10 best-selling building and construction products in Africa

Africa's booming construction sector is creating new opportunities for distributors and manufacturers to supply products.

By John-Paul Iwuoha

Building and construction activities are often signs of growing economies. Africa is home to six of the world’s fastest growing economies in the world. It also has the world’s fastest growing population which is expected to reach 2.3 billion in less than 40 years. It’s no surprise then that Africa’s richest man, Nigeria’s Aliko Dangote, has made a fortune manufacturing cement - one of the most important and hot-selling building materials in Africa. Entrepreneurs, investors and governments are spending billions of dollars on real estate projects in a bid to satisfy the huge demand for residential and commercial accommodation across Africa.

Factors responsible for the growing demand for building and construction materials across Africa.

• Economic growth
• Fast-growing population
• Rapid urbanisation
• Expanding middle class
   

The top selling building and construction materials and products 

Cement

Cement is one of the most widely used building materials in the modern world and nearly six billion tonnes of this very important commodity is produced every year. It is the main ingredient used in the production of blocks, which are the single-most used items in building and construction work. Cement is combined with aggregates (sand, gravel and stones) to make concrete and used as slurry for filling cracks in all kinds of structures. It is also used for masonry work, plastering and pointing. This versatile capability allows cement to be used in all kinds of structures including buildings, bridges. dams, docks, harbours and roads. Manufacturing cement is capital-intensive and requires huge investment in quarries, labour, plants and equipment. As a result, only national governments and businessmen with deep pockets are able to set up cement manufacturing plants. However, small-scale businesses and entrepreneurs can get involved in the cement business by joining the distribution chain. You could become a major dealer who buys directly from the cement manufacturers or major importers. Or you could start up as a retailer who sells the product directly to home builders and contractors. Depending on the volume of cement you decide to deal in, it’s likely you will need a sizeable store or warehouse to keep your stock. It is important that you know the cement brand(s) that are favoured and preferred by builders in your area.

Wood

Wood is one of the oldest and most commonly used material in building and construction. Despite the growing threat of deforestation, wood has remained in high demand as a building material because of its reasonable cost, availability, attractive appearance and long life (if protected from insects and moisture). Wood used in building and construction work is commonly referred to as timber (or ‘lumber’ in the US and Canada). Timber is sawn into planks or poles and used as supporting materials (beams and pillars), in roof and ceiling construction, door and window frames, and exterior cladding. Timber is also commonly used in flooring, paneling and general finishing. It is most commonly used to form the mould in which liquid concrete is poured, compacted, and allowed to harden. Before wood is used for building and construction work, it has to be felled in the forest, processed and seasoned (the process of removing moisture from wood). It is then sawn into logs and planks and sold on the market. Although Africa has extensive (but fast depleting) forest reserves, the conservation efforts in many countries are forcing builders to look for alternatives to timber. In Kenya for example, innovative entrepreneurs like Lorna Rutto of EcoPost are using waste plastic to produce a strong and durable substitute to timber; and making a lot of money in the process. Entrepreneurs who intend to harvest trees to be used as timber will likely require a permit or license from their government’s forestry department or agency responsible for forest resources. Permits have become necessary to avoid indiscriminate logging that cause damage to the environment. If you intend to buy wood from loggers and process them to timber, it’s likely you will need to invest in machinery and experienced labour who know the techniques of treating, seasoning and curing wood to avoid damage caused by moisture and insects.

Aggregates

Aggregates are raw earth materials which have been used since prehistoric times in building and construction. Aggregates fall into two broad categories - coarse aggregates (such as crushed stones, gravel, pebbles, and granite) and fine aggregates (usually sand and clay). In modern construction work, aggregates are combined with cement to produce concrete and mortar. Using aggregates gives volume, stability, resistance to wear or erosion, and other desired physical properties to all kinds of structures – buildings, bridges, roads etc. As you may have guessed, aggregates are the most mined materials in the world. Operating a mine (or quarry) is very capital-intensive and requires large earth-moving equipment, belt conveyors, and machines specifically designed for crushing and separating various sizes of aggregates.  Entrepreneurs who intend to play in this space could buy aggregates from quarry operators and sell them directly to builders in truck loads or much smaller sizes.

