• Thursday, March 28, 2024
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BusinessDay

How Nigeria’s construction sector slows despite claims of increased government spending

construction sector

Infrastructure is a strategic economic growth driver for any country; it serves as the foundation for public development.

Governments around the world budget huge spending on capital expenditure, this expenditure trickles down to every segment of the economy. This is so because it affects most human endeavours in various fields of life such as production, construction, technology, and procurements.

The National Bureau of Statistics NBS in its Q4 2018 GDP report showed the construction sector grew by 2.05percent in Q4 2018 from 0.54percent in Q3 2018 and 4.14percent in Q4 2017. In full year 2018, the construction sector grew by 2.33percent from 1.0percent in 2017 and -5.95 percent in 2016 compared to growth of 4.4percent recorded in 2015.

According to Engr. Folusho Adewale, an Engineer and a project manager in one of the construction firms based in Lagos, the lack of political will of various governments has led to the unimpressive growth in the sector.

“We have seen cases where only few amount are eventually released for capital expenditure in a year despite huge projections in the budget” Adewale told BusinessDay.

In an emerging, market such as Nigeria, the construction sector plays a very crucial role and Government at various levels have continued to restate their commitments toward bridging the infrastructural gap bedevilling the nation.

In the 2018 budget, the Federal Government allocated N2.37 trillion representing 31.5percent of the nation’s total budget to capital expenditure, 22percent higher to N2.36 trillion allocated to it in 2017, out of this less than N1 trillion has been released so far. Also in 2016, a total of 1.58 trillion was allocated for capital expenditure, while in 2015, it was a paltry N557 billion.

Despite the huge amount the government claimed to have spent on capital expenditure, vis-à-vis construction, growth in the sector has not been impressive.

Last year, the Debt Management Office (DMO), buoyed by the overwhelming subscription for the first N100 billion Sukuk Bond in 2017 which was over-subscribed by 5.8 percent, unveiled the second N100 billion sovereign Sukuk bond to fund 28 projects spread across the country, such projects include the notorious Lagos-Ibadan Expressway, and the Second Niger Bridge Construction just to mention few.

Sadly, the slow passage of the nation’s budget by the legislative arm of government, in some instances when the budget is passed, funds are delayed due to bottlenecks, delay in payment of contractors are factors that have contributed to the sluggish growth witnessed in this sector over time.

The lacklustre performance in the construction sector has also impacted negatively on the bottom-line of some construction companies, industrial goods companies listed on the Nigerian Stock exchange-Dangote Cement Plc, CCNN, Julius Berger Plc.

Julius Berger Plc has had a rough two to three years, especially since President Muhammadu Buhari came into power.  The company has been at the receiving end of the crushing economic recession, seeing margins evaporate within one year. First was the 43percent drop in profits recorded in 2015 compared to 2014. From a profit after tax of N2.43 billion in 2015, the company closed 2016 with a ghastly loss of N2.39 billion. They essentially lost everything that they earned in 2015 in one year.

While Dangote Cement in its Q3 2018 saw amixed performanceinturnover which was down by 0.74percent quarter-on-quarter and up by 17.51 percent compared to Q3 2017.

According to Engr. Folusho Adewale, an Engineer and a project manager in one of the construction firms based in Lagos, the lack of political will of various governments has led to the unimpressive growth in the sector.

“We have seen cases where only few amount are eventually released for capital expenditure in a year despite huge projections in the budget” he said.

While giving an outlook on what to expect in the construction sector 2019, he noted that the climate remains unclear as the government will focus more on election spendings and less on capital expenditure, at least for Q1, the proposed 2019 budget presented to the National Assembly may likely not be passed until July/August further dragging the growth in the sector.

“If there will ever be any significant growth in the construction sector, the government must at all levels ensure early passage of budget, simplify bottlenecks in the award of projects, and funds meant for these projects are quickly disbursed to the contractors handling such projects. The only way to jump start an economy is to spend” he noted.

OLUFIKAYO OWOEYE