Inadequate funding, naira depreciation trouble construction stakeholders’ in 2017 – BRIU report

Stakeholders in the construction industry have listed inadequate funding and depreciation of the naira as their greatest challenges in 2017, findings from a survey conducted by BusinessDay Research & Intelligence Unit (BRIU) have revealed.

The survey was conducted as part of insights in the recently released BRIU Construction Industry Report 2017.

A total of 114 randomly selected high level industry professionals were surveyed with a view to gauging their perspectives on the construction industry currently, and what the industry outlook would be over the next two years.
The survey results show that industry sentiment is somewhat optimistic and the outlook for 2018 is relatively positive, with further increases in activity expected across a few strategic sectors.

Forty-two percent of the professionals surveyed are of the view that industry activities will increase significantly over the next 12 months. In addition, 27 percent of construction professionals listed highways, bridges and road construction as projects that will be the most attractive industry activities in the next two years.

However, there are a number of challenges currently facing the industry, and of these, the value of the naira and access to finance/funding, are causing the greatest concern. Sixty-three percent of those surveyed are of the view that their professional fees and input costs will increase by year-end 2017 as a result of volatile naira value.

Meanwhile, following the country’s exit from recession and imminent economic recovery, business confidence is high among players and experts in the construction industry, with 88 percent of survey respondents optimistic with respect to their expectations of sustained improvements and continued growth, regarding industry activities and outlook.

Consequently, 60 percent of respondents plan to increase their equity for refinancing or new investments, while 46 percent believe that securing debt for refinancing or new investments will also increase. About 77 percent of the professionals are optimistic that debt funding from alternative lending platforms will account for most of the financing for their business activities in the coming year.

The Nigeria’s construction industry grew by 8 percent from the previous quarter, according to the latest Q2 GDP figures released by the National Bureau of Statistics (NBS). The sector’s GDP has been improving steadily in the last four quarters (Q4, 2016 to Q2, 2017). Subsequently, construction GDP in Q2 2017 of N1.17 trillion represented nominal growth of 8 percent from Q1 2017. In real terms, growth was 5 percent (quarter on quarter). Comparative analysis of Q2 2017 to the same quarter in 2016 revealed that the sector grew by 18 percent in nominal terms (year on year). The industry accounted for 4 percent of country’s total GDP of N27.22 trillion in Q2 2017.

The imminent boom in construction activities follows the meeting of obligations of construction industry players by the Federal Government, which is one of their largest clients in the country.

“A total of 103 construction companies are executing 192 projects. They employ 17,749 people directly and 52,000 people indirectly and have been paid”, said Babatunde Fashola, the Federal Minister of Power, Works and Housing, during the implementation of the 2016 budget. Fashola further added 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.

In the 2017 budget, the Federal Government made provision of N246.74 billion for the the provision of fixed assets. Allocation to the construction/provision of roads account of N107.39 billion represented the bulk of total capex and this is followed by construction/provision of electricity with N89.23 billion. The total 2017 capital budget of the Federal Ministry of Works, Housing and Power, accounted for 55 percent of its total budgetary allocation and 29.3% of the total Federal Government budget.

The BRIU Construction Industry Report 2017 is available for free download on the BusinessDay website.

 

OMOSOMI OMOMIA