Overview of the Global Construction Industry

All over the world, construction industry trends have shown a rise in its rate of growth. The different
sections of the construction industry are showing differential growth pattern all over the world.

Construction industry contributes a huge amount to the world GDP amounting to 1/10th of the
same. Immense potential in generating huge amount of employment, offering employment to
around 7% of the total employed work force around the globe.

The industry consumes around 2/5th of the total consumed energy through out the world making it
the largest sector in respect of consumption of energy. Hence, its resource utilization amounts to
half of the total resource used all over the world.

The construction industry is the base of the world economy and this is achieved through the
construction of residential and commercial properties, bridges, tunnels, roads, railway tracks,
airports, power and energy, dams etc.

The prospects attached with the industry of construction machineries has attracted the attention of
many global manufacturers and exporters. In recent years Indian producers of both heavy and light
machines have performed very well both in the domestic and the world market. With the
continuation of the development process especially in the developing countries, construction
Industry is indeed a growing industry.

Global demand for construction machinery is forecast to rise 6% per year to $130 billion in 2013.
Product sales will be increased by healthy economic growth, continuing industrialization efforts,
rising population and higher standards of living in developing parts of the world, leading to
substantial increases in construction spending. China, India, Mexico and Russia will register some of
the largest sales increases, with China alone accounting for 31 percent of all additional construction
machinery demand through 2013. Growth is also expected to be strong in Iran, Malaysia, Indonesia,
Ukraine, Turkey, Poland and South Africa.

In emerging markets, increasingly affluent consumers are predicted to drive demand for larger
residential structures. Currently, the residential segment remains the largest and it is expected to
maintain an above average growth rate even in the next five years. This is due to the increasing
urbanization, higher expenditure on infrastructural development, and affordable housing projects.

With the fact that almost 75% of the infrastructure that will exist in 2050 is yet to be built, the
construction industry is expected to extensively expand, thus providing a significant opportunity to
improve its efficiency.

Oxford Economics estimates the global construction market was valued at US$10.7 trillion in 2020;
US$5.7 trillion of this output was in emerging markets. The global construction market is expected to
grow by US$4.5 trillion between 2020 and 2030 to reach US$15.2 trillion with US$8.9 trillion in
emerging markets in 2030.

Overview of the Global Construction Industry

The major drivers of growth of the global construction market are:

i. Ever-growing population

ii. Increasing urbanization

 iii. Strong economic growth in advanced economies

iv. High per capita income

v. Government expenditure

Emerging trends which have a direct impact on the dynamics of the construction industry include
increasing demand for green construction to reduce carbon footprint, bridge lock-up device systems
to enhance the life of structures, building information systems for efficient building management,
and the use of fiber-reinforced polymer composites for the rehabilitation of aging structures.

Green building trends are driving construction market opportunities. Green energy practices
promote health and well-being, reduces energy and water consumption, improves indoor air quality,
protects natural resources, lowers greenhouse gas emissions, and also encourages sustainable
business practices.

Asia cemented its position as the world’s largest construction market, owing largely to its
unmatched population. Beyond Asia, opportunities still abound, with North America and Western
Europe offering an attractive risk reward profile, while other regions are expected to grow, albeit
from a low base.

The Construction Value Chain

The value chain for construction projects is composed of specific variations within a fixed framework
of distinct stages—design, production and conversion of raw materials into manufactured products,
and construction itself. Each of these comprises its own internal stages, processes, stakeholders, and
aspects that interact to bring a project to fruition. The distinctness of these processes, as well as the
fixed-term, project-based nature of relationships along the supply chain, results in a highly
fragmented industry structure.

Companies across all sectors of the construction value chain are using methods such as internal
carbon-reduction targets, development of innovative green products, advocacy for sustainability
standards, and integration into the circular economy to embed sustainability into their operations
and products. While the momentum toward sustainability is ubiquitous across the industry, it
manifests differently in each sector along the value chain.

