Construction costs to further escalate amid fuel subsidy removal

There are concerns that Nigeria’s construction costs will see a further increase after the government removed fuel subsidy, last week. Built environment professional bodies, namely Nigerian Institute of Quantity Surveyors (NIQS), Nigerian Institute of Town Planners (NITP) and Nigerian Institute of Architects (NIA), said the increase in fuel price would burden the construction industry and shatter dreams of achieving low-cost housing in the country.

They argued that the implementation would affect logistics, personnel and overheads, which would lead to increment in wages and salaries of artisans, technicians and support staff in the construction industry.

The development is coming at a time when inflation has continued to drive costs higher for everyone, including cost of construction inputs and squeezing margins in the sector. Nigeria’s inflation rate rose for the second consecutive month in February to 21.91 per cent from 21.82 per cent in the previous month. Efforts by the Central Bank of Nigeria (CBN) to halt inflation have not paid off for the construction industry, as building materials prices have spiked by over 30 per cent in the market.

NIQS President, Micheal Shonubi told The Guardian, “Ordinarily, the effects should be minimal as most plants and equipment used for construction are powered by diesel. Even the materials are mostly transported using heavy-duty trucks, which also use diesel. Invariably, the workforce, the human elements in the construction process will feel the effects of the petrol hike, by paying more to commute to and from sites. This will lead to an increase in the costs of the labour component of construction.”

“Furthermore, operational costs for the consulting firms, who superintend the construction process will rise and many firms may have to review their operational strategies and probably undertake staff rationalisation to reduce costs, which will further increase unemployment levels in the country.”

Shonubi foresees general price increases that will further fuel inflation. However, he said in the long term, depending on the macroeconomic policies that will be introduced by the Bola Tinubu administration, “we may see some price stability and possibly price reduction in the future.”

He urged the government to set up a fund that can be accessed by firms in the sector (both contracting and consulting) at low interest rates to help cushion the shocks of petrol hike.

For NIA President, Enyi Ben-Eboh, prices of materials would also go up as logistics costs would rise and this would be transferred to the end users. “Basically, the sector will have to re-calibrate itself to meet the realities of the cost of petrol, which is a central commodity in the construction value chain. Wages would have to be scaled up for workers to be able to meet their basic commuting and subsistence needs.”

He said, as reality sets in, people would begin to make adjustments to their lifestyle to cope with the emerging reality. “In doing so, however, there would be agitation for wage increases across board, especially in the lower rungs of the societal ladder, who would not be able to cope with their current wages.

“We do not expect prices of materials that rely on a high degree of automation to be affected. However, those that are more labour intensive will witness an increase in the cost of labour, which would affect their bottom-line and trigger price increases. This could lead to a temporary decline in activities within the sector pending when palliative measures are put in place to cushion the negative consequences of the aftermath of subsidy removal.”

Ben-Eboh appealed to the government to put infrastructure and economy right, as this will drastically improve the overheads of running a practice and thus guarantee a better environment to prosper and create jobs within the industry.

“As architects, we exist within a larger eco-system of professionals, who are already groaning under the weight of our struggling economy and poor infrastructure to support our businesses,” he said.

NITP President, Nathaniel Atebije, said areas that will be most affected is urban development and housing sector. “There will be upsurge in development of squatter and slum settlements and enclaves in urban areas and invariably aggravate social ills. These include robbery, banditry, physical and social overcrowding which may cause spread of diseases and epidemics.

He said urban infrastructural development will be slowed down, while hopes of the low-income earners to either build or buy houses will be shattered and purchasing power of intending developers would be weakened. “Quite a lot of disasters are looming in the construction sector, from manufacturers to developers, professionals and everybody will bear the brunt.

“Corruption will increase, especially among civil servants to enable people to meet up with their aspirations, such as owning homes and other essentials of life. For people in rented apartments, the rates will increase and housing shortage will escalate. There will also be losses in jobs, such as professionals, technologists and artisans in the built environment, as well as other services, which will increase the current level of unemployment.

“There could be more building collapses because affordable sub-standard materials would be used in construction, as well as fire disasters through use of substandard electrical cables and appliances.”

Atebije advised government to focus on physical planning of towns, appropriately locate housing districts, provide infrastructure and encourage access to fair-interest mortgages for people who desire to build houses, adding that mass movement of people should be facilitated through the provision of well-managed public transit systems such as high capacity buses and rail transport.

Enyi-Eboh called for a blueprint on how funds realised from the removal of subsidy can be ploughed back into infrastructure and social safety initiatives to ease the burden on Nigerians.

He also urged governments to invest heavily in sustainable mass transit schemes across land and waterways to reduce the need for people to commute with their cars. “The rail system should be prioritised in this regard as is done in other parts of the world. Electricity also needs to be fixed to reduce the demand for petrol in running generators as a source of electricity for most small and medium scale businesses.

“In addition to setting a new benchmark for a livable minimum wage, the government should explore the possibility of granting student loans to ease the burden of education on a lot of households, thus increasing disposable household incomes. Mortgage loans should also be made more readily accessible to stimulate growth within the sector and access to finance for projects will also boost the sector, as well as create new jobs while stimulating economic recovery and growth,” NIA president added.