Building material and real estate woes deepen as recession dampens outlook  

The poor performance of the 22 building material and real estate firms quoted on the floor of the Nigeria Stock Exchange (NSE) in Q3, 2016 offers an insight into how Nigeria’s economic meltdown has ensnarled the industry.

When these firms falter, it means the recession has reached its crisis level and unemployment rate, which is already at 13.30 percent according to the National Bureau of Statistics (NBS), will spike the more.

Of the 22 firms that includes roofers, cement makers, glass producers, packaging containers; industrial coating producers, electronics suppliers, cable producers and real estate developers, with a combined market capitalization of N3.03 trillion, only four grew profits in the most recent period.

Dangote Cement, UACN Property Nigeria Plc, Portland Paints Plc, Cap Nigeria Plc, Berger Paints Nigeria Plc , and Sky shelter Funds Nigeria Plc, recorded a -15.48 percent, -93.27 percent, -41.89 percent, -11.96 percent, -83.41 percent and -12.41 percent fall in net income respectively in the period under review.

Julius Berger, the largest construction company by market value, alongside Lafarge Africa Plc, Austin Laz Electronics Product, Avon Crown Cap Plc, Meyer Nigeria Plc, and Premier Paints Plc, recorded losses of N3.32 billion, N37.40 billion, N33.67 million, N85.64 million N71.72 million, and N15.67 million respectively.

Experts attribute the moribund construction activities and the floundering firms to the fact that consumer’s propensity to save and invest in real estate has been dealt a blow by rising inflation that left little money in their pockets

The sharp fall in oil revenue since mid 2014 that dented government revenue affected allocations to capital projects as budgets were delayed.

The real growth rate of construction activity stood at -6.13% (year on year) in the third quarter of 2016, a decline of 6.02% points from the rate recorded a year earlier, while the real estate sector contracted by 7.37 percent in real terms,  according to the National Bureau of Statistics (NBS).

“In a time of recession the first sector that will suffer are the real estate and construction companies. Again firms are not investing in new projects; they are in a survival mood,” said Igbuan Okaisabor, vice president/CEO of KAISER Construction Limited.

“If construction firms don’t have jobs, they will not buy nails, paints and other building materials. We are cutting jobs and that is bad for the economy,” said Okaisabor.

The companies have on average performed worse than the NSE All Share Index.

The stock of Dangote Cement, Julius Berger, Lafarge, Berger Paints, Beta Glass, Sokoto Cement, Paints and Coatings, and UACN Property have returned -6.05 percent, -14 percent, -38 percent, -41 percent, -54 percent, -30 percent and -56 percent compared to -11.55 percent return for the NSE-ASI in the same period.

Nigeria’s 17 million housing deficits and a huge population that crave for accommodation are opportunities begging to be unlocked.

The speedy passage of the 2017 budget and the full implementation of the 2016’s budget will go long way in invigorating the industry.

Nigeria’s economy contracted by 2.20 percent in the third quarter of the year, according to the NBS.

The International Monetary Fund (IMF) forecast’s that the GDP will plunge by 1.7 percent by 2016.

 

BALA AUGIE