Increase in Construction Activities Expected As Elections Draw Closer

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Friday, June 22, 2018 3:50PM / FDC

Nigeria’s GDP growth figures came in at 1.95% in the first quarter of 2018, slowing from 2.11% in Q4’17. Nigeria’s construction sector also showed the same trend in the quarter. The sector’s growth dipped into negative territory (-1.54%) in Q1’18, after a 4.14% growth in the fourth quarter of 2017. This is partly due to a slower aggregate spending in the first quarter of the year, compared to Q4 which witnesses widespread growth in consumer demand.

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The sector recorded a negative growth through-out 2016. A decline in global crude oil triggered a con-traction in government revenues, disposable income and aggregate output. Virtually all the sectors of the economy dipped and construction was not isolated. The sector started recovering in Q1’2017, posting a 1% growth the year. The contraction streak has resumed in Q1’18 and this is expected to persist in Q2. The second quarter (April-June), which introduces the rainy season, usually witnesses less construction activities. We are forecasting a -1.2% growth for the sector in the quarter.

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Developments in the Construction Space 

Domestic

FGN commits N300bn to road infrastructure in 3 years 

The Federal government of Nigeria has committed N300bn to road infrastructure in the country since 2015 according to the Minister of Work, Power and Housing, Mr. Babatunde Fashola. The minister noted that the government has identified some priority areas of roads that need urgent attention. These include the roads with the heaviest traffic, such as Lagos-Shagamu, Ore-Benin and the Lagos-Ibadan expressway among others. The minister also disclosed that all the states had one form of road construction or rehabilitation going on; according to the minister, over 250 roads across the country are under construction. 

Sub-Saharan African (SSA) countries 

Construction starts on Africa’s tallest building in Kenya

Construction has commenced on the Pinnacle Towers in Kenya, Africa’s tallest building. The building will also be one of the highest in the world. The 70-floor twin tower is located in Nairobi’s Upperhill area and it is expected to cost $194mn to be financed through equity and debt. The building will encompass a 45-floor Hilton hotel, 200 residential houses and a helipad of about 800 feet. The developers have spent $14mn in the construction of the foundation and preparation phase. The project is scheduled for completion by December 2019. 

Implications

Tourism constitutes approximately 10% of Kenya’s GDP, while revenue from tourism increased by 20% to $1.2bn in 2017. This sharp increase came as a surprise due to a prolonged election period and the ac-companying risk of violence. The completion of the Pinnacle Tower suggests that the tourism sector is poised for further growth as the building will attract tourists into Kenya and boost earnings. Ancillary services such as banking would benefit from this. 

Construction Companies’ Performance on the NSE in May

Three out of the 169 listed companies on the Nigerian Stock Exchange (Julius Berger Plc, Arbico Plc and Roads Nigeria Pl) are construction firms and they constitute 0.27% of total market capitalization Stock prices of these firms lost an average of 0.59% in May. Share prices of Arbico and Road Nigeria were flat in May. Julius Berger lost 1.78% in the last month.

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Outlook

We maintain the view that Nigeria’s construction sector will slow in June and Q2’18 as rains widely constrain construction activities. The outlook for the rest of the year is however positive after the rainy sea-son. The President’s anticipated assent of the 2018 appropriation bill in June means more funds will be available for construction projects in subsequent months. We also expect to see the expedition of abandoned projects and new construction projects in the third and fourth quarters of the year as political office holders garner public support ahead of the 2019 polls.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

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