Overview of the Global Construction & Engineering Industry

Global economy activity continues to firm up in the construction and engineering industry, the
fastest pace in five (5) years, showing a cyclical recovery driven, among other factors, by an
investment recovery of advanced economies, strong growth in emerging Asia, a notable upswing in
Europe and a marked upturn in global trade. The industry is projected to grow at 4.2% annually
between 2018 and 2023 in terms of market value, with expansion opportunities in residential,
nonresidential, and infrastructure projects.

From 2017 through to 2035, USD69.54 trillion are required to be invested in construction, which
represents approximately 4.1% of the GDP for that period. More than 60% of global infrastructure
investment in the period will be required in emerging economies, particularly in Asia, while the
Canada and the US will account for about 20%.
 Projected revenue of the green and sustain-
able building construction industry from 2012
through 2017 (in billion USD)
2017
2016 245.41
2015 199.36
2014 156.12
2013 124.69
2012 103.5

Value Chain Analysis

To accurately allocate risk and align sustainability approaches, it is important to identify the actors
that can assess, inform, and adapt their decision making to most effectively implement an integrated
carbon pricing mechanism. However, construction projects differ by location and vary by type, from
buildings to civil engineering projects to large-scale infrastructure, and they are directed by local
conditions, purpose, regulations, codes, and resources that evolve with time. As such, the specific
contexts of construction projects also have an impact on the requirements, composition, and
significance of different stages and actors in the value chains for those projects. A holistic approach
is needed to define the construction value chain so all relevant stakeholders can jointly develop a
strategy for integrated carbon pricing and, more broadly, achieve their climate goals.

As the industry is integral to both national and global economic flows, several definitions of the
construction value chain have been put forth, reflecting changing trends in technologies, processes,
and projects. A review of the literature shows commonalities in definitions of construction supply
chains. One definition considers the value chain as a process that transforms raw construction
materials into manufactured materials that are made into a final product. Another reflects

the specialized nature of each project, with new technologies helping the construction industry
evolve into an “engineer-to-order” format where each product is made specifically in accordance
with customer preferences and requirements.

Despite the relatively niche use of engineer-to-order construction to date, it offers lessons for the
broader construction industry. The operation of each phase as silos results in delays, missing
information, and miscommunication, which is reflected in the fragmented nature of the construction
value chain with its separate, unaligned sectors. Others define the construction industry in terms of
its distinction from manufacturing supply chains,19 characterizing the industry’s structure and
function as one where the value chain converges all materials at the construction site to set up a de
facto “construction factory” around a single, final, constructed project. The project is produced by
repeatedly reconfiguring its organization and making use of temporary supply chains typified by
instability, fragmentation, and separation of design and construction stages.

Value Chain Analysis

This analysis considers the value chain for any construction project as variations arising within the
fixed framework of three distinct stages: design, production and conversion of raw materials into
manufactured products, and on-site construction. Each stage comprises internal phases, processes,
and stakeholders that interact to bring a project to fruition. The major sectors in this industry—
aluminium, bricks/clay, cement, glass, plastics, and steel— are supported by the ancillary activities of
companies working with construction financing, legal firms, and the like. The final stage, on-site
construction, may be for residential or commercial use and includes infrastructure, buildings, and
industrial sites. The distinctness of these processes, as well as the fixed-term, project-based nature
of relationships along the supply chain, result in a highly fragmented industry structure.

The Construction Industry in Nigeria

In Nigeria, organised construction began in the early 1940’s with a few foreign companies. The ‘oil
boom’ that followed about 10 years after Independence led to an upsurge in construction and
demand for construction services, as the country at that period opened up to foreign and local
investments and the obvious needs for infrastructure to drive economic growth. Foreign companies
have dominated the industry since the 60’s and 70’s generating revenue for government and jobs for
the citizenry. However, there have been down sides to this as these companies have been known to
import resources and even skilled labour as opposed to using locally manufactured resources and
promoting local content.

