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‘Increased electricity, fuel costs damaging to construction sector’

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Operators in the construction sector have decried the increase in electricity tariffs and fuel prices. The increase, according to them, are inimical to the recovery of the sector. With the lingering negative impact of the COVID-19 pandemic and other policy changes, they believe that increased costs may worsen the industry’s situation, OKWY IROEGBU-CHIKEZIE reports

The recent increase in electricity tariffs, pump prices of premium motor spirit, otherwise known as petrol, and the previous policies on stamp duty and other related costs may lead to further slowdown in the construction industry. With the purchasing power of the average Nigerian already diminished by the effects of the COVID-19 pandemic, higher cost of construction may be a disincentive to customers.

Operators say increased costs will affect construction and real estate sector as the purchasing power of people have become very low due to job losses, reduction in salaries and economic slowdown occasioned by the twin-shocks of global crude oil decline and COVID-19.

President, Nigeria Institute of Building (NIOB), Kunle Awobodu, said while the government might have its reasons for the increase in electricity tariffs and the prices of premium motor spirit due to the need for appropriate pricing based on market forces, NIOB could not but note the unintended effects of such increases on the construction industry that produces housing and other infrastructure stock.

He noted that the industry engaged several actors, including professionals, artisans, and business outfits such as contractors, materials manufacturers, equipment manufacturers or leasing organisations, many of which are small and medium enterprises, the engine room of growth for the economy.

According to him, the use of the construction industry to grow national economies cannot be overemphasised.

“A cursory survey of some building materials’ manufacturers would reveal that many are closing shops on account of cost of production combined with the harrowing effect of the COVID-19 pandemic,” Awobodu said.

He cautioned that increasing energy costs would further suffocate few operators still surviving, adding that the  scenario would negatively impact housin stock.

He advised government and relevant stakeholders to stimulate an environment for the production of inputs such as doors, windows and other components for large housing projects.

Awobodu expressed fears that companies may not be able to meet demands as a result of their low capacities, noting that what the nation needed at this time was the ability to look inwards in line with government’s policy pronouncements and executive orders on local content.

“Bringing to fore the NIOB past market survey, a 50 kilogramme bag of cement rose from N1,600 to N2,000 and steel  reinforcement bars, locally manufactured TMT, from N135,000 to N140,000 due to hike in fuel prices from N65 to N120 per litre in 2012. The increase in fuel price from N120 to N145 in 2016 resulted in the rise of cement price to N2,300 per 50 kilogramme bag and steel bars to N180,000 per tonne. Just before the previous upward review of fuel price to about N151.56, a 50 kilogramme bag of cement sold for N2,600 while steel bar was N230,000 per tonne. Sadly, these two prominent building materials are being manufactured locally, thereby questioning the rationale behind backward integration and local content policies,” Awobodu said.

According to him, based on many surveys by the institute and operators accounts, hikes in fuel prices always led to increases in building materials’prices. Hence, it does not require anything extraordinary to predict inflation in the prices of building materials with the latest increase in fuel price.

“Invariably, workers who have been saving to relocate to their own houses will still have to tolerate their landlords for a long time to come as a result of various policy somersaults of government as far as low-cost housing programme is concerned,” Awobodu said. He cautioned that increasing electricity and petroleum costs will further drive up production, distribution and transportation costs while reducing both the disposable incomes and purchasing power of Nigerians.

He added that without appreciable construction activities, employment challenges will remain intractable.

He urged the government to reverse the recent increases as it will do the critical masses and Nigerian economy, especially the construction industry, good.

According to him, reduced costs of operations will lead to increased construction activities, to the benefit of the government and the citizenry.

An estate surveyor and valuer,  Biodun Olapade, also decried the increase in electricity tariffs and fuel prices, noting that the timing was wrong for a people struggling to cope with many shocks.

According to him, the untold hardship in the economy is biting harder because of the effects of  COVID-19 pandemic, which though affected all countries has been more telling on Nigerians who enjoy less impactful relief from the government.

He noted that rather than increasing costs, government could have provided more impactful reliefs through reduction of electricity tariff and grant of more subsidies on petroleum products.

He said the negative impact of the recent increase in costs would be borne more by Nigerians, especially the vulnerable segment of the population.

“Apart from the fact that it will make the government of the day unpopular, reversing the position will make life more impactful and better as a succor for all, especially majority of citizens who are not in the corridors of power or having political appointments or in the civil service with guaranteed income. The dividends of democracy to a common man are seen in things like less electricity tariff and pump price of fuel, “ Olapade said.

Past President of Association of Town Planning Consultants (ATOPCON), Moses Ogunleye said the increases would push up energy cost for families and homes.

“Generally, energy   is required to run homes from many angles.  For managers of estates, the service charge would have to go up.  Then the costs will be pushed over to renters or tenants.  So, every renter will be paying more in terms of rent. Owners of dwelling will also incur more cost to run homes.  Ultimately, costing of housing will also go up. For construction, energy is consumed in many ways – material production, construction process – these will also be affected. Construction cost will also go up although marginally,” Ogunleye said.

Past Chairman of Nigeria Institute of Quantity Surveyors (NIQS), Jide Oke, said the latest increase in the prices of electricity, fuel and introduction of stamp duty would greatly impact negatively on the construction sector.

“For a sector that is reeling under the devastating impact of the COVID-19, on account of its huge dependence on imported materials from China, Europe and Asian countries, the recent Federal Government increase is not only inauspicious but will cripple the sector. Since the COVID-19 time, prices of materials have been on the upswing because of scarcity of imported materials from the affected countries. And now with further increases, prices will jump much higher and this has commenced,” Oke said.

Adebola Adedeji, an engineer, said the increase would also affect the cost of importation of materials.

He lamented that policy makers did not take time to study the impact of policies before they make pronouncements.

“This increase will impact on the production cost and in the long run, construction companies may shed weight to stay afloat.  This government should be wary of what history will say about it. It’s an unkind cut on the majority of the people that do not have access to free cash like those in government,” Adedeji said.

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