Fashola says exit from recession finds explanation in increased construction sector funding

Babatunde Fashola, Nigeria’s minister for power, works and housing, says Nigeria’s recent exit from economic recession finds explanation in the increased funding that the construction sector of the economy has seen in the last 12 months.

The National Bureau of Statistics (NBS) had in its second quarter 2017 report announced that the country’s GDP, after four consecutive quarters of negative growth, has grown by 0.55 percent, leading to the country’s exit from a 13-month recession that literally crippled the country’s economy.

The bureau explained that the economy recovered from the rude shock which the recession induced because of the growth in some sectors of the economy including agriculture, manufacturing, trade and services which recorded 15.97 percent (year-on-year), 4.82 percent and 59.05 percent growth respectively.

This, to the minister, whose views were contained in his keynote speech at a one-day summit on the ‘Economics of Innovative Solutions to Roads Construction’ organised by BusinessDay in collaboration with Lafarge Africa, was a good development. He recalled that when the economy was growing at 5-7 percent, the complaint was that the growth was non-inclusive. Growth, he pointed out, was largely oil driven while sectors like industries, mining and construction had been in the negative since 2014.     

The reasons for this, he explained, were many not the least of which was that public spending up to 2015 was largely recurrent and minimally capital. “Government was budgeting about 15 percent of an annual budget of N4 trillion for capital expenditure, which is only about N600 billion, and was funding barely half of that”, he said, citing the 2015 budget where N18 billion was budgeted for all of Nigeria’s roads, N5 billion for Power and N1.8 billion for housing.

But the 2016 budget change the narrative such that in the Ministry of Power, Works and Housing, a total of N422.9 billion was budgeted, comprising  N260.082 billion for Works, N91.257 billion for Power and N71.559 billion for housing. “The total sum of N269.271 billion was paid out to fund this budget and, in the end, N1.2 trillion was spent on capital expenditure across all ministries, departments and agencies in the 2016 budget”, he disclosed.

Continuing, he said that out of these, N198.300 billion was spent in the works sector on roads and bridges and that was what induced the growth and exit from recession. He quoted the NBS report which says “… Q2 2017 GDP results indicate that the recovery was driven by the performance of agriculture and industry, especially crude oil and gas production as well as…construction…

“With respect to construction and related activities, GDP in the sector had been negative since Q2 2015, but turned positive for the first time in Q1 2017, growing by 0.15 percent and continued in positive growth into Q2 2017 by growing by 0.13 percent. The reversal in construction has to do with civil works especially due to federal government’s capital expenditure… “

Against this backdrop, the minister emphasized that infrastructure spend drives the real economy, stimulates production and industrial activity which employs people and includes them, describing that as the economics of road construction.

He recalled that during the implementation of the 2016 budget, 103 construction companies executing 192 projects were paid who employed 17,749 people directly and 52,000 people indirectly in works, adding that there was provision of funding under the 2017 budget in the sum of N90 billion out of which N47.169 billion has been paid to 62 contractors working on 149 projects to continue work on roads and bridges and keep people at work and sustain production.

But, in spite of this commitment to funding roads infrastructure by the governments, discussants at the summit submitted that government cannot do it alone because of the huge capital requirement, hence the need for private public partnership (PPP) initiatives which the minister affirmed.

Patrick Mgbenwelu, a banker, believes that a well structured project will always find liquidity, meaning that private sector operators are always ready to provide the finance for a good project.

Adekunle Oyinloye, the managing director of Infrastructure Bank, agrees, stressing that the model that works for infrastructure development is the PPP. According to him, contractors working for the federal and state governments are owed about N1.7 billion and some of these debts are as old as five to 10 years which will not be the case in a PPP arrangement.

Earlier, Femi Yusuf, Head, Roads Segment at Lafarge, had offered insights on the economics of concrete roads pavement, highlighting the advantages of this approach over asphalt roads. “Virtually all countries of the world have adopted concrete pavement as a viable option for roads infrastructure, he said, explaining that this option is rigid and loads are distributed relatively over a large area.

“It lasts longer, it is more cost-effective and its life cycle is lower but the initial cost is higher than asphalt.  It however, decreases with time until it nearly becomes zero”, he said, and disclosed that this was used to construct the 7.5-kilometre road adjacent to their cement plant in Calabar.

CHUKA UROKO