Roofing materials

All buildings (especially houses) usually have a roof over them. Roofing materials form the outermost layer on the roof of a building and provides shelter from the natural elements (wind, sunlight and rain) and insulation against heat and cold. Commercially available roofing materials can range from corrugated iron and aluminum, clay tiles, plastic, fiberglass and concrete. In choosing roofing materials in Africa, builders and home owners usually consider cost, style and quality, suitability of the material to the climate, low maintenance and long life span. Materials like asbestos (which used to be very common) are becoming increasingly undesirable due to its adverse health effects. Entrepreneurs who intend to start a business in roofing materials must constantly look out for changes in taste and trends in the market. New products are constantly being developed to overcome the shortcomings of older roofing materials, meet the demands of modern building techniques, and conform to increasingly stringent building codes. 

Plumbing materials

Plumbing usually refers to the system of pipes, drains, fittings, valves, valve assemblies, and devices installed in a building for the distribution of water for drinking, heating and washing, and the removal of human and domestic waste (sewage). The main categories of plumbing systems include: potable cold and hot tap water supply; drainage venting; septic systems; rainwater, surface, and subsurface water drainage; and fuel gas piping. The common materials used in modern plumbing include copper, brass and plastic. In fact more than 70% of materials used in today’s plumbing are made of PVC or PEX plastic. This is because plastic is very flexible, easy to install, has a low cost, does not rust like most metals and can last for a very long time. A lot of the plumbing materials supplied to local African markets are manufactured locally or imported from overseas. Depending on the taste and requirements of customers, the quality and cost of plumbing materials in the market can vary considerably.

Steel and metal products

Steel and metal products are widely used in building and construction. Steel is commonly used to make reinforced concrete that supports structures in buildings, bridges, dams etc. Steel is made up of iron combined with a small percentage of carbon. High-carbon or ‘hard’ steel is used to make tools with cutting edges. Medium- carbon steel is used for critical structural components of buildings such as I-beams, reinforcing bars and frames. Low- carbon or ‘mild’ steel is used for pipes, nails, screws, door and window hinges, wire, screening, fencing and corrugated roofing sheets. Metals such as aluminum and copper have become popular building materials due to their ability to resist rust and corrosion. Copper is used for electric wires, tubing for water supply and for flashing. Aluminum is most commonly used for roofing sheets, gutters and the accompanying nails. Brass is another corrosion-resistant alloy of copper and zinc used extensively for building hardware. Like cement, running a steel production plant is expensive. The opportunity for entrepreneurs lies in retail and distribution of steel products to home builders and construction contractors.

Electrical materials and accessories

Electrical materials are the parts and elements used in the electrical system of any building and construction project. This includes a huge inventory of materials used to supply electric power or telecommunications to different parts of a building and will typically consist of: electrical conduits and fittings, wires and cables, explosion proof enclosures, meters, circuit breakers, connectors, and electrical products such as wiring devices (switches, plugs) and lighting (bulbs). Solar energy products are becoming a popular way of providing electricity to millions of Africans who are not connected to the grid. Entrepreneurs, like Tanzania's Patrick Ngowi of Helvetic Solar Contractors, are building million dollar fortunes from providing solar electricity to residential homes and government buildings. While some of the electrical materials mentioned above are made locally, a variety of brands are imported from North America, Europe and Asia and may be preferred for their higher quality. Before entering this business, entrepreneurs must ensure that they are well aware of customer preferences in their area.

