Low-cost construction material production

Low-cost construction material production
Photo by UNDP / Mazane Singles
Low-cost construction material production
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Consumer Goods
Consumer Discretionary Products
Business Model Description

Produce affordable and environmentally friendly building materials, such as bricks, steel, tiles and concrete.

Expected Impact

Improve access of low and middle income populations to better materials for home improvements and safer living conditions.

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
15% - 20% (in ROI)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Long Term (10+ years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
5% - 10% (CAGR)
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8) Industry, Innovation and Infrastructure (SDG 9) Sustainable Cities and Communities (SDG 11)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
No Poverty (SDG 1) Zero Hunger (SDG 2) Reduced Inequalities (SDG 10)
Country
Regions
  • Rwanda: Kigali
  • Rwanda: Western Province
  • Rwanda: Northern Province
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Consumer Goods
CG

Development need: The country significantly underscored in SDG 9 - Industry, Innovation and Infrastructure, SDG 7 - Affordable and Clean Energy, SDG 11 - Sustainable Cities and Communities and SDG 6 - Clean Water and Sanitation.(1) Rwanda faces high costs of logistics and long transport times due to its relatively poor supply chains.(2) As infrastructure improves overall productivity of the economy, it will be the key driver for enhancing Rwanda’s sustainable development and economic growth.(3)

Policy priority: Rwanda's industrial sector accounts for approximately 15% of gross domestic product (GDP), making it a crucial component of the national economy.(4) The government recognizes the construction materials industry faces several constraints arising from the infrastructural gap, which makes building products relatively expensive.

Gender inequalities and marginalization issues: To the extent that value added tax is applied to basic consumption goods, women may be disproportionally affected. Increased fiscal pressure on the informal sector is also likely to have an anti-poor and gender bias, because women in low income groups tend to be largely segregated in informal activities.(28)

Investment opportunities introduction: The growing population, accompanied by rural-urban migration, will require heavy investment in urban planning and development (sanitation, waste management, low cost housing, electric supply and information and communication technology (ICT) connectivity.(3)

Key bottlenecks introduction: Limited physical infrastructure, constrained by hilly and mountainous topography, remains a major challenge for producers and farmers in increasing their access to markets, enhancing competitiveness, and improving incomes and livelihoods. It also negatively influences the pace of structural transformation.(2)

SubsectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Consumer Discretionary Products
CG.2

Policy priority: According to the Ministry of Trade and Industry, the Rwandan construction sector received significant stimulus due to population growth (2.7% annually). The government recognizes low-cost construction materials that enable affordable housing for economic growth as an important factor in upgrading the living conditions of Rwanda's population.

IndustriesMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Building Products and Furnishings
CG-BF
Investment Opportunity Area

Low-cost construction material production

Business Model

Produce affordable and environmentally friendly building materials, such as bricks, steel, tiles and concrete.

CAGRDescribes the historical or expected annual growth of revenues in the IOA market.
5% - 10%
Critical IOA UnitDescribes a complementary market sizing measure exemplifying the opportunities with the IOA.
In 2019, Rwanda imported ceramic housing construction materials worth USD 1.5 million.(9)

Rwanda's construction industry is forecast to experience compound annual growth of 9% until 2021, making it the second-fastest rate of growth in Sub-Saharan Africa.(8)

In 2019, Rwanda imported ceramic housing construction materials worth of over USD 1.5 million.(9) Almost 137,000 houses (constituting 40% of the total housing stock in Kigali) need to undergo upgrading or replacement due to non-compliance with the current regulatory standards.(6)

In 2011, only 50% of the demand for construction materials was met in Rwanda due to limited capacities of factories. The annual demand for clay bricks and tiles was estimated at 45,000 tons in 2011.(10) In the same period, the demand for cement in Rwanda was estimated at 350‚000 tons.(10)

A study in Rwanda highlighted the need to develop parallel affordable housing along with construction materials. In 2016, exports of construction materials were over USD 9 million, but imports for around 40 types of constructions materials were higher, reaching over US$139 million. The result was a trade deficit of just over USD 130 million.(7)

ROIDescribes an expected return from the IOA investment over its lifetime.
15% - 20%

The estimated return rate for investors is 17.2% - 21.2%. This rate is a benchmark based on cost of equity with a country risk premium, reflecting an average return required by investors active in the construction supplies subsector.(11)

TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Long Term (10+ years)

Due to high initial capital expenditure, the required construction time and the characteristics of the business model, the investment timeframe is likely to exceed 10 years, based on studied benchmark projects.

Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Business - Business Model Unproven
Strong economic pressure to save material costs (12)
Market - Volatile
Fluctuating raw material prices and transport costs may significantly increase the local prices of construction materials.(13)
Business - Supply Chain Constraints
Low availability of training schemes for laborers (13)
Sustainable Development Need

Approximately 79% of Kigali's residents live in unplanned, informal settlements, reflecting the scarcity of affordable housing in the city. Due to the high cost of quality construction materials, 37% of Kigali inhabitants use mud bricks, making the construction unsafe.(5)

Construction costs constitute the largest cost category in Rwanda, accounting for as much as 55% of the total house cost in Kigali.(5) This situation is replicated across the country, reducing the availability and access to key construction materials, and increasing the cost of housing considerably.

The high cost of the these materials directly impact access to safe and quality materials and houses across the country, creating additional barriers for middle class and low income populations to live in proper conditions.

Gender & Marginalisation

The high cost of construction materials particularly affects informal settings where low income households lack access to safe living environments. The burden is heaviest on women who are largely occupied with domestic work.

Expected Development Outcome

Reduced costs of housing construction and increased construction of affordable housing

Improved trade balance due to export substitution

Improved human capital development due to reduced negative health impacts arising from living in inappropriate housing

Gender & Marginalisation

Improved living conditions for low and middle income populations who could not afford to upgrade their houses

Primary SDGs addressed
8 - Decent Work and Economic Growth
Decent Work and Economic Growth (SDG 8)

8.4.2 Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP

Current Level

2.94 tons per capita (25)

Target Level

N/A

9 - Industry, Innovation and Infrastructure
Industry, Innovation and Infrastructure (SDG 9)

9.2.1 Manufacturing value added as a proportion of GDP and per capita

9.b.1 Proportion of medium and high-tech industry value added in total value added

Current Level

6% (26)

6.66% (25)

Target Level

N/A

N/A

11 - Sustainable Cities and Communities
Sustainable Cities and Communities (SDG 11)

11.1.1 Proportion of urban population living in informal, informal settlements or inadequate housing

Current Level

52.5% (27)

Target Level

N/A

Secondary SDGs addressed
1 - No Poverty
No Poverty (SDG 1)
2 - Zero Hunger
Zero Hunger (SDG 2)
10 - Reduced Inequalities
Reduced Inequalities (SDG 10)
Directly impacted stakeholders
People
Low and middle income populations with access to affordable construction materials
Gender inequality and/or marginalization
Communities living in informal settlements and obtaining opportunities to formalise living conditions
Planet
Environment due to use of less harmful construction materials
Corporates
Construction services providers, developers, micro, small and medium enterprises and manufacturers of construction materials
Public sector
Public entities with greater urban planning security
Indirectly impacted stakeholders
Corporates
Secondary businesses with new opportunities due to formal housing, such as sanitary service providers
Outcome Risks

Implications of mineral extraction to create the basic product (loss of biodiversity, deforestation etc.) (14)

Pollution and energy consumption related consequences of the manufacturing/production and transport process (14)

Toxicity of products and chemicals applied to develop them (14)

Waste (solid/waterborne) issues at all stages of the material production and construction processes (14)

Impact Risks

Waste (solid/waterborne) issues at all stages of the material production and construction processes (14)

Unexpected impact risk based on the negative impact of construction activities on the environment

What

Production of affordable and environmentally friendly building materials, which can facilitate further development of the construction industry and generate wealth and employment opportunities.

Who

Stakeholders in the construction industry and Rwandan citizens with access to affordable construction materials

Risk

Fluctuating raw material prices and high transport costs may force product prices upwards. Global warming potential of the traditional materials should be addressed.

Impact Thesis

Improve access of low and middle income populations to better materials for home improvements and safer living conditions.

Policy Environment

The significance of affordable housing and balancing housing prices with income is an important factor in upgrading the living conditions of Rwanda's population. At the same time, to a large extent, local investments have already been driven by the construction industry.

