Following a slowdown preceding the Covid-19 pandemic, Nigeria’s construction sector contracted in 2020, in line with the cessation of global economic activities. In the years since the start of the health crisis, the government has shown a renewed focus on infrastructure in recognition of its importance to broadbased economic stability and expansion. By prioritising critical sectors such as transport, energy and housing the government aims to increase infrastructure stock and spending as a percentage of GDP, and tackle the country’s most pressing socio-economic challenges. Those plans and the easing of the economic constraints have led Nigeria’s authorities and stakeholders to predict substantial growth in the coming years.
However, sizeable challenges remain, and higher levels of private financing will be required in order for the government to achieve its infrastructure goals. Stabilising the depreciating naira is one of the keys to achieving that objective, while a more accommodating regulatory and macroeconomic environment for both local and international investors is also a priority. Capacity expansion works across Nigeria’s cement industry and a drive to strengthen broader building materials value chains are expected to help to reduce dependency on imports, insulating sector players from the country’s foreign exchange imbalance and lowering operating costs (see analysis).
Structure & Oversight
The Federal Ministry of Works and Housing (FMWH) is the government body responsible for overseeing and regulating the construction sector. The ministry comprises 15 departments and seven units through which it formulates, develops and implements policies, programmes and projects with respect to maintaining the country’s road networks and bridges, and facilitates access to public housing supply and rental schemes. The Public-Private Partnership (PPP) unit is dedicated to the establishment and oversight of PPPs, a core component of government infrastructure development initiatives.
Other government entities are involved in broader construction activities. Through the Department of Investment and Sector Development, the Federal Ministry of Power oversees the provision of more expansive energy infrastructure. Meanwhile, the Federal Ministry of Agriculture and Rural Development is responsible for ensuring the country’s agriculture sector is equipped to supply the population with vital food supplies by providing the appropriate infrastructure. The Federal Ministry of Finance, Budget and National Planning is instrumental in core economic affairs, determining long-term development targets and the level of public funding available to pursue them.
Strategy
Under its long-term development strategy, the National Integrated Infrastructure Master Plan 2014-43, the government aims to boost infrastructure stock as a proportion of GDP from just over 30% as of October 2021 to around 70% by 2043, which is the level the World Bank deems necessary to properly support a healthy and expansive economy.
Broader economic development is guided by shorter-term road maps. The Economic Recovery and Growth Plan (ERGP) 2017-20 emphasised public-private collaboration to drive infrastructure development, as well as local production to reinforce self sufficiency. The Medium-Term National Development Plan (NDP) 2021-25, launched in March 2021, builds on that goal by prioritising the expansion of strategically identified areas of infrastructure. More specifically, it targets the energy, transport and logistics, housing and urban development, the digital economy, science and technology, and financial services sectors. At the time the plan was unveiled, Nigeria’s affordable housing deficit was estimated to be around 17m units, but with rapid population expansion, the Central Bank of Nigeria estimated in July 2021 that it was closer to 22m-28m (see Real Estate overview). Meanwhile, according to the World Bank the country’s 2021 urbanisation rate as a percentage of the total population was 53% and rising by an average of 2.5% per year, with rural families migrating to larger metropolitan areas in search of better employment opportunities and anticipating improved access to health care and social amenities.
“While there is great demand for affordable housing, ensuring that supply meets demand has been challenging when accounting for the current macroeconomic realities,” AbdulMalik Mahdi, CEO of local real estate developer Modern Shelter Systems & Services, told OBG. “The government must make affordable housing a priority as it did with the agriculture sector, increasing direct investment and intervention in the sector.” In Nigeria’s 2023 national budget published in January of that year, an additional N809bn ($1.9bn) was allocated to social development and poverty reduction, with provisions for public works and housing, power, aviation and transport, and water resources also included.
In order to achieve the goals outlined in the NDP 2021-25, the Federal Ministry of Finance, Budget and National Planning estimated in December 2021 that N348.1trn ($829.3bn) in investment will be required, with N49.7trn ($118.4bn) of the total coming from government funds, while private investment will be tapped to cover 85.7% of that figure, or N298.3trn ($710.7bn). The authorities are working to improve policy and regulatory frameworks to meet this target. For example, in January 2023 the government shared its plans via the 2023 budget to strengthen tax collection and compliance, revamp PPP legislation, and consider alternative and innovative approaches to raising capital for infrastructure, such as sovereign green bonds and debt-to-climate mechanisms for implementation.
