Ethiopia Construction Output to Grow 9% in 2025, Boosted by Transport and Renewable Projects

Ethiopia Construction Output to Grow 9% in 2025, Boosted by Transport and Renewable Projects

The Ethiopian construction industry is on a promising trajectory, with robust growth projected in the coming years. According to the newly released report “Ethiopia Construction Market Size, Trends, and Forecasts by Sector – Commercial, Industrial, Infrastructure, Energy and Utilities, Institutional and Residential Market Analysis to 2029 (H1 2025)”, the industry is expected to grow by 9% in real terms in 2025. This growth is largely attributed to rising public and private investment in key infrastructure and renewable energy projects, as well as long-term strategic planning by the government aimed at transforming the nation’s economic landscape.

A Closer Look at the Drivers of Growth

The expansion forecast for 2025 builds upon the momentum created by Ethiopia’s extensive fiscal planning and infrastructure agenda. In August 2024, the Ethiopian government unveiled a record-high fiscal budget of ETB1.5 trillion (approximately USD 11.3 billion) for FY 2024–25, which runs from July 8, 2024, to July 7, 2025. A substantial portion of this budget has been earmarked for capital investments across critical sectors including transport, energy, education, agriculture, healthcare, and defense.

This significant financial commitment signals a continued focus on foundational economic development, particularly in sectors that require heavy infrastructure. Road and rail projects, power generation and distribution initiatives, and housing developments are expected to dominate capital allocation. The government has made it clear that these investments are part of a broader strategy to stimulate employment, boost domestic production, and attract foreign direct investment.

Renewable Energy as a Key Growth Pillar

One of the most transformative aspects of Ethiopia’s construction outlook lies in the energy sector, particularly renewable energy. Recognizing the need to diversify its energy portfolio, which has historically been dominated by hydropower, Ethiopia is accelerating the development of wind, solar, and geothermal energy resources.

In February 2025, the government entered into a strategic Memorandum of Understanding (MoU) with the African Trade Insurance Agency (ATIDI). This agreement is aimed at strengthening the country’s ability to attract foreign investment into renewable energy projects. One of the core components of this MoU is the use of ATIDI’s Regional Liquidity Support Facility, which is designed to enhance the bankability of power purchase agreements by improving the creditworthiness of Ethiopian Electric Power (EEP), the national utility.

The MoU also supports Independent Power Producers (IPPs) and facilitates Public-Private Partnerships (PPPs) by minimizing investor risks, particularly those associated with delayed payments or currency fluctuations. This is crucial, as Ethiopia aims to transition from a heavily government-funded energy sector to one that is increasingly open to private investment and market-driven development.

This move aligns with the country’s ambitious ten-year strategic development plan (2020–2030), which aims to achieve full electricity access for the population by 2030. As of 2019, only 44% of the population had access to electricity, highlighting the urgent need for sectoral transformation. Achieving universal access will require extensive construction of new generation facilities, transmission lines, substations, and rural electrification infrastructure—activities that will significantly drive construction industry growth.

Transport Infrastructure Investments Continue to Accelerate

Beyond energy, Ethiopia is aggressively investing in transport infrastructure, which forms the backbone of its economic integration strategy. New road and railway projects are underway to improve connectivity across the country and with neighboring markets, thereby enhancing trade, mobility, and access to social services.

The transport sector has long been seen as a bottleneck to Ethiopia’s economic ambitions, with limited connectivity between rural and urban areas and across international borders. By upgrading this infrastructure, the government seeks to reduce logistical costs, enhance supply chain efficiency, and promote regional trade integration through corridors such as the Djibouti-Addis Ababa railway line and other road linkages to South Sudan, Kenya, and Somalia.

Such infrastructure projects not only involve the physical construction of roads and railways but also entail building associated facilities like warehouses, logistics parks, toll stations, and maintenance depots—each contributing to broader construction activity and employment generation.

Risks and Challenges Remain

Despite these encouraging trends, the construction sector faces several short-term challenges that could hamper progress. One of the primary concerns is the depreciation of the Ethiopian birr, which continues to drive up the cost of imported construction materials and equipment. This, combined with high inflation, places financial strain on both public agencies and private developers.

Security concerns are another major obstacle. The sector has experienced project delays and cost overruns due to ongoing regional conflicts and instability. One high-profile example was the termination in August 2024 of a major contract awarded to the state-owned Metals and Engineering Corporation (METEC) for work on the Nile River dam. Valued at ETB235.8 billion (approximately USD 4 billion), the project was cancelled due to repeated delays and performance issues. This termination underscores the systemic inefficiencies and governance challenges that still plague major infrastructure development in Ethiopia.

The METEC case serves as a cautionary tale about the importance of project transparency, contractor accountability, and security planning in ensuring successful infrastructure delivery. It also highlights the need for broader institutional reforms to strengthen public procurement and project management processes.

Long-Term Outlook Remains Positive

Looking beyond 2025, Ethiopia’s construction sector is expected to maintain a solid growth trajectory, with an average annual growth rate of 7.7% projected between 2026 and 2029. This sustained expansion will be underpinned by a continuation of strategic investments in infrastructure, an improving regulatory environment, and the gradual strengthening of public-private collaboration.

Industrial development will also play a pivotal role. The government’s ongoing push to expand industrial parks and special economic zones (SEZs) is creating new demand for factory construction, worker housing, utilities, and transportation networks. These initiatives are not only aimed at increasing manufacturing capacity but also at generating employment and enhancing export competitiveness.

The residential construction market is also expected to benefit from population growth and urbanization. With Ethiopia’s population projected to exceed 150 million by 2030, the need for affordable housing, schools, hospitals, and sanitation infrastructure is becoming more pressing. Public housing programs, coupled with incentives for private developers, are beginning to gain momentum in urban centers like Addis Ababa, Dire Dawa, and Mekelle.

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