Sentiment for the construction industry is somewhat optimistic and the outlook for 2018 is relatively positive, with further increases in activity expected across a few strategic sectors. However, there are a number of challenges currently facing the industry, and of these, the country’s currency value and access to finance/funding for activities is causing the greatest concern.
BusinessDay Research & Intelligence Unit (BRIU) is delighted to present the results of the Construction Survey which reects the views of 114 professionals from segments of the Construction Industry, as well as Finance and the Public Sector. The report provides in-depth analysis of the construction industry including trends and challenges being experienced on the ground.
With the exception of Real Estate Development Sector, which is shared equally between private and public sector nancing, other signicant aspects of the Construction Industry is still largely inuenced by public sector nancing (Federal and State government) for infrastructural developmental activities.
In the 2016 Federal Government Budget, a total of N422.9 billion was budgeted, comprising N260.082 billion for Works, N91.257 billion for Power and N71.559 billion for housing. According to the Federal Minister of Power, Works & Housing, during the implementation of the 2016 budget, 103 construction companies executing 192 projects were paid who employed 17,749 people directly and 52,000 people indirectly in works, adding 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 to continue work on roads and bridges and keep people at work and sustain production.
But, in spite of this commitment to funding infrastructure by the governments, industry stakeholders posit that the government cannot do it alone because of the huge capital requirement, hence the need for private public partnership (PPP) initiatives. According to the Managing Director of the Infrastructure Bank, contractors working for the federal and state governments are owed about N1.7 trillion and some of these debts are as old as 5 to 10 years.
Analysis of data from the National Bureau of Statistics (NBS) for 2016 reected that Nigeria’s construction to GDP was 4 percent. The recommendation of the Asian Development Bank is that in order for a developing country to sustain growth and development, not less than 6 percent of GDP should be invested on infrastructure.
Nigeria’s infrastructure stock currently accounts for about 20 to 25 percent of GDP, which is signicantly lower than the global average of 70 percent. Hence, the need for accelerated and increased Private Sector involvement and investment in the Sector, as the country requires at least $100 billion annually for the next 30 years to meet our infrastructure needs, as forecasted by the NIIMP.
- Outlook for the Construction Industry over the next 12 months
42 percent of Industry players surveyed are of the view that industry activities will increase signicantly over the next 12 months. 39 percent have adopted a more moderate view and believe that construction industry projects will increase somewhat. Some industry professionals are of the opinion that the industry will not experience any increase (10 percent) while another 10 percent of industry players, on the other hand, opined that construction activities will somewhat decline.
- Projection on Construction Activities in 2018 compared to the Current Year
Respondents expect the most growth over the next year to occur in Aggregates Production & Mining (84 percent); Highways, Bridges & Roads (78 percent); Concrete & Asphalt (78 percent) and Utility Contracting (70 percent).
The above mentioned segments are the top four expected to increase in output and activities. Others are Industrial Construction (68 percent) and Telecommunications (60 percent). On the other hand, industry insiders posited that the Non- residential; Residential; Oil & gas and Telecommunications markets will experience minimal or negligible growth over the same time frame in terms of construction/engineering projects and activities.
- Most Attractive Segments of the Construction Industry in the next 2 years
According to 27 percent of Construction professionals surveyed, Highways, Bridges & Road projects will be the most attractive market in the next 2 years, while 15 percent of survey respondents are of the perspective that the Railroad Construction market will be the most attractive in the near-term. Concrete & Asphalt and the Utility Contracting markets were posited by 10 percent of Industry operators equally to be the most viable markets respectively in the same time-frame.
- Factors posing the Most Concern to the Construction Industry in the Next 12 Months
The value of Nigeria’s currency is of the most concern to the Construction Industry. This is followed by the Economy, Input Costs 0f Raw materials and the threat of Competition. Other major areas of concern include the Labour Supply/Skilled Employment; Technological Changes; Cost of Operations, among others.
- Sale/Rental (or Purchase) of Construction Equipment
- Expectations on Business prospects for your Organisation in 2018
On the back of the Q2 GDP gures reecting the country in economic recovery, business condence 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. The remaining 12 percent are pessimistic reecting lack of condence concerning their business prospects and opportunities.
