Intervene Urgently to Stabilise Construction Costs, NIQS Tells FG

Bennett Oghifo

The Nigerian Institute of Quantity Surveyors (NIQS) has appealed to the federal government to urgently intervene in stabilising construction costs in the country in the face of hyperinflation.

The President of the Institute, QS Kene C Nzekwe, stated this at a press conference on “Addressing the Impact of Hyperinflation on Nigeria Construction Industry: Urgent Need for Government Intervention for Stabilising Construction Costs in Nigeria,” that was held in Abuja recently.

According to QS Nzekwe, “The urgency of the situation cannot be overstated. The Nigerian construction industry is at a critical juncture, and swift government intervention is imperative to stabilise construction costs and safeguard the future of our nation’s infrastructure development.”

The institute made some recommendations it wants the government to implement and implored “the government to consider the recommendations put forth and work collaboratively with the Nigerian Institute of Quantity Surveyors and other relevant stakeholders. Together, we can overcome the challenges posed by hyperinflation and build a stronger, more resilient construction industry for the benefit of all Nigerians.”

The Institute blamed the current economic woes on various factors, including “government budget deficits, fuel subsidy removal, currency float, and insecurity, affecting productivity and leading to moribund industries.”

Recommendations

They proposed “strategic interventions to mitigate the impacts of hyperinflation”: Engaging Local Manufacturers: The knee-jerk reaction of persuading manufacturers to bring down the prices or face dire consequences at this stage may be counter-productive. Our recommendation will be for the government to sustain engagement with local construction material manufacturers to understand and address their challenges. Some of the challenges highlighted by the local manufacturers include exchange rate volatility which has seen our currency depreciate by about 300% in a few months thereby affecting the imported components of their manufacturing like spare parts, mining explosives and import tariff which is indexed in US Dollars.

Combatting Oligopolies: While addressing the challenges faced by the local manufacturers, it is also important that the government look at the structure of the building material manufacturing industries, especially cement manufacturing. Oligopolies and cartels in the construction materials manufacturing industry must be discouraged. Perfect competition should be the aim, aligning local production prices with international standards. The government should incentivise market entry for new producers into the construction material production space by lowering licensing requirements. This is in a bid to boost competition and drive down prices of basic construction materials like cement. Strengthening the Federal Competition and Consumer Protection Commission (FCCPC) is vital to guard against antitrust tendencies, especially in the construction material manufacturing sector.

Stabilising the Exchange Rate: The government must employ a mix of monetary policies and exchange rate policies to stabilise the exchange rate, making our currency competitive globally. The clamp down on saboteur Bureau de Change (BDC) that are distorting our economy should be sustained and the system cleansed until all forex transactions are transparently done in a regulated manner not hawking currency on the streets as it is currently being done.

Implementing Friendly Tariff Regime: A friendly tariff regime for imported materials and plants is crucial. Government should adopt a temporary measure of lifting restrictions on the importation of some construction materials which have been restricted hitherto to neutralise any attempt by local manufacturers to manipulate the prices.

Involvement of Quantity Surveyors: In a press briefing in October 2023, the Minister of Works, Engr David Umahi spoke about the challenge the Federal Government has been grappling with in recent times is the escalating fluctuation claims on road projects. The minister in the viral video of that press conference even advised the handlers of the project at the ministry of works to go and learn from the quantity surveyors how to manage price fluctuation from the first principle. This issue is poised to worsen in the current era of inflation, posing a significant threat to the financial integrity of government infrastructure initiatives. It is in this context that the engagement of quantity surveyors becomes crucial to assist the Federal Government in navigating these turbulent waters.

Monitoring and enforcement of Executive Order 5: For the promotion of local content in contracts in the planning and execution of projects. This will ensure that the desired increase in the quantum of value created in the Nigerian economy through increased Nigerian content in public procurement is realized. The high overheads and other attendant costs charged to contracts in favour of expatriate staff, which is usually charged as a percentage of the total contract sum, is discarded, giving rise to more reasonable construction costs.

Our members in the quantity surveying profession have demonstrated their expertise in managing project costs, especially in the face of fluctuating economic conditions. By adopting a cost-led procurement approach, led by qualified quantity surveyors, the Federal Government can benefit from a more accurate understanding of project costs from inception to completion. This approach emphasizes thorough cost analysis, value engineering, and risk management to ensure optimal cost efficiency without compromising the quality of road projects.

The NIQS president said hyperinflation has a profound impact on Nigeria’s construction industry, stating, “As we witness this economic storm, it is imperative that we rally together to navigate these turbulent times and secure the stability of the construction industry, a critical engine of our nation’s growth.” 

He said, “The Construction industry in the Nigerian economy plays a vital role in the provision of commercial, industrial, and infrastructural projects. It attracts many investments and thereby contributes substantially to the GDP. The Construction Industry was reported to have contributed up to 11.79 per cent to the nominal GDP in the first quarter of 2023. This shows how important the construction industry is to the Nigerian economy and the need for all stakeholders to protect this important industry.

“A growing construction industry brings about positive multiplier effects, gross fixed capital formation and growth in the gross domestic product (GDP) of the economy. The government should therefore be interested in what is happening in the construction industry of the economy because the sector is an effective barometer which can be used to measure the direction of economic growth within the economy.

“Inflation is a part of economic cycles, but what we are currently facing in Nigeria is hyperinflation, an uncontrollable surge in general price levels. The repercussions are dire, disrupting economic projections and compelling government planners into uncharted territory. The construction industry, a cornerstone of our economy, is bearing the brunt of this hyperinflationary crisis. Isolating the inflation of construction materials, however, gives a better context for discussion.”

Giving specifics, Nzekwe said, “The price of cement, using a 50kg bag as an indicator, between January 2024 and February 2024, a period of about six weeks, has increased from N4,500 to between N12,000-N13,000. This is an increase of between 100% to 150%. Reinforcement steel rods, another major material for construction moved from around N590,000 -N650,000 per ton as of January 2024 to N1,200,000 -N1,400,000 as of February 2024 an increase of over 100% in a short run of less than six weeks. This ugly trend is making it more difficult for prospective clients to afford construction projects and has forced many projects to stall, pushing contractors into financial distress. The repercussions extend beyond stalled projects; it impedes the development of crucial infrastructure such as roads, hospitals, and educational facilities. Private sector investors are also reluctant, creating an adverse cycle that hampers economic growth and job losses in the construction Industry.”

He commended “the resilience and professionalism of Quantity Surveyors in Nigeria who have continued to navigate these challenging times, providing accurate cost estimates and value-engineering solutions to mitigate the impact of hyperinflation. However, their efforts alone cannot suffice in these challenging times of hyperinflation of prices of construction materials. The Nigerian government must step in with strategic interventions to ensure the stability of the construction industry and safeguard the interests of all stakeholders.”