Glass

Glass is fast becoming one of the most preferred materials of modern building architecture. Clear windows have been used since the invention of glass to cover small openings in buildings and provide us with the ability to both let light into rooms while at the same time keeping undesirable weather outside. Glass controls light, letting in the good rays and keeping out the bad ones; it also saves on energy costs by providing natural day lighting. As a result, more designers are finding that glass fits quite nicely into today’s green building environment. Other qualities that make glass such a hot-selling building material include its roles in heat, sound, fire and solar protection. It also provides an interesting means of design and electromagnetic dampening. Glass sold on the market is of varying types (reinforced, laminated and tempered) for all kinds of uses. Glass has also found popular use as a decorative material in designing building exteriors. Entrepreneurs can source glass from both local and foreign glazers.

Paints

Paints are the colourful substances applied to interior and exterior walls of buildings to make them beautiful, enhance texture and protect from cracks, wear and tear. There are paints of all colours and types in the market which typically include : emulsions (water-based paints), matte finish, gloss, varnish, enamel and lacquers. A growing number of local businesses now manufacture paints to compete with dominant foreign brands. We advise that you understand the tastes and preferences of home builders and construction contractors in your area before you go ahead to invest in stock.

A final note…

The materials and products on this hot-selling list are just a handful of the opportunities that exist in building and construction market. Depending on your location and the preferences of home builders and contractors, the types of materials required may differ considerably. It’s important that you study the existing materials and products in your market before you decide on which ones you will start a business around.

John-Paul Iwuoha is chief editor at www.smallstarter.com

Seven top tips from investment experts

Frontier, in partnership with private equity firm, Jacana Partners, brings you expert advice to help get your business off the ground and ready for investment.

Building a business in Africa is not easy. It takes years of practice, not to mention a certain amount of trial and error. SME-focused private equity firm, Jacana Partners, canvassed its experienced senior team members to provide you with valuable tips that can help to build your business and get you ready for investment.

This article is part of a series, which Frontier will bring to you over the next couple of weeks, in partnership with Jacana Partners. 

Setting up a business

Business plan ownership - Barnaby Terry, investment director, West Africa

Write the business plan yourself; don’t get advisers to do it – and make sure the senior team contributes and takes ownership of the document. The business plan is not just a document that private equity groups like to read, it’s the vision, the business case and action plan for your company. It’s an important exercise in determining the future direction of the business and ensuring the whole team is behind it.

Size matters

Is the market you are addressing large enough? And are you targeting a niche within that market? Become a market leader in your niche and progress from there. Remember that as a private equity investor, we eventually need to exit our investment in your company, so size of market is important to ensure you are of interest to an investor in the future. As a general rule, we would expect the company’s revenue to be at least five times the size of our investment in four years – so think big!

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Know your audience - Anthony Gichini, Partner, East Africa

The first thing you need to understand when starting a business is your customer market. What is their problem and what is your solution to that problem? It is a proven fact that people will pay a premium for a unique offering which makes their life simpler.

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Revenue counts most - Stephen Dawson, chairman and investment director, East Africa

In business plans the revenue number is the hardest to get right but by far the most important; spend 90% of your effort on the aspects that lead to the revenue number: market size and growth, competitor offerings and your competitive advantage,  pricing, marketing, converting prospects into customers, routes to market etc.

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Start-ups: simplicity is key - Christian Opoku Biney, Partner

When planning your new business, you need to focus on a simple product or service that has a clear value proposition and business model.

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Validation - Barnaby Terry, investment director, West Africa

To be successful, you must validate your offering with real customers before launch. This is an iterative process that takes time, and cash preservation is key during this phase.

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Don’t try and do everything yourself - Paul Fitzsimons, investment director, West Africa

Surround yourself with people with experience of the industry you are focussed on – you don’t have to agree with them but they can often have helpful insights or contacts, which could grow your business more rapidly than you can. You can also learn from their past mistakes, as opposed to finding out for yourself.

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Frontier Success Story

Africa has many indigenous and successful companies that have international reach. Download a complimentary eBook on the success story of Zambeef Group, and learn how your company can attain the kind of success groups such as MTN, Imara Group, Dangote Group, and Shoprite Holdings are enjoying on the continent.

Financial investors to be key players in mining M&A

A steady improvement in global market conditions should see a gradual return to deal-making in the mining and metals sector in 2014, off the back of a seven-year low in global mergers and acquisitions (M&A) volumes in 2013.

