The construction sector has been a very significant contributor to Nigeria’s GDP, adding as much as 3% to national output. Although the sector has been severely affected by macro-economic headwinds in the recent past quarters, the sector still has great potential to contribute significantly more, in the short term, given the government’s current focus on investing in infrastructure as well as Nigeria’s demographic dynamic.
High construction demand
Nigeria’s position as Africa’s second largest economy and the economic hub of West Africa makes its construction industry a promising market for activities such as residential construction, commercial construction, and infrastructure construction.
Due to its large population, the high rate of urbanization and the resulting perennial housing deficit, the demand for affordable housing is robust. There is also latent demand for commercial and industrial construction such as standard office spaces in key states like Lagos & Abuja, and industries in the country’s Free Trade Zones and Business Parks.
Operating in Nigeria’s construction industry is not a walk in the park, hence construction industry players have had to, and are continuing to rely on the support of Deposit Money Banks (DMBs).
Nigerian construction companies often face tough challenges, some of which are: high cost of land, expensive imported materials and machinery, protracted government documentation and certification processes, numerous fees and taxes, and cash-flow shortfalls due to the government’s delay in paying contractors. Funding mismatch also constitutes a challenge, as contractors typically need medium to long-term funding to execute construction projects, as opposed to short term funding.
Deposit money banks in this case have been a source of invaluable support for players in this industry by facilitating short term intervention funds, long term financing, and advisory services. Banks have now also gone on to provide clients with deep financial management and investment advice, to ensure that clients make sound investment decisions, and project finances are managed efficiently, with the goal of achieving significant cost savings and faster turnaround times.
Some deposit money banks that have participated immensely in Nigeria’s construction sector, partnering with private sector investors and the Lagos state government in the development of the Nigeria International Commerce city, also known as Eko Atlantic City. The city will help meet the demand for world-class financial, commercial, residential and tourist real estate.
The project is indeed seen as a game changer, and will greatly enable Lagos state achieve its aspirations of becoming the financial capital of Africa. It is expected to attract at least 250,000 residents and a daily flow of around 150,000 commuters. It also contributes to saving the environment, as it will help in halting the erosion of Lagos State’s coastline.
According to David Frame, Managing Director of South Energyx, the project developer, credit facilities from local banks have been increasing yearly, and this in turn has opened up confidence from the global community, causing international financiers to look to Nigeria as a viable opportunity for investment.
Deposit money banks also participated in the provision of capital for the construction of a Jetty for Nigeria’s largest fertilizer plant Indorama Eleme Fertilizer Chemical Limited, which was built as part of the Group’s expansion plan in Africa. As a result of the successful injection of capital for the required infrastructure investments, Nigeria is set to become a net exporter of fertilizer produced by the company. The company produces up to 4,000 metric tonnes of urea per day, with Access Bank being one of the major participating banks in this infrastructure project.
Deposit money banks have also contributed to the growth of the construction sector by providing the funding necessary for backward-integrating the sector with other key aspects of the construction value chain like quarrying, packaging and transportation.
Following the institution of the backward integration policy of the government, cement producers were required to invest in local production facilities. According to Oxford Business Group, a business intelligence consultancy, the result of this was more than $6bn in investment in the sector, and a major uptick in domestic capacity.
From 2008 to 2012 the Nigerian cement industry posted a compound annual growth rate of 43.5%, with domestic production surpassing consumption by 55%, leading Nigeria to become a net exporter of cement.
Again, Access Bank, is one of the deposit money banks that supported this drive in providing flexible short term facilities to meet working capital needs of the distributors of major manufacturing cement companies in the country.
Supporting a potential construction boom
As an emerging economy, Nigeria is expected to make huge investments in infrastructure to help it transit into a developed economy. Private and public sector Investing in the upgrade and expansion of critical social-economic infrastructure will help provide better lives for its citizens, as well as create significant opportunities for players in the sector.
The construction industry will play a major role in ensuring that Nigeria achieves its infrastructural development goals. Deposit money banks are well positioned and determined to continue to provide the right financial support required to jump start Nigeria’s construction boom.
Similarly, the contribution of the banking sector to ecommerce has taken several forms. Ecommerce has been a strong catalyst for economic development in Nigeria. It has led to the creation of jobs; boosted productivity; hugely reduced the cost of doing business; and provided access to new markets. For consumers, it has made more goods available at competitive prices, leading to significant gains in the general standard of living.
It has also helped local tech companies thrive, as well as enabled global tech players from Silicon Valley to Europe looking to capitalize on Nigeria’s large population and its potential as a hub on the African continent, to successfully operate.
Firstly, as financial institutions, they have provided the technology infrastructure critical to the flow of payments to and from the agents participating in ecommerce. The backbone of ecommerce is payments, and as ecommerce continues to grow, and online transactions soar, users should rely more on the robustness, security and convenience that this financial infrastructure provides. Ecommerce is only able to grow when ease, convenience, and security is ensured.
Due to the efforts of deposit money banks in ensuring safety and trust, the inhibitive fear customers have in conducting online transactions has been significantly allayed, leading to the inclusion of more users and the expansion of the ecommerce ecosystem.
Some of the higher profile funding support includes Access bank’s assistance to Uber’s expansion drive in Nigeria. Access bank established a financing scheme in conjunction with KIA motors and Hyundai to grow Uber’s footprint by increasing its drivers by as much as fivefold. First bank also pushed this drive forward by helping drivers acquire used cars at relatively low interest rates.