Local construction firms and growth challenges

In spite of Nigeria’s 7 percent annual GDP growth, making it the fastest growing economy in Sub-Saharan Africa, with bountiful opportunities for construction activities, most local construction industry players have continued to suffer stunted growth.

According to a 10-year forecast from Global Construction Perspectives and Oxford Economics, growth in Nigeria’s construction industry will be faster than growth in other sectors. While China will overtake the US as the world’s biggest construction market by 2018, the fastest growth is projected to occur in Nigeria. The report, which considers Nigeria as the ‘hotspot’ for construction activities up to 2020, says the nation’s construction growth is even faster than India’s.

 The construction industry in Nigeria, analysts say, is a multi-billion dollar enterprise in which hardly any year falls short of expected windfalls coming the way of successful contractors who bid for construction projects, noting that the industry is a major component of any developing economy because it is a significant part of GDP.

 The challenge here however, is that the projected growth in the country’s construction industry may not rub off positively on local industry players considering that a good chunk of them are smaller players compared to their foreign counterparts.

 To leverage this projected growth, we feel that what should bother the local construction firms is the urgency of adopting strategies that will rightly position them to benefit from the boom that will definitely occur in the sector. One area of concern is the need to breed capacity in the right technology and human capital that seem scarce among local players. But definitely this may be  like an egg and chicken puzzle, as these local players believe that such capacity can come either from the level of patronage they receive from big spenders in construction- governments or from the local banks that are expected to offer soft funding terms.

 However, the issue of poor ethics, standards and the reluctant disposition to re-invest in the business by local construction firms has been stated by stakeholders as hindrances to growth. On the issue of proper funding required to acquire sophisticated equipment and technology, the multi-national players in Nigeria’s construction industry seem to enjoy an edge. Funds can be raised from their home country banks at single-digit interest rate, 3-4% for 10 years, while local players competing in the same market borrow money at 21 percent for two years.

 While it is commonly touted that public and private institutions in the country prefer awarding construction contracts to multi-national firms, this preference seems to border on issues relating to the convergence of factors like proven technical competence and financial capacity not on the mere fact that these multi-nationals are foreign players.

 This is why we urge the local players to come together and set an agenda on how to improve their technical capacity and financial muscle so that the projected quantum growth that is to occur in Nigeria’s construction industry will not pass them by.

 We believe that in the new global economy, the success of economic operators is not guaranteed by their origins but by their proven competence, dynamism, and the satisfaction they provide for their clientele. This is why Nigerian banks and manufacturing companies have gone multi-national and are thriving well in their foreign markets.