A report released today by professional services firm, EY, shows the deal inertia evident in the sector last year. The Mergers, acquisitions and capital raising in mining and metals: 2013 trends, 2014 outlook says excluding the all share merger of Xstrata and Glencore, deal volumes and value were down 25% and 16% year-on-year to 702 and US$87.3-billion respectively.

Africa-focused deals made up 3% of global deal value, a decrease of 16% in deal value and 2% in deal volume year-on-year. This represented US$3.2-billion across the continent, with South Africa accounting for US$1.6-billion of deal activity.

Sandile Hlophe, head of Transaction Advisory Services for EY Africa says, “In the context of emerging markets, activity slowed during 2013, with the value of deals targeting Latin America and Africa dropping 80% and 85% y-o-y, respectively. This trend has been consistent in most emerging markets mainly due to majors seeking to repatriate capital to the mature market headquarters.  This will help to optimise capital and strengthen their balance sheets for expansion when the market turns and investor confidence returns.” 

Globally, capital raising followed a similar trend, with a 9% decrease in the total volume of issues to the lowest level seen since the 2008 global financial crisis, and a 9% increase in total proceeds to US$272b, largely due to some exceptional loan refinancing.

From an Africa perspective, capital raising proceeds dropped by 54%, while deal volumes remained relatively flat with a total of 11 deals for 2013.

EY Global Mining & Metals Transactions Leader, Lee Downham, says the third quarter of 2013 is widely seen as the bottom of the market.

“The extreme price volatility and rapid changes to the global economy in 2012 and into 2013, combined with large impairments and senior management changes across the sector, meant the risks in doing deals in 2013 were just too great given the moving base on which decisions needed to be made,” says Downham.

“Although there were successful divestments, there is also strong evidence that price volatility continued to create a price expectation gap between buyers and sellers.”

Downham and Hlophe agree the foundations have been laid for a gradual return to M&A in 2014.

“Confidence in the global economy continues to improve, larger companies have stronger balance sheets, and the focus on productivity and efficiency should begin to yield margin improvements. This should provide a better environment for both deal making and capital raising,” says Downham.

Financial investors will be key drivers of M&A

Financial investors and equity-backed alternative capital providers will be particularly active in the M&A market in the first half of 2014, driven by anticipated longer term commodity price recovery and the ability to leverage management ability.

“A number of private equity funds have raised resources focused funds and we expect increased deployment of these funds into resources assets in 2014. We estimate these investors have more than US$10-billion deal capacity for the sector, thus we expect to see some big deals in the sector over the next year,” says Hlophe.

“They will be focused on low risk geographies and looking to leverage under-performing assets, using technical, operational and financial influence to generate better returns.”

This increased appetite follows a year in which financial investors’ share of total deal value in the sector increased from 5% in 2012 to 19% in 2013. In Africa, opportunity for capital investment lies with the juniors, particularly from financial investors.

“This supports the view that 2013 marks the tipping point for the sector, with many of the providers of such capital calling the bottom of the market,” adds Hlophe.

Capital raising outlook

EY expects to see a greater proportion of the sector’s funding to come from equity through follow-on raisings during 2014 and a stronger appetite from debt providers improving access to leveraged loans for quality mid-tier miners and developers.

“Risk capital for juniors is unlikely to be available on any large scale in 2014. While the best development projects will continue to attract funding from the increasing pool of private equity capital, it may take a longer period of sustained commodity prices and cost control discipline across the sector before we see strong investor confidence and IPO markets open for juniors,” says Downham.

Says Hlophe: “However in emerging markets, especially in Africa we have seen increased financial investor interest in the sector, thus we are likely to see a big focus on juniors by financial investors looking to build up sizeable resources platforms for exit to the strategic majors in five to seven years’ time when the market turns and the majors embark on acquisitive expansion.”

