Increased government spending on infrastructure development at both federal and state levels has been projected to drive construction industry growth in 2024.
2023 was not particularly a good year for the industry and that was understandable. It was an election year when governance went on holiday coupled with the volatile macroeconomic environment that defined that year. Inflation and the high cost of construction materials took a significant toll combined to shrink construction activities.
That sharply contrasted with the previous year when, according to figures released by the National Bureau of Statistics (NBS) in its third quarter 2022 GDP report, the construction and real estate sector together contributed N20 trillion to the GDP in the first three quarters of the year.
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But, in his Economic Outlook 2024, Bismack Rewane, CEO, Financial Derivatives Company (FDC), projected that increased private interest in infrastructure development through road and airport concessioning will also drive growth in the industry.
Rewane, however, noted that the Nigerian economy is growing below its potential for reasons ranging from underutilization of its resources to structural bottlenecks and market inefficiencies that are limiting economic growth.
He added that high money supply saturation, naira depreciation and increased energy costs are fuelling inflationary pressures the same way policy inconsistencies are supporting low investor confidence in the country and its economy.
Rewane’s projection, like others before it, tends to look at allocations in both federal and state governments’ 2024 budgets. While the federal government increased allocation to capital expenditure in the 2024 budget, some state governments took it a bit further by prioritising capital expenditure which are meant for infrastructure development.
Abia State government, for instance, budgeted N567 billion for 2024. According to the state governor, Alex Otti, 84 percent of that budget will be used for capital expenditure, leaving just 16 percent for recurrent expenditure. That raises hope for infrastructure in the state.
Similarly, Enugu State government prioritised capital expenditure in its 2024 budget. About 79 percent of the state’s N521.5 billion budget will be used for capital expenditure that will dwell mainly on infrastructure development, including water, roads and power.
The state believes that attracting private sector investment would require security of investment, availability of critical infrastructure and a highly de-risked business environment.
Many other state governments have intentioned in their 2024 budget to provide or improve existing infrastructure stock, especially roads, for their people and also for increased investment by individuals and institutions. They also have their eyes on foreign direct investments (FDI) inflow.
These moves, analysts say, are responses to Nigeria’s infrastructure deficit which Muda Yusuf, CEO, Centre for Promoting Private Enterprise, said has been harming productivity, cost of production and general price level in the economy.
Yusuf, who spoke at a media programme in Lagos recently, noted that the country has this deficit in almost all its infrastructure stock, pointing out that the most challenging of all these which are impacting seriously the economy are energy and transportation.
“These are the most critical and the deficit is huge. According to the current infrastructure masterplan, we are supposed to be spending $150 billion annually for the next 23 years to be able to bridge this gap,” he said.
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He added that the multi-lateral institutions have estimated that developing economies should be spending between 7 and 10 percent of their GDP to ramp up their infrastructure stock to support their development needs.
“If you look at 10 percent of our GDP, you will be looking at N20 trillion. This means that even if we take all the budget together, it won’t go anywhere and that means we have a huge deficit to deal with,” Yusuf, who was director general of Lagos Chamber of Commerce and Industry (LCCI), said.
To underscore the importance of road infrastructure in the country, he noted that almost 100 percent of the movement of goods and people is by road, stressing that road is at the heart of logistics in this economy.
He noted further that the government has a lot of roles to play in ensuring adequate power supply. “The government needs to prioritise infrastructure. The good thing about the current budget is that we have seen a higher allocation to capital expenditure than the current one. They also need to create more frameworks to incentivise more private sector involvement.
“There should be all manners of incentives that will help investors to share risks. The country needs a lot more private sector investment in infrastructure because government alone cannot do it,” he said.