Although the Nigerian construction industry is still largely dominated by international firms, the local
content bill for construction services which was passed in April 2014 is meant to give indigenous
construction companies a level playing field as their international counterparts, as well as, making it
easier for local businesses to thrive in the industry. We expect to see a rise in the number of local
businesses under construction, more jobs created and continual increase in the sector’s contribution
to GDP. The outcome of this bill can only be felt over time. But indeed, there are prospects for
success.

The real GDP for the year 2010 was N54,612,264.18 million in which construction sector’s share of
2.88% was N1,570,973.47million. The construction sector grew by 21.30% to reach N1,905,574.90
million in 2011. A slow down in growth rate of the construction sector by 14.86% resulted in the
sector closing at N2,188,718.59 million in 2012, hence the share of construction to GDP that same
year stood at 3.05%. Part of the reason for the increase in the contribution of the construction
sector to GDP is the better capturing of all the economic activities in the construction sector. Prior to
rebasing, construction data was mainly sourced from construction of buildings and construction of
roads and railways activities. Now, construction activity has been broken down into 11 different
activities, bringing the total for the construction sector to 13.

The industry is expected to record a CAGR of 13.9% to reach NGN 10,671.3 billion by 2024, and the
commercial building construction market in value terms is expected to record a CAGR of 12.5% over
the forecast period.

Keys Players in the Nigerian Construction Industry

As in all other countries, several entities are active within the construction industry in Nigeria. These
include the clients, architectural & engineering firms, general contractors and subcontractors,
management & engineering consultants, labor unions, equipment & materials suppliers, financial
bodies, and the government. Some of these major players that are active in the Nigerian
construction industry are highlighted in the following sections.

The Government as a Client

The federal, state, and local governments are all major clients within the Nigerian construction
industry. The main players that administer construction projects under the government. Following
each entity are the types of projects that they deal with.

Ministry of Transportation

o Roads and Bridges for the whole country

o Major

o Railway lines channels

o Aviation (Airports, runways, etc.)

Ministry of Water Resources

o Dams
o Irrigation

o Water distribution networks, etc

Ministry of Environment and Housing

o Housing

o Natural environment preservation

State Governments (36 State governments)

o Roads, Bridges, Infrastructure, Water distribution networks, Housing projects, etc. within their
states.

Local Governments (774 Local Governments)

o Access roads, minor infrastructure projects, etc

Private Clients

The largest private sector clients in Nigeria today are mainly large oil companies, such as Chevron,
Shell, Mobil, Oando, etc., Banks, Hotels, Dangote Group (the largest Nigerian conglomerate),
international clients such as NGO's, the United Nations, and large Real Estate developers especially
in the capital city and Lagos state. Also, a significant percentage of the private sector clients in the
country are family home owners, and small commercial and retail builders.

Major Indigenous Companies

Major indigenous companies in the industry are:

Julius Berger Nigeria

Julius Berger Nigeria Plc. is by far the largest player in the Nigerian construction market. It is an
indigenous construction company that was incorporated in 1970 and listed on the Nigerian Stock
Exchange in 1991. Its parent company, Julius Berger AG, was established in Germany in 1890, but
later merged with Bilfinger AG to form Bilfinger Berger. With 16,130 employees spread all over
Nigeria.

Dantata & Sawoe Const. Co. Nig. Ltd

Dantata and Sawoe Construction Company Nigeria Limited (D&S) is an indigenous construction
company that was established in 1976 by a Northern Nigerian entrepreneur. It was established at a
time when the country was experiencing a significant increase in construction and infrastructure
developments as a result of the oil boom of the late 1970's. The company is one of the largest
employers of labor in the construction industry with over 7,000 workers.

Costain West Africa Plc.

Costain West Africa Plc. is a construction company in Nigeria that was established as far back as 1948
during the period of British rule in the country. The company is one of the first few that came into
the country to form the organized sector of Nigerian construction industry. When it was first listed
on the Nigerian Stock Exchange in 1974, Costain WA was the first construction company to go public
in Nigeria. The company employs about 1,200 Nigerian and foreign workers.
Setraco Nigeria Ltd.

