Construction picks up in cities as materials become costly

After weeks of national lockdown, construction firms and property developers that jump-started operations in most Nigerian cities are alarmed by a sharp spike in building materials, especially cement, steel and paint prices, with experts urging the government to initiate negotiations with producers to rein in prices.

The lockdown has continued to cripple businesses in major cities and affecting construction workers. In the last count, more than 10,000 workers in projects are out of jobs. But with the easing of the lockdown, some of the construction firms and property developers are gradually going back to their sites in Lagos, Abuja, Port Harcourt, Kano, Kaduna and Aba.

A new twist in the coronavirus pandemic is the scarcity of imported construction materials, which has raised products by 5-10 per cent over the prices of March. There are also hike in the prices of locally manufactured products such as cement, steel and paints.

What is worrying property developers and construction firms are the increase in rates for a truck of sand and granite, which comes from across inter-state borders. In some circumstances, authorities at the checkpoints are stopping and seizing trucks carrying sand and granite.

Dealers and manufacturers are blaming the high exchange rate of the naira to the dollar and increase in haulage costs. The new prices have taken most firms to the drawing board and delayed their openings. Operatives say some contractors may seek review of contract due to supply chains disruption, shortage of subcontractors and materials, and the termination of contracts to control expenses.

The Executive Secretary, Paints Manufacturers Association of Nigeria (PMA), Mr. Jude Maduka who confirmed an increase in paint products by member companies told The Guardian, the price hike is inevitable for the industry’s survival.

He stated that 70 per cent of raw materials used in the production of paints are imported, adding that the dollar to naira exchange rate has worsened the plight of manufacturers,

A top member of the Real Estate Developers Association of Nigeria (REDAN) and Chairman, Board of Trustees, Prince Oluseyi Lufadeju said, efforts of all the stakeholders in housing industry should be targeted at encouraging and ensuring that the bulk of building materials used in various projects are locally sourced.

Lufadeju stressed that “it is no longer fanciful to rely on imported building materials for projects in the country. The closure of the ports definitely affected some imported materials from coming in. Taking advantage of situations like this, some traders jacked up their prices even when all construction sites were lockdown.

“Developers are adjusting themselves to the situation and definitely house prices will go up in response. The big lesson, however, is that COVID 19 has sent signals for everybody to be self-reliant. Even cement that is produced locally, wood products, granite and other building materials have their prices increased as a result of the lockdown. This happens whenever people try to take advantage of events and situations. 

“Ultimately, our best response is to keep on relying on locally produced materials. Eventually, we will be self-sufficient and proud in conserving foreign exchange as well as use our own products, which are very reliable, strong, durable and cost-efficient.

He suggested that government apart from formulating policy on the promotion and use of local materials should empower the research and development institutions, entrepreneurs, banks, especially the development banks to deliberately pay attention to the promotion of local building materials.

A former president of the Nigerian Institute of Quantity Surveyors (NIQS), Mr. Segun Ajanlekoko, traced the problem of building materials’ scarcity to lockdown and long delays that are bound to occur to import goods as well as the further devaluation of naira against the dollar.

Ajanlekoko, who doubles as the President, Commonwealth Association of Surveying and Land Economy (CASLE), urged the government to embark on creating economic stimulus for the construction sector to cushion the effect on the cost of materials and ensure that Central Bank of Nigeria (CBN) doesn’t allow the dollar to be devalued.

“This is a chicken and egg situation at this interesting times as there is severe economic downturn arising out of little or no income from oil right now,” he added.

In his submission, the former NIQS Lagos State chapter chairman, Mr. Jide Oke blamed the material crisis on hoarding by the dealers.

On how it will affect construction projects, Oke added, “costing is a function of prevailing market prices. If prices of materials are hiked in the market, it means unit rates too will go up automatically. It might be temporary though, for now. If life returns to normal prices may reduce and stabilise again.”

According to Deloitte’s Javier Parada, “construction activity will likely continue in the short-term, the work is expected to halt soon given various factors including supply chains disruption, shortage of subcontractors and materials, and the termination of contracts to control expenses.

In the residential and non-residential subsectors, the situation is different. Entities in these subsectors (for example, individuals, retail companies, and small businesses) are facing significant short-term stress and, with little choice but to conserve cash, many of these have already stopped projects.

Parada revealed that longer-term construction companies across the board will have to contend with decreased demand as governments face rising deficits and residential and commercial projects are dampened by unemployment and low GDP growth. Although some companies may be able to execute on the backlog of projects, the pipeline is expected to be weak for the foreseeable future.

He said that construction companies with high levels of debt and low cash reserves may face a liquidity crisis; while smaller businesses, sub-contractors may fail rapidly while contract management will come into sharp focus, as customers seek to terminate or renegotiate contracts.