Abstract
Political risk is at the forefront this quarter with potentially significant
implications for infrastructure. In
early February 2009 the Movement for
Emancipation of the Niger Delta (MEND), a militant group in
Nigeria' s
oil-producing region of the Niger Delta, called off the ceasefire after one of
its affiliate' s camps
was attacked by military. MEND had called for a
ceasefire in September 2008. A militant attack against
infrastructure
group Julius Berger, which was building a key road artery in the Niger Delta
forced the
company to also declare force majeure in July 2008. In December
2008 Julius Berger announced it will
not resume the project, nor return to
the Delta in the future.
Data for 2007 (the latest available) show that we
were too conservative in our industry value estimates for
2007. We were
forecasting value of NGN297bn but the official data came out with a value of
NGN350bn.
This has impacted our value and growth forecasts for Nigeria. We
have increased our industry value
figure for 2008 at NGN432bn, up from the
previous NGN337bn. This represents real industry value
growth of 12.2%.
The outlook for 2009 however is not along those lines. In BMI’s Q209
Nigeria
Infrastructure Report we forecast a deeper than previously
expected contraction in the rate of growth of
the construction – and
by extension infrastructure – industry value by 14.5%, which will see
value sliding
to NGN413bn. The risks are to the downside, especially if
BMI’s real GDP forecasts are revised
downwards in the coming months.
However, in spite of the short term challenges that are by no means
unique
to Nigeria, we reiterate our optimism about the long term viability for the
country’s infrastructure
industry; hence we see growth returning
robustly in 2011, when BMI forecasts that gross fixed capital
formation
will resume.
The recent decline in oil prices has raised concerns
regarding the continued viability of government
spending for
infrastructure projects in Nigeria. In tandem the deterioration of the credit
crisis has
decreased dramatically the availability of finance for private
sector ventures.
This two year decline has also filtered into our new
cement industry value forecasts. The anticipated
decline in the
construction activity will also impact demand for key raw materials. Our new
electricity
data for Nigeria indicate that the industry will grow on
average by 11% between 2009- 2013, half the
level of average annual growth
between 2005- 2009. The reason behind this decline may lie in the general
deterioration of the macroeconomic climate that will prompt demand levels to
decline.
We believe that Nigeria’s infrastructure presents some of
the most promising opportunities for long term
growth, and notwithstanding
challenges in the business environment, it has characteristics that can
make
it Africa’s most dynamic infrastructure industry. The end of
2008 saw the completion of the region’s first
toll road concession
agreement for the Lekki-Epe Expressway and a promising response to the
government’s calls for interested bidders to take part in the Badagry
Expressway PPP, including
international companies Arab Contractors and
Salini Costruttori. One factor however that has proven
to be the key
thrust behind the development of Nigeria’s infrastructure development in
recent years is
Chinese involvement in the sector as part of
Beijing’s Africa strategy, whereby Chinese companies carry
out large
scale infrastructure projects in return for concessions in oil and gas
contracts. China Harbour
Engineering for instance, is the latest company
to sign an agreement in the country, with a project for the
construction
of a US$1bn road in the Niger Delta.
The government’s ambitions for
the development of infrastructure however are thwarted by the
country’s
poor business environment. In spite of the federal
government’s recent efforts to combat corruption, the
practice
remains entrenched within the country’s business environment. Nigeria
ranks at 121st place out of
180 countries in Transparency
International’s corruption perception index for 2008. The security risk
is
also very high, accentuated by the persistent instability in
Nigeria’s oil producing heartland, the
Niger Delta.
According to
BMI forecasts, real GDP growth in 2009 will be -1.4 from the previous 6.2 %,
down from
6.7% in 2008. Growth is expected to resume in 2010 to 3%.
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