Key numbers: global mining and metals 2013 M&A and capital raising

• 703 deals globally with total deal value of US$124.7b. 70 deals across Africa and deal value US$3.2b.
•  Excluding the Xstrata/Glencore merger, 702 deals worth US$87.3b, down 25% and 16% respectively year-on-year.
• Switzerland, UK and Canada top three acquirers of African mining deals for 2013
• Copper and gold were the leading target commodities for inbound deals across Africa
• In South Africa though, coal was the leading target commodity with 49% of deals by value, due to increased demand for energy in South Africa and other emerging markets.
• DRC was the leading Africa country by value of deals at US$430m with South Africa coming in at US$397m

Six new sources of funding for mining companies

Traditional sources of capital for mining companies have dwindled in recent years. This has affected junior mining companies, forcing them to seek alternative sources of funding.

In its recent report Tracking the Trends 2014 - Top ten issues in mining, Deloitte,  said mining companies will continue to face challenging market conditions this year including rising costs, falling commodity prices, supply/demand imbalances, and decreased productivity levels. The key to success, according to the consulting firm, is innovation, which can help companies to lay firm bases for long-term growth and better position themselves for future success.

Many junior companies are struggling to find financing, even for strong projects. In an effort to survive, companies are seeking new sources of funding, including the following options.

Sovereign wealth funds

Although China dominates this market, other countries are entering the game. Indian investment houses are buying Australian coal to secure assets and supply
for both electricity and steel. Both Japanese and Korean investors are becoming more active in the sector. The Middle East also represents a significant source
of potential wealth. Although these investors have not yet committed, funding from countries like Qatar, Abu Dhabi and Saudi Arabia may not be far off.

Private equity

According to Preqin, a firm that studies private equity, eight mining funds raised US$8.5 billion in 2012 alone. Although private equity firms typically shy away
from the mining industry, interest may mount as valuations fall and competition from larger mining companies eases. That said, many analysts still believe the
sector is too big – and timelines too long – to sustain private equity interest.

Non-traditional stock options

As liquidity through traditional stock exchanges becomes scarcer, some miners are listing on non-traditional exchanges in Asia (including Singapore), the U.S.
and Europe. Hong Kong’s stock market remains open to miners with solid business cases.

Alternative financing

While major companies tap the bond markets with a range of high-yield and hybrid issues, others are seeking different sources of funding through royalty and streaming arrangements, off-take deals, joint ventures and equipment financing. Some Russian miners have had success tapping into the Eurobond market.

Pension funds

Pension funds typically have a long-term liability profile, which aligns nicely with the mining industry’s long-term assets and returns. The sector could see more
interest from this quarter as pensions look to mining assets as a potential hedge against inflation. According to Preqin, public sector pension funds accounted
for 18% of organisations with an interest in natural resource private equity in 2012, followed by endowment plans at 17% and private sector pension funds
at 11%.19 

Consolidation

By pooling their capital and resources, some companies may be able to lower their labour and equipment costs sufficiently to ride out current market
turbulence. Although transactions are down, companies that can present buyers with a strong rationale for their asset pricing are more likely to attract investor
interest. To position for these opportunities, companies must right-size their portfolios and ensure that key assets are capable of functioning as standalone
entities, both from a financial and functional perspective. They also need to better calibrate their balance sheets in preparation not only for sale but also
potential refinancing.

Top risks for African mining

Africa is considered the last great frontier for terrestrial mining. The continent holds over 30% of the world’s minerals, including 40% of its gold, 60% of its cobalt and 90% of its platinum group mineral reserves. Given that relatively little exploration has taken place, the true extent of the resources could be much greater.

The opportunities are vast, but there are significant risks associated with mining projects. Frontier interviewed seven experts from firms including PwC, StrategiCo and Core Consultants and asked them what they thought were the top risks facing mining companies in Africa.

Download this complimentary report now and you will learn:

• What the top risks facing mining companies in Africa are
• What countries present the most challenging environments to operate within
• How mining companies can mitigate against some of the risks facing them

Read the report to ensure you are reducing the risk when embarking on mining projects in Africa.