| Nigeria | Jan 13, 2016
The construction industry's importance cannot be underestimated, given its rise in the past five years, in particular. Central to construction's success has been cement, and Nigeria is now Africa's number one cement producer, having surpassed Egypt in 1H2015.
Construction generated 4.71% of GDP in 2014, up from 3.11% the year before, putting the industry firmly in the top five sectors by contribution to GDP. The sector’s rapid rise in recent years is largely due to cement, which itself contributed 0.43% in 2013—a figure that is expected to rise in the coming years. Part of the reason for this strong growth is demand for housing from a population growing at 2.8% annually and already numbering 178 million. This alone has given the construction and real estate sectors an optimistic outlook—between 2015 and 2020, it is estimated that Nigeria will need more than 20 million new homes. But if this target is to be met, Nigeria’s steel, glass, and iron industries will need to match the rise seen in cement, or Nigeria will be overly dependent upon costly imports.
In the modern story of Nigerian construction, it is cement that grabs the headlines. Cement production has risen sharply, marking something of a revolution for the country’s industrial mix—from 16.5 million tons in 2011 to almost 60 million tons in 2015. Over this time, some $16 billion has been invested in the sector, driving an expansion that represents a tripling of growth in just four years. Nigeria is now firmly on course to be one of the top ten clinker and cement producers in the world, as well as number one in Africa, and Africa’s number one exporter of clinker and cement. The Federal Ministry of Industry, Trade, and Investment estimates the number of jobs related to the cement industry has risen from 600,000 in 2011 to 2.4 million by 1H2015, representing a massive boost for the overall construction sector.
If this level of growth—and dependence—is to be sustained, however, the industry must overcome some fundamental challenges. First, transport links are still relatively poor across much of the country, needlessly slowing the rate at which goods can reach the market, and the supply of materials is reduced, adversely affecting project completion times and holding back the industry’s expansion overall. In December 2015, Dangote Cement announced it was investing in 150 new trucks to improve the distribution and availability of cement across the country. Second, the country’s steel industry is weakened by an over-reliance on imports. With the right levels of investment, steel could be the story of 2016, and the year a turning point for the sector. And third, infrastructure and transport links are in need of massive expansion and upgrading if the fast-expanding construction industry is to flouris.
The cement industry is dominated by two companies: Dangote Cement and Lafarge. Dangote is Nigeria’s largest clinker and cement producer, with a capacity of 20 million tons per year. Just over half of this is housed at the company’s Obajana plant. The Obajana plant in Kogi state first opened in 2006 with two production lines. Investment from the Chinese firm Sinoma International, the Shanghai-listed arm of the China National Materials Company, added a third production line and this transformed the plant into the largest in Africa with a total capacity of 12.25 million tons per annum. The fourth production line, also financed by Sinoma, will add a further 3 million tons per annum capacity to the plant. Dangote has two other plants: Ibese and Gboko.
The Ibese Cement Plant is located in Ogun state, around 120 km north-west of Lagos. The Gboko plant is in Beneu state and has a top capacity of 7 million tons per year. In total, Dangote Cement’s African projects, active across 13 countries, generated $1.83 billion in revenues in 1H2015. Dangote’s turnover grew 17.8% YoY in 1H2015.
The second largest producer in Nigeria is Lafarge. The company has a total capacity of 8.5 million tons per annum, generated from three sites. The third player in the cement market is the United Cement Company of Nigeria (UNICEM), which has a production capacity of 2.5 million tons and is set to double in 2016 due to investment in its main plant. Ibeto Cement is the new kid on the block, partly on the back of a $386 million contract with Sinoma International. The Chinese company is investing in a 45MW power and processing plant in Enuga.
In September 2015, Dangote made a strategic move to increase competition in the domestic market, and reposition the industry to better compete with imports on price. The company cut the price of its 3X cement brand to $30.23 per ton in a bid to stimulate exports to neighboring countries. As the market leader, Dangote effectively forced its competitors to follow suit, and the price cut was implemented across the board in 2H2015.
