CARTERAS ÓPTIMAS FORMADAS CON CETES Y LAS ACCIONES “SAB” Y

Given Nigeria’s peculiar trajectory to nationhood and transition to a more modern society, its construction sector has evolved in its unique way in meeting the demands of its teeming population. The NCS grew at a rate of over 12% between 2006 and 2011, according to the National Bureau of Statistics (2014). The continued growth of the Nigerian economy, forecast by the NBS to remain around 7% until 2015, indicates a positive outlook for the sector. A critical review of academic literature, Government and consultancy reports highlights the characteristics of the NCS. These are discussed in the sections below.

Construction demand

As a result of a very large population and particularly the economic boom in the last decade, construction activities are in high demand in Nigeria. Just over a hundred years ago, many

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Nigerian cities and urban areas did not exist. Mabogunje (1965) reported that as at 1952, just over 20 percent of the total population of 32 million lived in urban⁵ areas. Those dynamics have changed considerably with an estimated 47 percent of its current population of 177.5m living in urban centres (World Bank, 2015b) and requiring infrastructure such as roads, dams, buildings etc.. Traditionally, Government has always been the largest client for this relatively infant construction sector accounting for almost 90 of the sector’s output (Oxford Business Group, 2011). Currently, strong fundamentals which include a high economic and population growth rate, a growing middle and upper class, rural-urban migration and an expanding business climate is supporting sector expansion and stimulating an increasing demand for housing, construction related services and improved infrastructure.

According to the World Bank, in 2011 Nigeria’s population grew at a rate of 2.5% (UNFPA, 2011). Moreover, the UN has projected that Nigeria will experience the fastest urban population growth over the next 40 years, adding more than 200m people to the country’s cities. This will place significant pressure on housing and infrastructure, but it will also create many opportunities for the construction sector. The World Bank estimates that the housing gap is around 12m-16m units while the FGN and projects that gap at between 15m-23m residential⁶ units (The World Bank., 2013; FMLHUD, 2014; Oxford Business Group, 2015).

Efforts to alleviate the housing shortage are expected to drive demand for both construction materials and services.

5 Urban areas were defined then as compact settlements with populations of over 5,000 people.

6 Reliable data is notoriously difficult to come by in Nigeria. A very large informal sector coupled with a large population of people living in remote rural areas is partly responsible for this situation. Thus, figures on population and housing are usually made by statistical projections, resulting in a wide margin of error.

68 High competition

The factors identified in the previous section have created a high demand for construction in Nigeria. This has made construction quite lucrative with the NCS being described as a highly competitive construction market with several high profile foreign and indigenous firms competing for market relevance (Oxford Business Group, 2015). Adams (1997) also reports that by the 1990s, several indigenous firms began to emerge and compete for more technical projects than ever before. This is corroborated by the Coffey International (2014) report on the NCS. A recent entry of major Chinese construction firms has shifted the balance from the largely European firms that previously dominated the Nigerian construction market (Babatunde and Low, 2013).

Material (import dependent)

The NCS is heavily dependent on imports for most its materials, especially those that require industrial processing. Nigeria imports a lot of finishes including tiles, furniture, paints and gypsum. Some of these trends have begun to change recently. Some researchers such as Olotuah (2002) attribute the ‘high costs’ of construction to the dependence of imports and hence target local material development as a panacea. The sector however makes use of locally produced timber, aggregates and some stone finishing, and more recently, Nigeria attained self-sufficiency in local cement production. However, there is certainly plenty of scope for increased demand. Nigeria’s per capita cement consumption was 126 kg in 2013, compared to a global average of 510 kg, according to (Cemnet, 2014).

Cyclical and sensitivity to oil price movement and inflation

The NCS has is cyclical and has demonstrated very high sensitivity to oil price movements.

Three reasons are advanced to help explain this phenomenon. Firstly, oil is the largest foreign

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exchange earner for the Nigerian economy. This makes up about 95% of the Government’s earnings. Secondly, Government remains the largest client of the construction sector. As a result, construction activities boom during times of high price yields and expenditure shrinks during low prices (Olatunji, 2010; Aregbeyen and Kolawole, 2015). The Nigerian economy has also historically passed through many phases of high inflation rates. This resulted in significant cost overruns stemming from fluctuations to price levels in the economy. This often resulted in disputes, and subsequently time overruns and sometimes suspension or outright abandonment of construction works (Mansfield et al., 1994). As for the cyclical nature of construction, this is due the effects on weather. In most parts of Nigeria, construction activities are at the peak during the dry season and simmers down during the intense rainy season during the middle of the year.

Domination by large/foreign firms

The binaries of indigenous and foreign construction firms have been covered earlier.

However, with the comparatively low level of private sector demand compared to public sector demand, the NCS does not comprise very vibrant small and medium scale firms of most countries. The sector is not fragmented into specialist trades and subcontractors like say the UK for example (Coffey International, 2014). It is quite common to find all trades and specialization in one construction firm. The competitive advantages of foreign owned firms discussed earlier results in domination of about 70 percent of construction output by revenue (Coffey International, 2014). Majority of the indigenous construction firms are one man businesses with very short lifespans. Figure 3.2 depicts the structure of the NCS.

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Figure 3.1: Structure of the Nigerian construction sector (Coffey International, 2014) Capital intensive

This characteristic is typical of construction in general. However, in the Nigerian context, several other factors come into play that increases the dependence on capital. Unreliable supply chains, poor procurement management, fluctuations and a high dependence on importation of construction materials and foreign expertise often increase costs associated with construction (Okpala and Aniekwu, 1988; Coffey International, 2014). The high costs of capital also results in plants and equipment being relatively expensive to operate. Nigeria also ranks poorly on the ease of doing business scale (World Bank, 2015a).

High dependence on unskilled manual labour

With a large population, high levels of unemployment and high cost of plants and equipment, the construction sector in Nigeria is highly dependent on manual labour (Idoro, 2012). Much of this labour is unskilled and they undertake labour intensive tasks such as excavations and demolitions. The cost of labour is also very cheap due to a large pool of unemployed willing to undertake such tasks. This has an impact on time and quality of works (Oyedele et al.,

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2015). The manual labour usually constitute the large informal sectors that characterise developing countries which are argued to be vulnerable by Wells (2012). This problem ties with one of the central messages of the SD paradigm.