trends interviews Engineer Amanuel Mekonnen Hailemariam, a senior lecturer at Addis Ababa University and an expert on the Ethiopian construction industry, to get his insights on the current state and future prospects of the sector.

The construction, cement, and concrete industry in Ethiopia has been growing steadily in recent years, supported by robust government invest ment in infrastructure and a growing economy. due to a variety of factors, including the country’s rapid economic growth, government infrastructure investment, and increased demand for housing and commercial space.

last year was indeed a challenging year for the industry in Ethiopia, marked by inflation; often limited access to finance especially to small and medium-sized enterprises; foreign exchange constraints; while the Covid-19 pandemic derailed growth targets set for the sector. Inflation was a major concern, as it increased the cost of labour and raw materials, making it difficult for many firms to remain profitable.

one of the major threats to Ethiopia’s construction industry last year was the issue of cement production and distribution, which has been hampered by impediments, and severe fluctuations have occurred twice in 2021 as a result of spare part and maintenance issues on the one hand, and political insecurity and war on the other – even to the point of completely suspending t igray’s Messebo Cement Factory and its 2.1 million tonnes of production.

although the country has a total installed cement capacity of approximately 16.5 million metric tonnes, annual demand is only approximately seven million metric tonnes. this equates to around 9.5 million metric tonnes of excess capacity in the industry. the sector has experienced the ups and downs of continually fluctuating cement distribution restrictions, which also make it hard to obtain cement at one time and result in a high cost that is nearly double the factory price.

this situation was damaging to local firms, as it undermines their ability to compete on price and quality – and which led to job losses. despite these challenges, however, the construction industry in Ethiopia remained resilient, supported by the government’s continued investment in infrastructure and other mega-projects.

to protect the country from cement dumping, the government currently bans imports of cement and rather promotes it by prioritising use of local materials and suppliers. In this man- ner, it has encouraged the growth of local firms and the production of self-sufficient materials. this policy shift has created opportunities for local producers, while also contributing to the growth of ancillary industries such as transportation and logistics. overall, Ethiopia’s construction, cement, and concrete industry provides significant opportunities for growth and development, and it is expected to remain a vital contributor to the country’s economy in the years ahead if the sector addresses the challenges mentioned above with renewed vigour. the key macroeconomic challenges that I see in 2023 and the years ahead include:

The long-term consequences of the Covid-19 epidemic. the pandemic has wreaked havoc on africa’s economy, with gdp growth falling in 2022. the epidemic has also resulted in a significant increase in poverty and inequality, as well as exacerbating existing issues like food insecurity and climate change.

• High inflation: Inflation has been a continual problem in Ethiopia, and it is likely to continue to be so in the future. Inflationary pressures can raise manufacturing costs, lower consumer purchasing power, and have other negative economic consequences.

• The impact of escalating geopolitical conflicts and tensions. the ukrainian conflict has had a tremendous influence on the global economy, and africa is no exception. the battle has resulted in increased energy and food prices, putting a strain on african economies and households. the war has also caused uncertainty and instability in the global economy, making it difficult for african countries to plan.

• The significant burden of debt servicing. Many African countries are struggling to service their debt, placing pressure on their economies and making it harder to invest in growth.

• Exchange rate instability: In recent years, Ethiopia has seen currency devaluation, with the birr losing value versus major foreign currencies. this insecurity can lead to decreased foreign investment, higher inflation, and decreased consumer confidence.

• High unemployment and underemployment: Ethiopia’s unemployment and underemployment rates remain high,