Traditionally, steel is the backbone (quite literally) of any advanced economy. The Nigerian economy is the largest in Africa, but here the steel industry still has some way to go before it can properly rival its cement cousin. That should not make it any less interesting for investors, however. If the industry puts the right measures in place, the future for steel is very bright indeed. But its success rests on fundamentals. By the turn of the century many of the countries iron and steel plants lay idle. And today, Nigeria relies almost entirely on iron and steel imports to support its burgeoning construction industry. At present, iron and steel imports combined are worth around $3.5 billion according to the World Steel Association’s 2014 estimates. That same year, Nigeria imported around 2.19 million tons of semi- and finished steel products, 553,000 tons of long products, and 353,000 tons of tubular products.
The onus for expansion now within the sector—and to improve costs—is on Nigeria’s capacity to produce iron and steel locally. At present, the entire industry’s footing rests on the processing of scrap material. 2015, however, marked a turning point for Nigerian steel. The $210 million investment from KAM Industries saw the coming online of a new rolling mill. Although there are currently some 30 private steel mills operating in the country, their output is small compared with the overall domestic demand, and investment in these new mills is considered to be insufficient.
In the view of the national Guardian newspaper, steel is currently at the forefront of a campaign to “save the soul” of manufacturing industry in Nigeria, at a time when some 21,000 jobs are potentially at risk from the prevalence of steel imports. Some industry insiders are of the view that the entire steel sector is at risk of collapse unless the Buhari administration intervenes. The core of the problem is the influx of foreign steel and steel products, and the government is expected to announce early in 2016 a raft of initiatives to support the development of new mills.
Manufacturing glass is an increasingly important part of Nigeria’s construction landscape. The Egi MJG Float Glass JV owns one of the country’s largest plants, in Rivers State, where production capacity is more than 500 tons of float glass per day. The factory had an initial construction investment of more than $210 million in 2013, and was heralded as a first step to making Nigeria self-sufficient in glass production. Nigeria has no shortage of the raw materials needed for glass. In 2014, the country relied on over 360,000 tons of imported glass to satisfy the construction sector’s needs.
In so many ways, infrastructure is the vital link. Without investment in new roads, rail links, and trucks and freight carriages, Nigeria’s construction industry is unnecessarily hampered. The Nigeria Infrastructure Advisory Facility (NIAF) works alongside the government to develop infrastructure programs relating to energy, roads, transport, and rural development. All of these, of course, impact directly on the construction industry, both in terms of ready projects, and the standard of the infrastructure the country depends upon.
Much of the work NIAF supports is in the form of PPPs on initiatives such as the Lekki-Ikoyi Link, the 1.48km, 4-lane, cable-stayed bridge that relieves traffic congestion and eases routes to market for the construction industry. The bridge has become a major landmark, and a vital link for the entire sector.
The past five years have seen a big resurgence in road and rail investment. The Nigeria Federal Roads Development Project (set up in 2008 and due to end in 2016) has invested more than $365 million in new road schemes across the country, and is overseen and part-financed by the World Bank.
In October 2014, the Chinese government unveiled a $12 billion contract to build a 1,400km railway along the coast of Nigeria. At the time, this was China’s biggest overseas contract, and the project is set to transform access to rural areas, ports—and provide ready access to markets and supplies for the construction industry.
Apart from housing, office space, and roads, some of the biggest construction projects are shopping malls, which are springing up on the back of a retail boom. This is especially the case in Abuja and Lagos, whose populations are increasingly accustomed to higher-end products and a consumer lifestyle. Headline projects of 2014-15 include the vast Lekki Mall in Lagos, and Abuja’s Jabi Lake Mall. The Lekki Mall, situated in the Lekki suburb, and strategically close to the Lekki International Airport, is home to more than 120 outlets, set out in 22,000 sqm of retail floor space. It is—so far—Lagos’ largest shopping mall. A larger one already exists, in Abuja. The Jabi Lake Mall opened its doors in November 2015, with 26,400 sqm, and a total construction cost of more than $100 million.