Construction has been one of the anchors of economic growth and drove 24% of the GDP expansion (6.5%) in 2013. GDP is projected to expand at least 6.5% in 2014 driven by increased agriculture output and infrastructure development. The government has earmarked $5.8 billion to revamp and expand the road network in order to increase connectivity in the 752,618 Km sq. nation. The railway sector has also been receiving some long overdue attention from both government and private entities. Numerous public, residential and commercial developments are coming along or in the pipeline in various cities and towns around the country.
And this is just the beginning. According to Habitat for Humanity, Zambia has a housing deficit estimated to be at 2.8 million units (54% in urban areas). Road and rail network lacked proper investment and maintenance for decades before now. So, despite ongoing developments, there is still a lot of work left to be done which leaves a huge opportunity for businesses operating in the sector.
Here are 3 companies that can provide a platform for investors to tap into Zambia’s blossoming infrastructure sector:
Lafarge Zambia (LAFARGE) currently produces over 65% of cement on the Zambian market. The company has been a direct beneficiary of the government’s fervent infrastructure drive as well as the multitude of private and public construction projects countrywide. Lafarge has a cement production capacity of 1.3 million MT.
They will start facing more formidable competition from Dangote Cement which is set to commission their $400 million (1.5 million MT capacity) plant in Ndola – strategically close to the fast-growing Democratic Republic of Congo (DRC). However, Lafarge can take heed from the fact that they are operating in an environment where cement demand is very high and remains under-supplied in this market. Regional demand is also very high as a number of Zambia’s neighbors like DRC are also undertaking major infrastructure projects.
Real Estate Investments Zambia
Real Estate Investments Zambia (REIZ) is the largest property investment and development company in the country. REIZ has a total property portfolio of 57,693 m2 with a gross ‘lettable’ area (GLA) of 40,693 m2 (with only 3.5% vacancy as at December 2013).
REIZ were affected by the Zambian Kwacha’s first half depreciation which dropped as much as 27% before paring losses to around 12% year-to-date. Exchange losses were mitigated by the fact that REIZ paid down about 46% of their long term foreign debt with funds received from the sale of a property in 2013. The company has two new developments coming up – one to expand their property portfolio in the capital and the other in the North-Western province (Solwezi); an area which is fast becoming a boom town because of the huge copper mining projects by First Quantum Mineral (FQM) and a couple of other miners. REIZ have also been beneficiaries of consumer spending from the country’s growing middle-class which has brought with it high demand for retail space.
Raubex Zambia, a subsidiary of diversified construction company Raubex Group (RBX) has recently been awarded two contracts worth $127 million from the first phase of the government’s flagship $5.8 billion road project. This is for the upgrade and revamping of 211Km of roads. According to their group CEO, the high margin Zambia contracts have allowed the company to be more selective of the projects they take on in South Africa (home-base.
For future projects, Raubex will be facing competition from Chinese firms who have been winning the majority of road contracts. However, there is still phase two and three of the of the road project to be awarded and with the track record and success that Raubex has demonstrated, they should be finely position to pick up a few more lucrative contracts.
Grindrod Limited (GND) has partnered-up with Zambian firm North-West Railways (NWR) to undertake a two-phase $989 million railway project. NWR owns the exclusive rights to build, operate and maintain a new railway line which at completion will link the hearts of the top 2 African copper mining regions (Zambia and DRC) to the Atlantic seaboard port of Lobito in Angola:
Most of the country’s copper is transported by road to ports in Dar es Salaam (Tanzania) and Durban (South Africa) which is more expensive than rail. Mines owned by Barrick Gold and First Quantum Minerals which are operating in the North-west of Zambia will be connected by the line. The project will receive support from Grindrod’s rail services division. Construction of phase 1 will begin before the end of 2014 and should be ready in 18 months.
Disclosure: The author has no positions in any stocks or ETFs mentioned, and has no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *