Nigeria’s construction sector readies for private sector participation

28 February 2019 (Last Updated March 12th, 2019 09:05)

The recent re-election of President Buhari is expected to translate into an improved infrastructure, economy, security and anti-corruption drive.

Nigeria’s construction sector readies for private sector participation

Nigeria’s construction industry continued on a steady recovery path in 2018, expanding by 2.4%, following on from 1% growth in 2017.

Having contracted by around 6% in 2016, in the wake of the collapse in oil prices, Nigeria’s construction industry’s performance has been bolstered by the government’s focus on developing the country’s infrastructure, energy and residential sectors, as well as a general recovery in the economy.

The recent re-election of President Muhammadu Buhari for a second four-year term is expected to translate into an improved infrastructure, economy, security and anti-corruption drive.

Executive Order 007

In a bid to improve the infrastructural needs of Nigeria and maximise resources, the Federal Government signed Executive Order 007 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme.

The scheme is a public-private partnership, which enables private companies to fund the construction and refurbishment of eligible roads in Nigeria and to recover the project funds by way of tax credits, claimable against Companies Income Tax (CIT) payable.

Dangote is set to construct 19 federal roads across the country, in accordance with the new order. This will have a huge impact to the construction industry in Nigeria since under federal laws; public roads are constructed and maintained by the government, but key roads were left in poor conditions due to lack of funding. The road project will total 794.4km, is spread across six geopolitical zones and is expected to reduce the cost of doing business in the country.

The continued expansion in the economy as well as the construction industry will be dependent on the pace of implementing the government’s economic recovery and growth plan, which anchors Nigeria’s industrialisation by establishing industrial clusters and staple crop processing zones to give firms a competitive edge through access to raw materials, skilled labor, technology and materials.

Power sector reforms

The power sector reform programme, if effectively implemented, could attract private investment. It targets 10 gigawatts of operational capacity by 2020. But Nigeria needs to adjust its federal budget, currently dominated by persistent spending, toward more capital expenditure and accumulating savings to sustain social spending.

The government is targeting 3% economic growth this year, while the World Bank says real GDP is projected to grow by 2.2% in 2019 and 2.4% in 2020 as the implementation of its plan gains pace.

However, the slide in oil prices from late 2018 coupled with an output cut imposed on Nigeria by OPEC to 1.685 thousand barrels per day poses a downside risk to the economic outlook.

Parliament’s approval of the NGN8.83 trillion ($24.4 billion) 2019 “budget of continuity” had been delayed by the presidential elections, so its progress – coupled with fluctuations in oil price and potential supply disruptions – could potentially impact the 2019 budget implementation.