Construction professionals have expressed worry over the industry’s poor performance and contribution to economic growth. Despite huge profits recorded by the cement sub-sector of the economy.
Reacting to the low performance of the construction industry, the Managing Director of Dutum Construction Company Limited, Temitope Runsewe, said that what puts this in perspective is the reality that the major cement manufacturers all moved prices up in 2020, some as high as 50%.
While this helped cement manufacturers increase their revenues to a combined N1.47 trillion during the period. The attendant high cost of building materials generally curtailed construction projects as Nigeria wrestled off the economic effects of the Covid-19 pandemic.
A motion adopted by the Nigerian Senate in 2020 blamed the increase in cement prices for the near-collapse of the Federal Government capital projects plan for the year.
Another variable to consider is revenue from exports to other countries, especially by companies like Dangote. According to its financial reports, Dangote Cement saw Pan Africa (excluding Nigeria) revenue close at about N230 billion. One of the reasons behind this is the resumption of exports to ECOWAS countries by road after ten months of Nigeria border closure, Runsewe noted.
Federation of Construction Industry FOCI:
In its reaction, the Federation of Construction Industry FOCI, the regulatory body for the nation’s construction industry. Said the hike in the prices of cement products by cement manufacturers accounted for the huge profits realized in the first half of 2021. The same cannot be said about the country’s construction industry. Because it does not produce products but instead uses construction materials, including cement, to carry out construction projects.
Tunde Adekimi, Director, Industrial Relations & Skills Enhancement, FOCI:
Tunde Adekimi, Director, Industrial Relations & Skills Enhancement, FOCI, responded on behalf of the regulatory body. Said cement manufacturers could increase the price of their products based on market trends, whereas construction professionals cannot. He argued that the success of the cement sector cannot determine the success of the construction industry. Because many factors come into play when it comes to construction activities.
Earlier, the media reported that the major cement players delivered a combined revenue of N959.85bn in the first six months of 2021, which is +37.39% higher than what was reported in the same period in 2020.
Dangote Cement accounted for +71.94%, Lafarge Africa and BUA Cement accounted for 15.11% and 12.95% of the industry’s revenue. 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% 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% decrease in total borrowings), their operating profits 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. Although the construction sector grew by 47.11% year on year in the second quarter of 2021. Its contribution to total real GDP was 3.19% which is slightly lower than its contribution of 3.23% in the same quarter of the previous year. nd the immediate past quarter where it contributed 4.12%.
This is worrying in so many quarters when you consider that the construction industry is an indicator of an economy’s health. Its importance is not only linked to its size but 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 a fast-tracked movement toward the realities of a Post-Covid 19 world. The effects of the coronavirus on businesses and national economies throughout 2020 and early 2021 remain and are 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 contracting by 31.8%.
Also linked to this was the sharp decline in foreign direct investment (FDI) and the fall of global oil prices. Both added to the scarcity of foreign exchange liquidity in the Nigerian economy and led to 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.
Dutum Company Limited:
Dutum Company Ltd. believes that the worst is behind us and that the recent $4 billion Eurobond issue. Which was oversubscribed four times over, is a testament to a renewed investor and business confidence in the Nigerian economy.
As a result, we expect to see increased investments in building infrastructure both for private and public use. 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 working 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.
Federation of Construction Industry FOCI:
In its response, FOCI noted that the construction sector, a labor-intensive sector that provides a powerful platform for the country’s economic growth in addition to producing structures is currently facing several challenges.
The FOCI representative, Adeyemi, explained that a greater percentage of the workforce had disengaged from service in the past two years. Despite the rule requiring engagement in contract delivery. This has been the reason for the sector’s poor performance in terms of the country’s GDP for some time, most recently in the second and third quarters of this year.
Pointing out that the industry is faced with varying degrees of challenges. The body noted that the need for improvement in existing buildings and renovations has the potential to stimulate demand.