The Construction Sector - Increased Activities As Elections Draw Closer

Proshare

Friday, August 17, 2018 /2:30PM/FDC

There has been an increase in activities in the construction sector. The most notable events include the construction of river dykes, the Lagos-Ibadan Standard Rail Gauge and the approval of N72.9bn ($202.5mn) for the reconstruction of Apapa road. The 3-day closure of the Third Mainland Bridge for investigative maintenance test, which was earlier slated to begin on July 27, was postponed to August 24.

Meanwhile, listed construction companies on the Nigerian Stock Exchange released their financial results for the first half of 2018. These firms posted relatively positive financial performances in the period, from loss positions in 2017. In SSA, Africa’s longest suspension bridge was completed in July. The new bridge will connect South Africa and Swaziland to Mozambique.

According to the Federal Ministry of Water Resources, the Federal Government of Nigeria has commenced the construction of dykes, which are artificial slopes or walls erected to regulate water levels. This is in order to minimize risks that could arise from flooding. These dykes are being constructed in flood-prone areas such as Kwara and Kebbi States. Reserves in these dykes would be impounded for water supply and irrigation purposes.

Federal Government begins construction of dykes

Implications

Nigeria’s average annual rainfall of about 1,200mm is one of the highest in SSA.16 This high level of precipitation without a commensurate water management strategy has mostly led to flood incidence in the country. Flood in Nigeria submerges farm land, and this has been a major constraint to agricultural cultivation activities. It has also displaced people in the country and distorted transportation activities as roads become inaccessible. The construction of dykes would help manage water supply in the country and reduce floods and their negative effects. The decision to impound water for irrigation facilities should also secure the supply of agricultural commodities such as rice, maize, cowpea, groundnuts and soybeans at periods of water deficiencies.

FG restricts visa issuance to foreign engineers

President Buhari announced in July the restriction of the visa issuance to expatriates who seek to take up engineering roles in Nigeria. This restriction was enforced by the Ministry of Interior in compliance with Executive Order 5, which states that procuring authorities shall give preference to Nigerian companies and firms, when awarding contracts, in line with the Public Procurement Act 2007. The government pledged to strictly enforce the visa restriction policy.

Implications

The visa restriction to foreign engineers highlights the Nigerian government’s willingness to improve local content in the country. While this is commendable, the relatively low competitiveness of Nigerian engineers suggests that foreign engineers would continue to earn the preference of contractors in the country. Meanwhile, the govern-ment’s restriction will likely create a dearth of these preferred engineers, which would birth market imperfections in the industry and probably raise construction costs. The government might mull these restrictions in the near term.

NRC begins work on Standard Gauge in Lagos

The Nigerian Railway Corporation (NRC) disclosed that the construction of the Lagos-Ibadan Standard Rail Gauge has started fully as the challenges of underground pipelines and cables have been resolved. The pro-ject’s cost is estimated at $1.5bn and it is being jointly funded by the Nigerian and Chinese governments. The rail line would span 156.65KM and it is expected to be completed by April 2020.

Implications

The Lagos-Ibadan express way is the busiest road in Nigeria. The road connects Lagos to Oyo State and other regions of the country. The construction of a rail line will provide a fair alternative route to commuters between these 2 cities. This would also reduce traffic on the express and ease the transportation of goods from Lagos to other parts of the country.

FEC approves N72.9bn for Apapa road in Lagos

The Federal Executive Council (FEC) approved N72.9bbn ($202.5mn) for the reconstruction of the 270.8 linear kilometres Apapa road. According to the Ministry of Power, Works and Housing, the project will be executed through a Public-Private Partnership model and the finance requirement of the project would be recovered through the funding credit tax policy of the government. Dangote Group has been selected as the constructing firm for the project. The road will have 10 lanes, with five on both sides.

Implications

This would be the first full reconstruction of the Apapa road since it was constructed in 1975. Previous efforts have only been towards repairing damaged sections. Meanwhile, the road has been in a poor state since 2017, and this has created a gridlock. This gridlock has constrained the distribution of goods that arrive at the Apapa port. A rehabilitation of this road would be a welcome development that would ease transportation and distribution activities along the Apapa axis.

AfDB pledges to help Nigeria bridge infrastructure financing gap

The African Development Bank (AfDB) has pledged to work with multilateral organizations and private sector op-erators to help Nigeria bridge its infrastructure gap. This would be through the development of effective public private partnerships and the provision of new innovative financing programmes and instruments for the country. Projects would span across the agricultural and energy sectors among others. The AfDB estimates Nigeria's annu-al infrastructure financing needs at $100bn and it is projected to reach $3trn by 2044

Implications

The AfDB’s commitment would complement the Nigerian government’s efforts to improve infrastructure conditions in the country. The completion of projects in the key sectors of the economy would improve the country’s business operating environment. Infrastructure spending is also expected to have a positive multiplier effect on aggregate output. This bodes favourably for Nigeria’s macroeconomic stability in the medium term.

SSA- Africa’s longest suspension bridge complete

The Maputo-Catembe Bridge, Africa’s longest suspension bride, was completed in July in Mozambique. Construction activities on the project began in 2014 in a joint construction and management project between the Mozambique and Chinese governments under the China Road and Bridge Corporation (CRBC). It was initially set for completion in 2017, but postponed due to insufficient construction materials. The bridge aims to connect Ma-puto (Mozambique) with Catembe on the southern part of Maputo Bay. The bridge has a length of 3KM and a width of 680m, linking Mozambique with Swaziland and South Africa.

Implications

Apart from being Africa’s longest suspension bridge, the Maputo-Catembe will also be ranked among the 60 largest suspended bridges in the world. The suspension bridge will be able to carry high volumes of traffic comfortably in both directions. This would effectively replace the current ferry system and various fragmented road systems that transport goods and tourists from South Africa and Swaziland into Mozambique.

Construction Companies’ Performance on the NSE In July

The stock prices of listed construction companies on the NSE lost an average of 3.03% in July. Share prices of Arbi-co and Road Nigeria were flat in the month, while Julius Berger lost 9.09%.

 

Proshare Nigeria Pvt. Ltd.

Corporate results (H1’18)

Julius Berger Plc.

Julius Berger Plc reported a stronger financial position in the first half of 2018, compared to 2017. Top line came in at N73.08bn, showing a y/y increase of 4.8%. Profit before tax increased sharply by 602% to N3.93bn. The profit after tax also jumped to N2.59bn, from a loss position of N364.73mn in H1’17. This is partly due to a sharp decline in the company’s foreign exchange transaction loss to N127.22mn, from N2.73bn.

Arbico Plc

Arbico Plc’s revenue declined by 12.3% to N2.14bn in H1’18. The company’s cost of sales declined more sharply by 16.6% to N1.71bn. PBT and PAT were equal at N70.78mn, increasing from a loss position of N101.12mn.

Outlook

Lagos State’s Third Mainland Bridge will be shut for investigative maintenance test between August 24-26. This would distort transportation activities between the mainland and island this period. In the meantime, alternative routes such as the Eko and Carter Bridges will be available to commuters. We are likely to see more project approvals in the month as political office holders deliver more projects to win public support in the 2018 polls.

 

Proshare Nigeria Pvt. Ltd.


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