Nigeria’s Construction Sector in June

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Thursday, August 02, 2018 /09:40AM / FDC

Background

The month of June witnessed some noteworthy events of significant implications for the construction sector. In Nigeria, these range from the presidential assent to the 2018 budget, the federal government’s announcement of a new building code and Julius Berger’s introduction of a technology that would guarantee roads durability of in the country. On the SSA front, construction activities have shown progress ahead of the 2019 African Cup of Nation (AFCON) scheduled to be held in Cameroon.

The 2018 Budget and the construction Sector

President Buhari signed the 2018 appropriation bill into law on June 20 after a 7-month delay by the National Assembly. The N9.12trn budget earmarks N2.87trn (31.5%) for capital vote, 32.26% above the 2017 pro-posed capex.

The sharp increase in capex allocation should have been good news for the construction sector. However, historical evidence suggests that Nigeria typically un-der spends its proposed capital expenditure. Mean-while, construction sector performance has been more correlated with the actual disbursements for capital vote than the amount proposed in the appropriation bill.

 

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Nigeria's capex and construction growth trajectory

Between 2013 and 2015, Nigeria’s actual capital spending was below the proposed amount with the exception of 2015. The construction sector’s performance moved in tandem with these actual disbursements. For instance, in 2016, when actual capex declined sharply by 71.7% to N170bn, the construction sector recorded a negative growth of -5.95%. In 2017, when spending increased to N510bn, the construction sector’s growth picked up to 1%. It is expected that the country would under spend the 2018 proposed capex budget as empirical evidence suggests.

Moody’s Investors Services shares the same view, stating that the capital expenditure portion of the 2018 fiscal plan is unattainable. However, we expect that relatively high oil prices would support revenues and enable the government disburse more funds for capex in 2018. This should translate to a quicker growth for the sector in the year.

Federal Government announces new national building code

The Federal Government, through the Minister for Power, Works and Housing, Mr. Babatunde Fashola, announced a new national building code. The new code will regulate construction activities with the aim of improving on measures to safeguard lives and properties in the country. The government has come up with the new code on aware-ness of the fact that most deaths and injuries caused during building collapse are results of unacceptable ways of building. According to the minister, houses will now be designed in such a way that public safety cannot be com-promised.

Implications

Between 2012 and 2016, total number of collapsed buildings in the country stood at 54. The number of deaths associated with these collapses in unascertainable. These collapses and deaths have been largely due to wrong plans and structures. The new code by the Ministry of Power, Works and Housing is expected to reduce the risks and number of deaths associated with wrong plans for buildings and other construction projects in the country.

Julius Berger Nigeria introduces new technology to road construction

According to the Managing Director of Julius Berger Nigeria (JBN), JBN has introduced a new technology to the construction of roads in Nigeria. The new technology involves the grounding of the old asphalt, treating it and using it to increase the thickness and height of the asphalt for lasting roads. The company, with the new technology, would construct more lasting roads with an asphaltic concrete thickness of 12 centimetres (120mm).

Implications

An improvement in road thickness is expected to make Nigerian roads more durable. Road transport constitutes the major means of moving goods and people within the country. The advancement of the sturdiness of these roads would also reduce government expenditure on road repairs and maintenance. This should allow the government channel its finances towards the expansion of the existing road networks to ease movement. A wider road network would have a greater positive impact on economic activities and inclusive growth.

FG pledges support to indigenous contractors

The Minister of Science and Technology Dr. Ogbonnaya Onu, urged indigenous contractors under the umbrella of the Association of Indigenous Construction Contractors of Nigeria to bolster their skills and competiveness to enable them bid and compete for jobs in other parts of the world. The minister pledged support for all Nigerian profession-als in the award of contracts in the infrastructural development sector.

SSA

Construction activities progress ahead of AFCON games

The Governor of the Littoral region, Mr. Samuel Dieudonné Ivaha Diboua, inspected the project sites in Douala, Cameroon ahead of visits by the Prime Minister and the Confederation of African Football (CAF) inspection team. After the visit, the Governor expressed satisfaction over the progress of work.

He however recommended the acceleration of work by recruiting more manpower and acquiring more equipment. Work at the Japoma stadium which would host some group matches, is completed by 51% generally. At the Mbappe Leppe and Bonamoussadi stadi-ums which are supposed to serve as training grounds, work has been completed by 38%. At the Reunification stadium, 15% of work is completed.

Implications

Significant technical progress would be necessary for Cameroon to maintain its grip as the host nation for the 2019 AFCON games. The hosting of the game is expected to boost forex inflows into Cameroon. Ancillary commercial services such as transport, hospitality and financial services are poised to 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 approximately 0.3% of total market capitalization. The stock prices of these firms lost an average of 0.06% in June. Share prices of Arbico and Road Nigeria were flat in the month. Julius Berger lost 0.18% in the last month.

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Outlook

We expect rains in July to widely constrain construction activities. We however expect some intent towards the construction of new projects after the part-disbursement of the 2018 capex budget. We are also likely to see some preliminary activities towards the completion of abandoned projects as the political environment gets heated ahead of the 2019 polls.

 


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