Subsequently, of the 88 percent optimistic of business prospects, 87% anticipate increase in business productivity/protability. In addition, 62 percent forestall growth of their business’ assets, while 52 percent further predict expansion of their workforce in 2018.
- Expectations on Equity for Renancing or New Investment in 2018With regards to funding, 60 percent of respondents plan to increase their equity for renancing or new investments, while 30 percent of industry professionals expect their capital base to remain the same, 10 percent, on the other hand, anticipate decline in fresh equity injections.
With respect to securing debt for renancing or new investments, 46 percent believe that this will increase, 50 percent anticipate no growth in their respective debt portfolio. The balance of 4 percent expect opportunities for new debt for renancing to decline.
In the area of securing debt for development projects, 64 percent expect an expansion of this category of funding, on the other hand, 28 percent expect minimal increase, while the remaining 8 percent anticipate a reversal in terms of decline in development-related debt.
- Expectations on Sources of Debt for Business Activities in the Next Year
Further break-down on the sources of debt expected to increase in 2018, 77 percent of professionals are optimistic that debt funding from alternative lending platforms will account for the most nancing for their business activities. This is followed by debt funding from non-bank institutions of 57 percent, while banks and other non-bank lenders and other institutions account for 42 percent and 39 percent respectively.
- Finding Qualied Workers to ll Open Positions for Work
In terms of recruitment and quality of on-site employees i.e. ofce workforce, 55 percent of respondents revealed that it was not difcult to recruit; 35 percent of those surveyed found it somewhat difcult, while the remaining 10 percent encountered difculty in sourcing for on-site labour locally.
With respect to off-site employees i.e. for technical (engineering or construction) roles, 52 percent had no difculty, 45 percent experienced some level of difculty, while 3 percent encountered difculty.
Sixty-one percent had no difculty in sourcing for sub-contract labour, 32 percent found it somewhat difcult, while 6 percent experienced signicant difculty.
INDUSTRY INFORMATION OF SURVEY PARTICIPANTS
- Description of Company Activity
Respondents for the Survey comprised C-Suite Executives and Industry professionals operating in various areas of the Construction Sector. Breakdown of participants that undertook the survey exercise reected that 21 percent are from Civil Engineering rms; 17 percent represent the Building Materials & Aggregate producers; 15 percent comprise the Construction Companies & Contractors; 13 percent are in Real Estate Development; 10 percent operate in the Banking & Finance Sector.
Respondents from the Mortgage Industry and Government/Regulators each accounted for 8 percent of the survey participants. The balance of 6 percent and 2 percent were shared equally between the Construction Equipment Manufacturers (6 percent) and Construction Equipment Distributors (2%) respectively.
- Sub-Sectors where Respondents do the most work
When asked on the segments of the Industry where the respondents and the Organisations they represented did the most work, 22 percent revealed that Highways, Bridges & Roads construction projects accounted for most of their Company’s activities. Residential building projects was responsible for 15 percent of respondents’ company engagement.
Railroad construction, Oil & gas projects and Concrete & asphalt each accounted for 9 percent of Industry rms’ work respectively, while Industrial Construction work represented 8 percent of respondents’ projects. Seven percent of respondents conducted their most work in Site preparation & excavation work, while 6 percent carried out the bulk of Company activities on Non-residential building projects. Utility contracting works was the major work done by 5 percent of survey respondents.
The remaining respondents do their most wor k on Telecommunications construction projects and in Aggregates production and mining.
- Net Prot for 2017 compared to the previous
Thirty–eight (38) percent of those surveyed expect net prot for 2017 to increase signicantly (15 percent or more); 50 percent of respondents anticipate moderate growth in net prot of 5 percent to less than 15 percent. On the other hand, 13 percent of respondents reveal that their net prot will decrease signicantly by year-end.
- Firm’s Construction-related activity by year-end 2017 compared to 2016
When asked to provide information on aspect of each respondent’s respective rm’s activities, 74 percent of those surveyed believe that productive infrastructure services will increase for their businesses; 63 percent are of the view that their output product and service prices or fees as well as input costs will increase by year-end 2017.
Private non-residential construction activities are also anticipated to increase somewhat by year-end estimation. Despite this, respondents are will maintain their current employment levels and not recruit any new employees between now and the end of the current year under review.