Why construction industry growth slows despite rise in cement production

Though the construction industry in Nigeria is almost as old as the country itself, it has remained a fledgling despite the increase in local production of cement which benefitted and has continued to enjoy the 2002 Federal Government’s backward integration policy.

Globally, the industry is acclaimed one of the most vibrant sectors with capacity for creating jobs and generating wealth, but in Nigeria due largely to its slow growth, only 5 percent of the country’s 170 population is employed in the industry whose value is estimated at US$69.4 billion.

Apart from the problems of skilled labour and heavy indebtedness to the industry which Babatunde Fashola, the Minister of Power, Works and Housing, estimated at N600 billion, the growth construction industry in Nigeria is also hampered by lack of machinery and equipment.

“Currently at its infancy stage, the industry remains relatively unsaturated by international suppliers and despite the push for the full spectrum of infrastructure, commercial, industrial and residential structures there is a lack of local machinery and equipment to meet demand, providing significant opportunities for international suppliers looking to corner the market”, notes Residential Auction Company (RAC) in its 2016 report on  its Lagos Island Construction Market.

For too long, the Nigerian construction industry has been dominated by foreign firms for reasons which industry players attribute to low rate credit facility which the foreign firms enjoy from their home countries which enables them to procure equipment much easier than their Nigerian counterparts.

Omorotimi Akinlose, RAC’s CEO, says Nigerian is among the top four African countries that import construction equipment and building material machines along with South Africa, Algeria and Egypt.

Data obtained from Construction Equipment and Building Material Machines within VDMA German Engineering Foundation estimates amount of construction equipment and building materials imported by Nigeria between 2010 and 2014 at US$2.8 billion, with import peaking in 2013 at US$ 680 million.

He notes however, that the Nigeria construction industry has also been boosted by the recent growth in the local production of cement which is the number one material in the industry. “There has been a significant rise in the local production of cement which has since caused a 25 percent reduction in the import of cement as local production accounts for 75 percent. Local production of the material stands at almost 15 million tonnes per annum”, he says.

Anywhere in the world, including Nigeria, the construction industry is largely driven by housing and infrastructure development and for a country that has a housing deficit estimated at 17 million units requiring between 700,000 – 1,000,000 new housing units annually to fill, opportunities abound for investment in the industry.

The RAC report which focuses on the Lagos Island Office Construction Market reveals that a lot of investment has gone into the construction of purpose-built and mix-use office space facilities in Victoria Island, Ikoyi and Lekki-Epe axis which are together classified as Lagos Island market.

These sub-locations, especially Victoria Island, are business hubs in Lagos and therefore form the nucleus of construction activities of varying degrees.  RAC notes that 2015 was a remarkable year for the Lagos Island office market, disclosing that an estimated 109,916 square metres of purpose-built office and mixed-use space were supplied to the market in that year alone.

“The sudden increase in the supply of office space triggered rents rise as developers were in competition for top tenants to occupy the new office buildings in the market which had unique features and built to high standards. Some of these unique features included helipads, jetty for water access and, for the first time in the market, green energy efficient buildings with LEED certification”, Akinlose said.

He pointed out that, over this period, Victoria Island supplied 53,912 square metres of purpose-built office space which makes up 64 percent of office space supplied into the market, adding that the area has a market share for new purpose-built office buildings at 70 percent.

Regarding mixed-use space, he said VI supplied an estimated 17,404 square metres of mixed-use space into the market  which makes up 69 percent of mixed-use space and has a market share of 67 percent for new mixed-use buildings.

Similarly, Ikoyi supplied 30,600 square metres of purpose-built office spaces representing 36 percent of office spaces supplied and it has a market share for new buildings at 30 percent. Regarding mixed-use space, it supplied an estimated 8,000 square metres of mixed-use space into the market which makes up of 32 percent of mixed-use space and has a market share of 33 percent for new mixed-use buildings.