National Industry Policy: This policy distinguishes construction materials as one of the industrial policy clusters.(15)

Industrial Sub-Sector Master Plan for Construction Materials: This plan aims to enable the construction materials industry in Rwanda to increase its contribution to gross domestic production (GDP) and employment. It is developed to improve the industry's trade balance and to initiate the green growth transformation.(16)

Rwanda National Construction Industry Policy: This policy identifies the need for further research on using appropriate technology and local materials for infrastructure construction.(17),(18)

According to the information provided by the Rwandan Ministry of Infrastructure, a draft of the new Construction Industry Policy is in the adoption process.(17),(18)

Financial Environment

Fiscal incentives: A corporate income tax holiday of up to 7 years is available for investments of at least USD 50 million. Companies with an EPZ (Export Processing Zone) status are exempted from customs taxes, corporate income tax and value added tax if an investor exports over 80% of its production.(24)

Other incentives: An accelerated depreciation rate of 50% over the 1st year of operations in Rwanda; manufacturing inputs and equipment without import duties. Registered investors do not pay capital gains tax. An investor exporting at least 50% of its production receives a preferential corporate income tax rate of 15%.(24)

Regulatory Environment

Law N°10/2012 of 02/05/2012 Governing Urban Planning and Building in Rwanda: This Act establishes the framework for urban planning and construction in Rwanda.(19)

Law N°20/2011 of 21/06/2011 Governing Human Habitation in Rwanda: This Act provides definitions and criteria for human settlements, as well as areas for human settlements.(20)

Prime Minister’s instructions No 002/03 of 05/05/2015 determining procedures for eradication of asbestos materials: This order prohibits the use of asbestos materials in human settlements.(21)

The Rwanda Environment Management Authority is responsible for managing projects and materials affecting the natural environment, such as materials used for construction, their composition and quality.(22)

The Ministry of Trade and Industry governs investment, trade, manufacturing industry and entrepreneurship in Rwanda.(23)

Private Sector

China Civil Engineering Construction Corporation (CCECC), Abadahigwa Kuntego Ltd., Groupe Palmeraie Développement, COPED Group Rwanda

Government

Rwandan Ministry of Infrastructure (MININFRA), Rwanda Development Board (RDB), Centre for Affordable Housing Finance in Africa (CAHF)

Multilaterals

OPEC Fund for International Development (OFID), World Bank (WB), African Development Bank (AfDB), Rwanda Development Bank (BRD), United Nations Human Settlement Programme (UN Habitat)

Non-Profit

United Nations Human Settlement Programme (UN Habitat), United States Agency for International Development (USAID), Centre for Affordable Housing Finance in Africa (CAHF)