Size & Performance
According to the most recent information from the National Bureau of Statistics (NBS), the construction sector contributed N18.7trn ($44.5m) to the economy in 2022, or 9.4% of GDP. In a December 2022 report UK-based analytics and consultancy firm Global Data forecast the sector would expand by 3.2% per year between 2024 and 2027 after growing 2.8% in 2023. The 2023 national budget of N21.8trn ($51.9bn) was higher than originally expected, as the government raised its assumed oil price from $70 to $75 per barrel. Infrastructure development was allocated 5.7% of the sum, totalling a little more than N1.2trn ($2.9bn). “The construction sector is seeing a period of recovery following a contraction that began in 2020 and continued through to 2021,” Ifeanyi Megafu, head of contracts at local building construction company Formwork, told OBG. “However, the right policies must be in place to stabilise the naira for the private sector to drive growth, as such efforts would bring down operational and materials costs.”
Inflation in February 2023 reached 21.9%, up slightly from 21.8% the previous month. Global consulting firm KPMG projected that the unemployment rate for the country would surpass 40% in 2023 after being nearly 38% in 2022 due to limited private sector investment, low industrialisation and general difficulty in absorbing the estimated 5m people entering the job market every year. The continuing rise in inflation is expected to have a significant effect on the construction sector, as it accounts for a sizeable percentage of Nigeria’s workforce and is a driver of GDP growth.
Finance Schemes
The government has made progress in cultivating new methods of financing and better harnessing existing ones to help meet the country’s infrastructure needs. The Infrastructure Corporation of Nigeria (InfraCorp), a public-private infrastructure fund, commenced operations in April 2022 with N1trn ($2.4bn) in seed funding from the Central Bank of Nigeria (CBN), the Nigeria Sovereign Investment Authority (NSIA) and Africa Finance Corporation. InfraCorp, which will function as a government-owned enterprise, aims to triple its level of funding by 2025 through collaboration with public and private stakeholders, and to have raised $37bn for infrastructure development by 2030. The new fund’s initial area of focus is transport and logistics infrastructure, with potential initial investment of up to N163bn ($388.3m).
The government has also leveraged funds through the NSIA via the Presidential Infrastructure Fund, enabling the completion of the Second Niger Bridge, the Lagos-Ibadan Expressway and the Abuja-Kano Road. In addition, the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme offers tax incentives to private investors and has facilitated the development of 1500 km of critical roads since its launch in 2019, with more set for completion by 2023. Meanwhile, sukuk (Islamic bonds) established in 2017, has been harnessed to similar effect, enabling the completion of 40 road projects spanning 941 km. The Federal Ministry of Finance, Budget and National Planning has also secured funding from the CBN and international partners such as the World Bank, the International Finance Corporation, the African Development Bank and Japan International Cooperation Agency, contributing to Nigeria’s ongoing overhaul of its power supply infrastructure.
Foreign Investment
These efforts to attract investment are especially important given that the level of foreign investment in the construction sector has fallen in recent years. While foreign investment in the sector rose from $32.5m in 2016 to $100.9m in 2017, driven largely by an overall increase in portfolio investment, it dropped significantly to $1.6m in 2021 as a result of the ripple effect from the pandemic. However, as supply chain pressure eased the sector saw signs of a revival, receiving $5.1m in foreign investment in the first two quarters of 2022. Recent announcements indicate a significant improvement in this area, although additional capital inflows would help raise the $2.3trn the government estimates is needed to meet its infrastructure development goals.
Beijing-based construction firm Mutual Commitment Group (MCG) currently has active projects in the health care space in both Minna and Asaba, while plans for a new N200bn ($476.5m), 2000-bed hospital in the north-east of the country were at an advanced stage as of September 2022. MCG has previously completed road, power and housing projects throughout the country. The company operates a contractor-finance model, with MCG putting up a percentage of the required funding and selected contractors providing the remaining balance, which is subsequently reimbursed by MCG over an agreed-upon period of time.
Indeed, both private and government-owned Chinese firms have been active players in Nigeria’s infrastructure drive, given the country’s strategic importance to China’s Belt and Road Initiative. As Nigeria presses ahead with its infrastructure expansion plans, it has also seen significant foreign direct investment for construction projects from the US, the UK, France and the Netherlands in key sectors such as agriculture, power, the digital economy and health care, among others. In September 2022 for example, the French Development Agency signed a grant agreement of €25m for the Northern Corridor Project to strengthen the electricity network throughout the country.
Rail
In August 2021 the government announced that it had approved funding for the $11.6bn Lagos-Calabar coastal railway line, that, together with the LagosKano railway, will connect all coastal cities. China Civil Engineering Construction Company (CCECC) was contracted in April 2021 to construct the 1402 km track and 22 stations. The government also confirmed a contract for the Kano-Jibia line with Portuguese construction company Mota-Engil in January 2021. Reconstruction efforts on the Port Harcourt-Maiduguri line, however, had been suspended as of December 2022 due to the inability to secure financing for the project.
