Although the construction industry is a relatively small player in terms of Nigeria’s gross domestic product, it is a very active sector that is sure to also benefit from growth in tourism, retail and manufacturing.

Four factors are contributing to the growth in the construction and property sector: massive demand for buildings across all sectors of the economy; the focus on infrastructural development by state and federal governments; the adoption of privatisation and commercialisation as instruments of federal government policy; and the tightening of regulations relating to how business is done in Nigeria.

Strong steps to stamp out corruption (previously rife in the construction industry) have already been undertaken and more are promised. Stricter building and land-use development rules have helped to boost investor confidence.

Other constraints in the construction sector include a shortage of skilled manual labour, the relatively high cost of hiring staff at managerial level and the shortage of building materials like cement.

Despite these inhibiting factors, the sector’s experienced growth rate of more than 20% between 2006 and 2007. Even though the global credit crunch forced some developers to hold a few big projects, the sector’s numbers were still impressive at 13.1% in 2008. Some projections anticipate average expansion at 15 to 17% by 2012. Although this would make the construction industry worth more than $60-billion, it would still barely register in terms of its overall contribution to the federal republic’s GDP at 1.83% in 2008. The government’s goal is to double the sector’s value by next year.

According to the Nigerian National Bureau of Statistics, construction is a small employer that accounts for less than 1% of the total labour force. Yet, it also accounts for 69% of fixed capital formation, meaning that an estimated 70% of the total net capital investment in the country goes to the sector.
 
Although there are hundreds of construction companies in Nigeria, few have the capacity to cope with really large projects. Foreign companies such as Julius Berger, Setraco Nigeria, Cappa & D’Alberto and newcomer China civil Engineering Construction Corporation control almost 95% of the market. Indigenous companies often partner with foreign firms due to lack of competitive technology and high-tech equipment. However, industry watchers are of the opinion that awarding all the major contracts to foreign companies does not augur well for the development of local firms.

The federal and state governments are likely to remain as the major clients for the sector due to the infrastructure development agenda that is in place. The biggest private sector clients are firms in industries such as oil, banking, hotels, international bodies such as the UN, and non-governmental organisations.

The construction sector will be the fastest growing globally in the next decade, according to the Global Construction Perspectives. Investment has historically been state-led and, with vast plans to transform the infrastructural landscape, this is likely to remain the case. However, private investments in retail, manufacturing and tourism have also stimulated the construction industry.

Property

Nigeria has a housing-stock shortage of approximately 12 to 16 million units. Only 10% of the population own homes and millions of citizens live in accommodation with little access to basic services. For this community, state-led housing projects represent their best chance through the revitalised Federal Housing Authority.

Acquiring land can be a complicated exercise, with unscrupulous ‘developers’ not averse to ‘selling’ land that is in fact state land already earmarked for a highway. The crucial Certificate of Occupancy can be difficult to obtain, with state governors playing a big role in disbursement. Reforms, some of which are being implemented, include registering all real-estate agents and new land certification processes.

The housing shortage has created a rental market that beggars belief. Tenants can pay up to five years rental in advance to secure an apartment. In upmarket areas, like Victoria Island in Lagos, annual rental for a three-bedroomed apartment can run up to $50 000.

In commercial property there is likewise a shortage, and when good-quality properties are developed (for warehousing or retail operations) 100% occupancy rates are routinely achieved.

To attract further investment, it will be crucial for the government to fulfill its responsibility of creating an enabling climate through reliable power supply and regulatory environment