country static map
urban
Rwanda: Kigali
The highest deficit of proper housing is seen around large cities like Kigali (6) and secondary cities like Rubavu, Musanze, Rusizi, Huye, Muhanga and Nyagatare. Therefore, construction materials should be manufactured closer to the areas with higher demand.
semi-urban
Rwanda: Western Province
The highest deficit of proper housing is seen around large cities like Kigali (6) and secondary cities like Rubavu, Musanze, Rusizi, Huye, Muhanga and Nyagatare. Therefore, construction materials should be manufactured closer to the areas with higher demand.
semi-urban
Rwanda: Northern Province
The highest deficit of proper housing is seen around large cities like Kigali (6) and secondary cities like Rubavu, Musanze, Rusizi, Huye, Muhanga and Nyagatare. Therefore, construction materials should be manufactured closer to the areas with higher demand.
Sector Sources
  • 1) United Nations Development Programme (2020). Sustainable Development Report 2020. https://unstats.un.org/sdgs/report/2020/The-Sustainable-Development-Goals-Report-2020.pdf 2) Ministry of Infrastructure. Draft Final Transport Sector Strategic Plan for the National Strategy for Transformation (NST1) 2018. 3) Gatete, C. (2016). The Rwanda we want: Towards ‘Vision 2050’. https://www.minecofin.gov.rw/fileadmin/user_upload/Minecofin/Speeches/Hon_Gatete_Umushyikirano_Presentation_2016.pdf 4) Republic of Rwanda. Industrial Sub-Sector Master Plan For Construction Materials. Ministry of Trade and Industry. Government of Rwanda. https://rwandatrade.rw/media/MINICOM%20Construction%20Materials%20MasterPlan.pdf 5) World Bank. Housing Solutions for Low-Income Urban Communities in Rwanda. 6) Bower, J. and Murray, S. (2019). Housing need in Kigali: Findings and policy reflections. https://www.theigc.org/wp-content/uploads/2019/07/Bower-Murray-2019-Policy-brief.pdf 28) United Nations Conference on Trade and Development (2014). Who is benefiting from trade liberalization in Rwanda? A Gender Perspective. https://unctad.org/system/files/official-document/ditc2014d2_en.pdf
IOA Sources
  • 7) Gardner, D., Lockwood, K. Pienaar, J. (2019). Assessing Rwanda’s Affordable Housing Sector. Centre for Affordable Housing Finance in Africa. http://housingfinanceafrica.org/app/uploads/CAHF-Rwanda-HEVC-and-HCB-FINAL.pdf 8) Project Africa Rwanda. Rwanda’s construction market in focus. http://www.projectafrica-rwanda.com/market-insights 9) UN Comtrade database. 10) Ministry of Trade and Industry. Industrial Sub-Sector Master Plan for Construction Materials. https://rwandatrade.rw/media/MINICOM%20Construction%20Materials%20MasterPlan.pdf 11) PwC analysis based on Prof. A. Damodaran data, 2020. 12) Schmidt, W. and Kuehne, H. (2018). 'Materials And Technology Solutions To Tackle The Challenges In Daily Concrete Construction For Housing And Infrastructure In Sub-Saharan Africa', African Journal of Science, Technology, Innovation and Development, vol.11. https://www.tandfonline.com/doi/abs/10.1080/20421338.2017.1380582 13) Construction Industry Development Board (2007). The Building And Construction Materials Sector, Challenges And Opportunities. http://www.cidb.org.za/publications/Documents/The%20Building%20and%20Construction%20Materials%20Sector,%20Challenges%20and%20Opportunities.pdf 14) Ampofo-Anti, N. (2010). Green Building Handbook for South Africa: The Environmental Impacts Of Construction Materials Use: A Life Cycle Perspective. CSIR Built Environment. https://researchspace.csir.co.za/dspace/bitstream/handle/10204/3386/Ampofo-Anti_2009.pdf?sequence=1&isAllowed=y 15) Ministry of Trade and Industry (2011). National Industry Policy. Republic of Rwanda. http://www.minicom.gov.rw/fileadmin/minicom_publications/policies/Industrial_Policy-2.pdf 16) Ministry of Trade and Industry. Industrial Sub-Sector Master Plan For Construction Materials. Republic of Rwanda. https://rwandatrade.rw/media/MINICOM%20Construction%20Materials%20MasterPlan.pdf 17) Ministry of Infrastructure (2009). Rwanda National Construction Industry Policy. Republic of Rwanda. https://www.rutsiro.gov.rw/fileadmin/templates/document/Amabwiriza_y_imyubakire.pdf 18) Ministry of Infrastructure. Policies And Legal Framework. https://www.mininfra.gov.rw/index.php?id=183%27A=0 19) Republic of Rwanda. Law N°10/2012 of 02/05/2012 Governing Urban Planning and Building in Rwanda. https://rema.gov.rw/fileadmin/templates/Documents/rema_doc/Laws%20and%20Regulations_Updated/Laws/Law%20governing%20the%20urban%20Planning%20and%20building%20in%20Rwanda.pdf 20) Republic of Rwanda. Law N°20/2011 of 21/06/2011 Governing Human Habitation in Rwanda. http://197.243.22.137/rlrcgov/fileadmin/user_upload/Laws2/LAWS%20PUBLISHED/RWA%20LAWS%20PUBLISHED%20IN%202011/RWA%202011%20%20%20LAW%20NO%2020-2011%20%20%20LAW%20GOVERNING%20HUMAN%20HABITATION%20IN%20RWANDA-%20%20OG%20N0%20%20SP%20OF%2012%20JULY%202011.pdf] 21) Republic of Rwanda (2015). The Prime Minister’s instructions No 002/03 of 05/05/2015 determining procedures for eradication of asbestos materials. http://197.243.22.137/rlrcgov/fileadmin/user_upload/Laws2/LAWS%20PUBLISHED/RWA%20LAWS%20PUBLISHED%20IN%202015/RWA%202015%20%20MO%20N0%2005-CAB.M-015%20%20%20URBAN%20PLANNINING%20OPERATIONS%20AUTHORISATION%20%20%20-OG%20NO%20SP%20OF%2004%20-JUN%20-2015.pdf 22) Rwanda Environment Management Authority (REMA). Mission, Vision and functions. https://www.rema.gov.rw/index.php?id=10 23) Ministry of Trade and Industry. About the Ministry. https://www.minicom.gov.rw/about 24) Rwanda Development Board. Incentives To Support The Manufacturing Sector. https://rdb.rw/investment-opportunities/manufacturing/#tab-1-3 25) SDG Tracker (2021). Measuring progress towards the Sustainable Development Goals. https://sdg-tracker.org/ 26) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press. https://dashboards.sdgindex.org/profiles/RWA 27) Republic of Rwanda (2019). Voluntary National Review Rwanda 2019. https://sustainabledevelopment.un.org/content/documents/23432Rwanda_VNR_Document__Final.pdf 29) Afrik21 (2020). Rwanda: COPED processes single use plastics to make building materials. https://www.afrik21.africa/en/rwanda-coped-processes-single-use-plastics-to-make-building-materials/