Cementing a brighter future for Africa's booming new housing market

CITIC Construction uses team approach to develop housing projects, reports Hou Liqiang.

Hong Bo, assistant president of CITIC Group and chairwoman of CITIC Construction Co Ltd, has found a way to combine profitability with public welfare. In Angola, her company has built a new city while leaving the country with a whole operational industry chain and a skilled labor team for future development.

While Hong's firm sets an example for many Chinese companies, it is also trying to replicate its experience in more African countries. On May 29 in Nairobi, CITIC Construction, a Chinese multinational construction and engineering company, announced the launch of a $300 million investment with the International Finance Corp, a member of the World Bank Group, to develop affordable housing in sub-Saharan Africa. It will start by developing homes in Kenya, Rwanda and Nigeria, and then expand to other countries.

"Africa is a very important strategic market for CITIC Construction," Hong said. "In the past 10 years, 70 percent of our revenue has come from Africa. We call our strategy in Africa depth development'."

She added: "Most of our projects overseas are related to improving living standards, including housing, agriculture and infrastructure. We have shared the cost of helping developing countries to eradicate poverty and promote economic growth, working with the IFC."

Hong said Africa has great potential as a housing market because new homes are needed and existing ones need to be improved. But she said it is a market full of challenges: ill-defined land registration, a flawed mortgage system and the shortage of quality construction materials in many African countries.

According to Oumar Seydi, IFC director for eastern and southern Africa, more than 40,000 people migrate into cities every day in Africa. However, there are few local developers with the technical or financial strength to build large-scale housing projects. Kenya's housing shortage, for example, is estimated at 2 million units. Nigeria needs 17 million units.

"Only after overcoming these obstacles can we realize our desire to build affordable houses," said Hong.

In Angola, Hong's company has demonstrated how to make houses affordable while making a profit.

It started a $4 billion project in 2008, when the country was still experiencing a shortage of daily necessities, including construction materials and machinery. A single cucumber sold for more than 40 yuan ($6.5) when she visited the country in 2005 because of shortages, Hong said.

Through planning, financing, construction and post-construction operation, the company completed a 200,000-unit housing program in Kilamba Kiaxi and also built up infrastructure and utilities over four years.

CITIC Construction has only about 1,200 employees globally, but the company managed to build up a whole industry chain to support the project, establishing construction material factories to ensure supply, a farm to supply food to reduce the costs of workers, a logistics system to transport materials and equipment and also a training school to solve the shortage of skilled labor, all of which greatly reduced costs and made houses more affordable.

"We position our company as one that can make a difference. We are an initiator who builds up a platform and invites those who can join us.

"For example, if we want to launch a cement factory, we will first create a supply and demand relationship and ensure the investor has the least risk with the greatest profit. We are a stakeholder in the cement factory, but we will not be the operator because we have no expertise in running a cement factory."

Hong called her model a "combined fleet", where different companies with different strengths are united to maximize their combined talent.

"A company is always profit-oriented. But we are not a government and we don't have a systematic support system. If we don't do those things (in a country with great shortages), we could hardly make money or make our products competitive," Hong said.

"We win engineering, procurement and construction contracts by investing and financing, and then we promote the development of all related industries, and a whole operational industry chain will be left after we finish our projects."

The model can result in great economic benefit. The World Bank estimates that one housing unit can create five full-time jobs, but Hong said that CITIC projects can result in 10 jobs, since it is not just a housing developer.

"Helping others is actually helping yourself. It's the reality in many developing countries that you will not be able to reach your goal if you don't help them in building a whole support system."

She said many Chinese companies that thought they had won good contracts, worth three times as much as similar projects in China, suffered setbacks through lack of planning. "Materials and equipment are available in China and you only need to make several phone calls to get them. You just cannot find many of them in many African countries no matter how much you pay.

"Without general planning, it's easy to start but difficult or even impossible to finish projects. What they bring to the investment destination countries will not be a package solution. If you only work as a property developer, it's hard to make money. My experience is, as a developer, you need to build up a whole supporting industry chain or lead other companies to build such a chain. Only in this way can you make sure you will succeed in your projects," Hong said.

She said Chinese companies should also be ready to put down roots in Africa. "If you want to take root here, you must involve the locals at various levels, not only the labor force but also executives, and integrate yourself into the local culture by cooperating with all kinds of local companies.

"It's our objective to localize our employees. If there are no skilled workers and executives available, we can train them ourselves. That benefits countries and equips them with the talent they need. It also helps Chinese companies solve practical problems by reducing labor costs and making development sustainable."

Contact the writer at houliqiang@chinadaily.com.cn