CCECC has also been contracted to carry out the design of the Lagos mass-transit light rail system and to construct the first of the project’s seven lines. CCECC is constructing the 27-km blue line that will comprise a total of 13 stations, three of which will also be serviced by the second-phase red line. The Lagos State government has provided the entire $1.2bn required to build the blue line. Originally scheduled for completion in 2011, the first phase was finalised in December 2022 after a series of funding-related delays. The line is expected to be operational by spring of 2023.
The Lagos-Kano single-gauge line has also encountered funding challenges, with the government announcing in February 2022 that it was still awaiting 85% of the $8.3bn loan that the Export-Import Bank of China agreed to provide. As of December 2022 the government was in discussion with Standard Chartered to provide alternative funding, while CCECC remains the key contractor. Two sections of the 2788-km development were already operational – the first segment opened in July 2016, while the second segment began operations in June 2021. Once complete, the line will connect Lagos with the country’s key ports and continue to the Nigeria-Niger border.
Energy
Nigeria’s long-term strategies are focused on diversifying away from its traditional dependence on oil exports. In the meantime, the government is working to encourage investment that will bolster value added in the space. To that end, in October 2022 Dangote Industries completed a new 650,000-barrel-per day refinery. Slated to start operations in the first half of 2023, the facility is expected to significantly bolster the country’s downstream oil capacities.
Meanwhile, the government is strategising a pivot to natural gas, with gas derivatives such as blue hydrogen central to the global clean energy transition. As such, leveraging the country’s large natural gas reserves is a top priority. The $6.5bn Train 7 project will see a seventh liquefied natural gas (LNG) processing unit added to the Nigeria LNG Terminal at Bonny Island. The site – owned and operated by Nigeria LNG, a joint venture (JV) between Nigeria National Petroleum Company (NNPC), the Netherlands’ Shell Gas, France’s TotalEnergies and Italy’s Eni – will increase the country’s capacity by 35% from 22m tonnes per annum (tpa) in 2022 to 30m tpa by 2026. The JV has contracted, among other major stakeholders, SLD JV Consortium – which comprises Italian engineering and construction firm Saipem, Japan’s Chuyoda and South Korean company Daewoo Engineering & Construction – to carry out engineering, procurement and construction processes. The project, which is estimated to have attracted up to $5bn in foreign direct investment to the country, was around 30% complete in the third quarter of 2022. Upon its anticipated completion in 2026 it is set to create approximately 50,000 direct and indirect jobs.
Another NNPC project, the $2.8bn Ajaokuta-Kaduna-Kano (AKK) gas pipeline, started in 2020, was set to commence operation in early 2023 but ran into funding constraints. The development represents a 614-km portion of two larger projects – the Trans-Nigerian Gas Pipeline project and the 4401-km Trans-Saharan Gas Pipeline. The latter aims to allow Nigeria to harness its substantial gas reserves for export. The AKK line, which is being developed through a PPP under a build, operate, transfer (BOT) model, will facilitate the generation of 3.6 GW of power and support industry in the regions it serves. However, in 2021 Chinese backer Sinosure had pulled a portion of its planned $2.6bn investment in the development, leaving NNPC to search for alternative financing. Meanwhile, civil unrest in areas through which the pipeline runs has also stalled progress (see Energy chapter).
Other Developments
Various construction projects are in the pipeline in the government’s bid to diversify its economy. In October 2022 the government approved $2.6bn funding for Badagry Seaport. Situated to the west of Lagos, the nearly 5-sq km port’s infrastructure will include a 2470-metre quay-length container terminal and an 18-metre-deep harbour as Nigeria works to position itself as the primary maritime port of entry for West and Central Africa. The project, which is managed by Badagry Port Development, is a BOT PPP, with the selected private partner set to assume ownership of the port for a period of 45 years.
A multi-sector development, Eko Atlantic City, will be built on 10 sq km of reclaimed land off the coast of Victoria Island. The city is set to be self-sufficient, generating its own power and delivering clean water to its occupants. It is being developed as a PPP, with South Energyx Nigeria, a subsidiary of Nigeria-based Cagoury Group of Companies, which is providing funding. Several foreign entities have expressed interest and bought land, and as of August 2022 the project was valued at $2000 per sq metre.
Outlook
With the sector recovering from the stresses of the pandemic and the government’s key financing schemes recording notable success, Nigeria’s construction landscape is beginning to look more accommodating for its existing operators. However, there is considerable work to be completed in order to help the sector reach its potential. The continuation of pandemic-related supply chain disruptions and investment shortfall further emphasise the need for robust policy formulation and implementation to attract a broader array of international investors and boost local materials production. Indeed, future investment in key infrastructure projects appears to be forthcoming, suggesting that the government’s investment goals could be achieved, along with positive socioeconomic outcomes, if broader investor confidence can be raised.
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