Construction professionals have expressed worry over the low performance and contribution of the sector to economic growth of the nation despite huge profits being recorded by cement sub-sector of the economy.
Reacting to the low performance of the construction industry, Managing Director of a renowned construction firm in Nigeria, Dutum Construction Company Limited, Temitope Runsewe, said “What puts this in perspective is the reality that the major cement manufacturers all moved prices up in 2020, some as high as 50 per cent.
“While this helped cement manufacturers increase their revenues to a combined N1.47 trillion in the period, the attendant high cost of building materials generally led to a decrease in construction projects as Nigeria wrestled off the economic effects of the Covid-19 pandemic.
“In fact, a motion adopted by the Nigerian Senate in 2020 blamed the increase in cement prices for the near-collapse of the Federal Government’s capital projects plan for the year.
“Another variable to consider is revenue from exports to other countries especially by companies like Dangote. Per its financial reports, Dangote Cement saw Pan Africa (excluding Nigeria) revenue close at about N230 billion. One of the reasons behind this being the resumption of exports to ECOWAS countries by road after 10 months of Nigeria’s border closure”, Runsewe noted.
In its reaction, Federation of Construction Industry FOCI, which is the regulatory body for the nation’s construction industry said the hike in the prices of cement products by cement manufacturers which accounted for the huge profits recorded by them in the first half of 2021, cannot be said of the construction sector of the country because the construction industry does not produce products but makes use of construction materials including cement to carry out construction projects.
Mr Tunde Adekimi, Director, Industrial Relations & Skills Enhancement, FOCI, who reacted on behalf of the regulatory body, said cement manufacturers can decide to increase price of their products based on market trends which construction professionals cannot do, arguing that the success of cement sector cannot determine the success of construction industry because many factors come into play when it comes to construction activities.
It will be recalled that the major cement players delivered a combined revenue of N959.85bn in the first six months of 2021, which is +37.39 per cent higher than what was recorded in the same period in 2020.
Dangote Cement accounted for +71.94 per cent, Lafarge Africa and BUA Cement accounted for 15.11 per cent and 12.95 per cent for the total revenue of the industry.All three companies had negative working capital which reflected the high capital requirement in an oligopolistic (few sellers) market.
Dangote Cement was the market leader but with a large leverage ratio of 68.64 per cent and the highest negative working capital in the industry.
The market players’ interest coverage ratios were in the double digits, suggesting that, despite an increase in the debt size of individual companies (excluding Lafarge Africa, which saw a -64.06 per cent decrease in total borrowings), the cement manufacturers’ operating profit could cover their finance costs.
Despite having a larger asset size than Lafarge Africa, BUA cement had the lowest efficiency ratio of 0.21, indicating that Lafarge’s asset utilization was more efficient than BUA Cement’s in H1 2021.
Also reacting to the sector’s second-quarter performance and its contribution to the nation’s GDP, Runsewe said “Despite the fact that the construction sector grew by 47.11 per cent year on year in the second quarter of 2021, its contribution to total real GDP was 3.19 per cent which is slightly lower than its contribution of 3.23 per cent in the same quarter of the previous year, and the immediate past quarter where it contributed 4.12 per cent.
“This is worrying in so many quarters when you consider that the construction industry is regarded as an indicator of the economic health of a country. In fact, its importance is not only linked to its size, but to the socio-economic impact of its growth or decline on consumer and business confidence.
“One just needs to look at the number of jobs linked directly and indirectly to the construction sector to understand why a decline in contribution to GDP in Q2 2021 would be worrying.
“While it is true that the world is experiencing fast-tracked movement to the realities of a Post-Covid 19 world, the effects of the coronavirus on businesses and national economies throughout 2020 and early 2021 still remain and is one of the key factors responsible for this decline.
“The lockdowns associated with Covid-19 containment in 2020 led to most projects across Nigeria coming to a standstill and the industry contracted by 31.8 per cent.
“Also linked to this was the sharp decline in foreign direct investment (FDI) and the fall of global oil prices which both added to the scarcity of foreign exchange liquidity in the Nigerian economy and by effect a reduction in government revenue to drive growth. Other factors such as inconsistent policies and lack of implementation also contributed to the decline of the construction industry.
“At Dutum Company Ltd, we are confident that the worst is behind us and we project that the recent $4 billion Eurobond issue which was oversubscribed four times over, as reported by the Debt Management Office (DMO), is indicative of renewed investor and business confidence in the Nigerian economy.
“This we believe bodes well for the construction industry as we expect that there will be increased investments in the construction of infrastructure both for public and private uses. We see a sharp increase in job creation linked to this, which would stimulate the growth of SMEs and the informal sector of the economy.
“As we continue to deliver on the various projects we are presently engaged on at Dutum, we are confident that we will be able to create over 1,500 jobs directly and indirectly between now and the end of Q2 2022.
“We also expect that increased activity in the construction sector will lead to a sharp decline in unemployment figures in the same period”.
In its response, FOCI noted that construction sector which is a labour-intensive sector that provides a powerful platform to the country’s economic growth in addition to producing structures, is currently facing several challenges.
Adekimi who responded on behalf of FOCI, said “A greater percentage of the workforce in the industry had disengaged from service in the last two years, despite the rule of engagement in contract delivery, which is responsible for the low performance of the sector to the country’s GDP for some time now including the last two quarters”.
Pointing out that the industry is faced with varying degrees of challenges, the body noted that the need for efficiency improvement in existing buildings and renovations have the potentials to stimulate demand.
Vanguard News Nigeria
