Nigerian construction stakeholders want standards and more local content
Nigeria’s construction industry has been a bright spot in the economy in the past year amid weak non-oil growth, but regulatory gaps and a shortage of local skilled labour have stakeholders demanding industry standards and more local content.
President Muhammadu Buhari was in Lagos this month to commission a new interchange at the heart of the city and an expanded motorway leading to the Murtala Mohammed International Airport. As he prepares to begin a second and final term on 29 May, construction projects such as these are already being touted as the main components of his legacy and that of the ruling All Progressives Congress (APC), which will also be in charge in Lagos for the next four years.
Nigeria’s construction sector accounts for 4% of GDP and was one of the best performers in 2018 amid weakness in key non-oil sectors. The sector grew at 2.3% last year, compared to -5.9% in 2016, shored up by government spending on expanding rail and road infrastructure. Ongoing big projects, such as the Second Niger Bridge in southeast Nigeria and the Dangote private oil refinery in Lagos, continue to bolster the industry.
However, the collapse of a residential building in the Ita Faaji area of Lagos in March raises concerns around local expertise and regulation. Local press reports indicate that there were gaps in regulatory diligence and that those involved in the construction lacked sufficient expertise.
Industry leaders have often pointed to inadequate skilled labour as an operational difficulty. The MD of the Bank of Industry, Olukayode Pitan, said in 2018 that the local supply of skilled workers declines significantly every year and that immigrants from neighbouring countries were being accepted to fill the gap. The government has responded through N-Power Build, a jobs and training program run with input from the Nigerian Institute of Building. But local stakeholders feel the impact is not yet sufficient and want stronger policies to protect domestic firms and workers.
An executive at one professional union in the industry told our analyst in Lagos, “We’re engaging the government to take executive action on local content and require firms to prioritize hiring Nigerian workers over foreigners. In the meantime, firms have to make do with what skilled labour they find, but we want the government to see to it that local firms get their fair share of projects and that Nigerian workers have the advantage during hiring”.
“We’re also in talks with the government to form a new building law to set building standards and regulate things like labour, importation of building materials and so on. At the moment there simply isn’t federal legislation for the industry and state regulators are often more concerned about generating revenue—in rather predatory fashion—than in actual regulation. We hope that will change in the medium term.”
Over the next 24 months, the construction industry will remain one of the main drivers of Nigeria’s non-oil economy as government keeps its foot on the gas with infrastructure projects.
Meanwhile, new legislation to set standards will unlikely be a government priority given that Buhari’s administration has not been inclined to solve problems by going through parliament. But this could change given the incoming APC majority in parliament and the likelihood that the incoming legislative leadership will be more pliant than the current one.
Furthermore, the construction industry is not at the top of government agenda for now; still the executive may be inclined to set import controls and other protectionist moves in response to local discontent about importation and the role of foreign firms/labour in the industry. For instance, in March the central bank announced to local cotton producers that it had added textiles to a list of 40 items that are ineligible for foreign exchange, meaning authorized forex traders were barred from selling currency to importers of those products.
Elsewhere, inadequate regulatory diligence will continue as politics causes patchy reform, but we do not foresee significant threats to operations specifically for foreign construction firms in the new presidential term. Foreign construction firms have seen little hostility from public and private clients, and in fact get a healthy share of large-scale contracts given they’re typically better equipped than local counterparts.
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