Market Report, "Nigeria Infrastructure Report Q3 2016", published

A combination of tight liquidity restricting business operations and renewed violence in the Delta region exacerbating the government's struggle in raising adequate revenue to undertake major infrastructure spending has seen our forecasts for the construction sector be heavily revised downwards. Chinese credit will be a key lifeline for growth, although will not benefit the whole industry.

Latest Updates And Structural Trends

We forecast just 1.1% y-o-y real growth in Nigeria's construction sector over 2016, based on the dire state of the wider economy and the lack of liquidity in the banking sector causing projects to grind to a halt. 2017 will see stronger growth forecast at 7% as the economy settles and a pickup in Chinese financing, following the agreement of a USD6bn credit line.

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We expect the transport sector to outperform, given the Chinese credit line and the dominant position Chinese firms have in developing major projects in the sector. The 2016 federal budget also had a large focus on transport, although we note government financed projects are more susceptible to delays.

The residential and non-residential building sector has been hardest hit by the economic turmoil and in 2016 we now forecast negative growth of -6.0% y-o-y, as investment in the economy grinds to a halt due to capital controls limiting access to dollars and banks suffering from exposure to the struggling oil sector.

Risk/Reward Index

The potential of Nigeria's infrastructure market has long been known, however a chronic lack of investment and the laborious high-risk business environment has limited its growth prospects. We highlight persistent risks hampering the implementation of major projects, ranging from deep-rooted corruption and violence perpetrated by militants to inefficient bureaucracy. Nigeria scores 41.6 in the RRI.

This overall RRI score is lower than last quarter on account of significantly reduced rewards on offer in the market as reflected in our forecast downgrades. Despite the size of Nigeria's market, its overall Rewards score is now 39.7, down from 44.6 last quarter, given the low levels of investment currently affecting growth.

The Nigeria Infrastructure Report features BMI Research's market assessment and forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The report analyses the impact of regulatory changes and the macroeconomic outlook and features competitive intelligence on contractors and suppliers.

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