Setraco Nigeria Limited is also an indigenous Nigerian construction company that was established in
1977 in the defunct state of Bendel. It is one of the largest construction companies in the country
employing over 5,000 workers. In its early years, the firm focused on the construction of small
township roads within the state of Bendel. However, today the company has grown into one of the
most respected companies, which specializes in the construction of roads and bridges in over 20
states across the nation.#

PW Nigeria Ltd.

PW Nigeria Limited is a subsidiary of PW Group, a large international conglomerate with operations

in both Africa and Europe. Currently, the PW Group operates in Nigeria, Ghana, Tanzania, Ireland,
and the United Kingdom. PW Nigeria was established in 1974 by a group of Irish and Nigerian
investors and has since become a dominant name in the industry. The company operates in all parts
of the country, and is managed by a team from all over the world.

RCC Nigeria Ltd.

Reynolds Construction Company Nigeria Limited, RCC, was incorporated on 25 September 1969, and
started operation in the Eastern part of the country. It is a subsidiary of the Israeli company, Solel
Boneh International Group, SBI, which is itself a member of the Housing & Construction Holding Co.
Ltd., a large Israeli conglomerate. RCC's Nigeria headquarters is in the capital city of Abuja, and has
more than 250 engineers, supervisors and administrative officers. The company has over 200 pieces
of construction equipments worth over $100 million (RCC, 2006).

CCECC Nigeria Limited.

CCECC, China Civil Engineering Construction Corporation is a Chinese state owned construction
company with operations in over 40 countries including China, Nigeria, Russia, and the UAE. The
company was established in 1979 and has grown to become one of the largest international
contracting companies according to the Engineering News Record. The core competency of the
company is in railway construction, but it has also worked on several other types of projects.

In Nigeria, the company has worked on several large scale projects, and it recently won the contract
for the largest single project in the country; the rail link between Kano and Lagos, valued at some
$8.3 billion. The project is financed in part with cheap loan from the Chinese government.

Construction Industry And The Capital Market

The Nigerian Capital Market first became operational in 1961 with the opening of the Lagos Stock
Exchange, LSE. However, following the recommendation of the Government Financial System
Review Committee of 1976, the LSE was renamed the Nigerian Stock Exchange, NSE, and has since
grown in size and importance among firms in the various sectors of the economy. The construction
industry is yet to become very active in the Nigerian Capital Market with only a handful of
companies listed in the Exchange.

Currently, only 8 construction companies are public listed companies in Nigeria: Arbico Plc., Cappa &
D'Alberto Plc., Costain (WA) Plc., G. Cappa Plc., Dumez Nig. Plc., Julius Berger Nig. Plc., Impresit
Bakolori Plc., and Road Nig. Plc. The overwhelming majority of the other companies are either
limited liability companies, privately owned companies, or foreign companies that may or may not
be public companies. In 2004, the combined contribution of all the companies to the turnover of the
Nigerian Stock exchange was a mere 0.1%. This will surely increase in the future as more companies
become public.

Challenges of the Construction Sector in Nigeria

The fragmented nature of construction industry allows for many active players which contributes to
the enormous challenges faced by the industry. In Nigeria, the challenges of the construction
industry are enormous and may be responsible for the slow adoption of sustainable construction.

i. Poor quality control

ii. Shortage of skilled manpower

iii. Restricted access to credit facilities and funding

iv. Unstable price of materials

v. Project delays

vi. Poor management

vii. Unfavorable government policies

viii. Material shortages

ix. Difficulties in procurement of plants and equipment

x. Project delays

xi. Lack of professional training and continuous learning facilities

Key profit Drivers

Some of the pertinent areas which improve the competitive advantage and drive the profit of the
industry include:

i. Increased urbanization

ii. Effective funding strategy

iii. Migration

iv. Increased population

v. Partnerships and collaborations