Construction industry growth and debt burden

The story of the Nigerian construction industry is that of growth potential driven by demographic boom and fast-paced urbanization. The industry is projected to be the fastest growing of all markets in the next 10 years and, as disclosed by the latest 10-year forecast from Global Construction Perspectives and Oxford Economics, the fastest industry growth will happen in this country from 2018.

This growth, according to close industry watchers, is a reflection of increased wealth and urbanisation resulting from oil production, explaining that the country’s high population of over 160 million has encouraged high urbanisation rate.

Nigeria’s annual Gross Domestic Product (GDP) is expected to rise 7.1 percent by 2030. This will be able to push its GDP to more than $1.6 trillion, supported by rapid infrastructure expansion through investment of about $1.5 trillion.

According to a 2012 report by Business Monitor International, investment inflows into Nigeria’s construction industry are expected to reach $9.4 billion or N1.5 trillion by 2021, giving the industry very bright prospects and outlook.

However, these bright prospects may be eroded by heavy debt burden arising from unpaid contract jobs by the federal, state and local governments which runs into hundreds of billions of naira.

According to industry operators, this huge debt burden has dragged down the productive capacity of this all-important industry to below 30 percent and has also stagnated its contribution to GDP to only 3.2 percent.

The Federation of Construction Industries in Nigeria (FOCI), an umbrella body of construction companies, local and foreign, operating in Nigeria, laments that this unfortunate state of affairs does not arise from their incompetence or that they do not see work to do, but from heavy indebtedness to its members by governments at the federal, state and local levels.

According to the federation, the Federal Ministry of Works alone owes its members about N500 billion for jobs done mostly with bank loans, saying that the impact of this on the growth of the industry can only be imagined because it is enormous.

For instance, construction work on the 400-capacity trailer park on Apapa-Oshodi Expressway, which is being handled by Borini Prono, an Italian construction firm, is taking eternity to be completed mainly because, as an official of the company put it, “nobody is talking to us from the ministry; we are on site but we are not doing much”. The delay in completing this park is part of the reasons for the perennial gridlock on all routes to Apapa and this has cost port users and residents untold hardship.

In our view, these are not palatable stories for a country that is burdened with high infrastructure deficit requiring trillions of naira to bridge. Government’s indebtedness to contractors is a sore point in the economics of the outgoing administration and this is because from the onset of the electioneering campaigns for the March/April elections, most government projects were put on the back burner.

We are saddened by this development in an industry that holds out so much hope for growth that would ultimately impact on the national economy. The construction industry is a heavy employer of labour and we condemn, in very strong terms, any act of omission or commission that stifles its growth because that will have a spiral effect on the job market and, by extension, the households.

Expectations on the Buhari government are already very high across many sectors of the economy. We urge that the construction sector should not be left out. Indeed, there should be an emergency intervention in the sector by the incoming government.