A Thriving Construction Sector and its Impact on Local Law Expertise in Nigeria
This article discusses the role of the economy in driving a thriving construction sector in Nigeria, and the consequent impact on local law expertise in the country.
The construction industry in Nigeria has seen significant growth in recent years. Data from the country's National Bureau of Statistics revealed that the sector contributed 12.9 trillion Naira (approximately US$28 billion) in the first three quarters of 2022; contributing about 9.5% to nominal GDP.
There has been increased activity in the sector with spending from government, private and public-private partnerships (PPP) seeing a resurgence, particularly after the blow dealt to the sector by the COVID-19 pandemic.
Indeed, there are notable projects to look forward to, including the completion of the Dangote Refinery (projected to be one of the largest oil refineries in the world), completion of the civil infrastructure work on the Lagos Rail Mass Transit, (spanning 13 kilometres in the first phase), the commissioning of the Lekki Deep Seaport (equipped with a tonnage capacity of about 6 million TEU and projected to be among the largest deep-sea ports in West Africa), amongst others.
Nigeria still ranks as Africa’s largest economy with an estimated GDP of over US$100 billion in 2022, according to Statista, despite a steep drop from over US$300 billion due to the pandemic. That said, the global recession has continued to slow economic growth, with the federal government introducing the Nigeria Economic Sustainability Plan as an antidote. The government has also shown a willingness to cut spending and engage the private sector in PPPs, especially for projects where debt financing has proved difficult to secure.
The focus of this article is to embark on a fact-finding mission and draw a nexus between the state of the economy, a burgeoning construction sector and its likely impact on the growth and deepening of local law expertise in construction matters.
Economic prosperity and its domino effect on the construction industry
Limited social infrastructure in Nigeria has posed a problem to human development and the general standard of living. Over the years, there has been an unpleasant trend in governance with uncompleted projects littered all over the country. This stems from the failure of elected leaders to grasp the understanding of government as a continuum.
Typically, at state and federal levels, a project could be started with the best intentions and the right tools for execution but if such a project is uncompleted by the next election, a new government may abandon the project, cut its losses, and set a new agenda. This trend has its own unique stories across the country starting from the notorious Ajaokuta Steel Power Plant to the Lagos-Ibadan expressway.
With the population growing faster than the size of the economy, there is an increased reliance on social infrastructure by over 200 million Nigerians. In major cities like Lagos, a city with over 20 million inhabitants, a sub-par connection of road networks has led to relentless traffic which has only worsened in recent years. This is evident in the reduction of the quality of life in Africa’s largest city, with the city consistently ranked by the global liveability index as one of the worst places to live in the world.
Nigeria ought to borrow a leaf from some of its sister countries on the continent. For instance, its West African neighbour, Senegal experienced similar stifling traffic, in its capital and economic hub, Dakar, especially in the late 1990s and early 2000s due to the concentration of big businesses and the federal seat power in the city. One of the infrastructure projects which helped ease its traffic problems is Dakar–Diamniadio toll highway procured through the Build-Operate-Transfer Model. The Nairobi Expressway in Kenya is another notable example.
The Nairobi Expressway links Jomo Kenyatta International Airport to Nairobi’s Westlands area and has reached its 10 million user mark by February 2023. The project was borne out of a PPP collaboration between the Government of Kenya and the China Road and Bridge Corporation (CRBC).
Regardless of the challenges set out above, there have been some strides by the government in improving the current infrastructure across the country. Notable strides by the government in improving infrastructure include the newly completed and operational Second Niger Bridge at Onitsha and the 27-kilometre blue rail line (Okokomaiko-Marina) built by the Lagos State government.
There have also been noticeable efforts by the state and federal governments in cities like Enugu, Port-Harcourt, and Abuja to provide affordable accommodation with government-built estates as part of the National Social Housing Programme (NSHP).
Finally, in 2021, the President of Nigeria approved the establishment of Infrastructure Company (Infracorp), with a seed capital of one trillion naira (US$2.2 billion) tasked with the development of infrastructure projects across Nigeria.
Impact of a thriving construction sector on driving local law expertise
Legal practice thrives upon commerce. At the dawn of the 21st century, there was an unprecedented expansion of telecommunications service providers into the Nigerian market, and consequently this nurtured the growth of ICT law as an attractive niche area for exploration.
Also, the government-initiated banking reforms in 2005 (i.e. increase of the minimum capitalization of banks to 25 billion naira) led to a surge of mergers and acquisitions (M&A) transactions in the banking industry. This inevitably led to the participation of Nigerian law firms in those transactions and the consequential deepening of expertise in M&A transactions. A similar surge can be seen in the technology and entertainment law space with several lawyers carving out a niche for themselves in these emerging areas.
Likewise, a thriving construction sector would invariably encourage increased specialization in construction law. The forecast as it stands is that due to a continuous rise in population growth, there would be an ever-growing need for the sector to keep up with demand. As of date, Nigeria’s construction industry is expected to grow by 3% in 2023-2026, with a previous 5.7% forecast growth in 2022. It suffices to state that the sector has the potential to become a leading non-oil contributor to the economy, alongside technology and entertainment.
While funding for projects has been undertaken in the recent past through international donors such as the International Monetary Fund (IMF) or bilateral trade partners such as China, the importance of local law expertise and viable ADR mechanisms cannot be overemphasized. In SOAS Arbitration in Africa Survey Report 2022, 132 respondents reported they have been involved in construction or infrastructure projects in Africa. The majority (36.4%) of these were involved as counsel, (19%) as arbitrator, (13%) as expert, (7%) as employer, (7%) as contractor, (6%) as adjudicator, (3%) as engineer. A further 14% of the respondents described themselves as dispute resolvers. While it is not clear how many of those involved as counsel or arbitrators are of African descent, this data nonetheless provides some idea on the opportunities in the industry.
It stands to reason that increased construction activities is likely to trigger and deepen capacity building in construction law as Nigerian law firms can be encouraged to have stand-alone construction practice groups.
Contractors (local and international) can then call on this construction law expertise to advise on infrastructure projects and disputes. This will also inevitably boost the revenue of such firms. Lastly, the inculcation of construction law as an elective course in law faculties, just as the case with other areas of law like energy, maritime, insurance etc could also help in building interest in the younger generation and keep them abreast of the limitless opportunities that abound, as future construction law experts.
Recommendations and Conclusions
All hope is not lost with respect to the boom in the construction industry in Nigeria. However, there must be collective efforts to make a burgeoning industry a reality. According to the US Department of Commerce’s International Trade Association, Nigeria is still far behind the infrastructural benchmark set by the World Bank which requires total infrastructure stock at 70% of GDP. Nigeria’s Infrastructure stock is currently around 30% of its GDP.
The government must be deliberate in incentivizing the private sector’s participation through targeted ease of business doing business policies, import waivers and tax holidays where necessary. Debt funding should be only used as a last resort, if at all, as the government already finds it quite difficult to recoup gains to cover the cost of debt servicing and operations. The alternative model to debt funding is the utilization of PPPs. Though not without its challenges, given private investors’ expertise in efficient service delivery, projects may ultimately be executed at comparable lower costs amongst other benefits.
Finally, a renewed focus on the sector by the government would increase investor confidence as well as encourage international donors. This will ultimately reduce the government’s responsibility for building and operating these projects given existing budgetary constraints. With the right policies and initiatives, the construction industry could be one of Nigeria’s key sectors experiencing growth which could mirror the entertainment and technology sectors in the nearest future.