Road contractors are in for a tough time as the price of bitumen, a major component used in the production of asphalt, soared by 150 percent within a period of seven months, between August 2023 and March 2024.
Investigation by this paper showed that 20 tons of bitumen, which was sold at N854,375 in August 2023, now sells for N2,008,330 in March 2024, reports Saturday Tribune.
The road contractors are also concerned about the rising prices of cement, diesel, granite, and crushed stones.
While some of the contractors have abandoned construction sites, others have been having tough discussions with their clients on the need to reconcile the variations in materials’ costs.
An impeccable source at the Lagos Public Works told Saturday Tribune that the cost per ton of asphalt as of August 2023 was N70,000, but it escalated to N155,000 in March 2024.
Given the progression of the inflation rate in the price of bitumen between August 2023 and March 2024, the source said 20 tons of the product cost N854,375 in August; N1,121,175 in September; N1,082,775 in October; N1,301,000 in November; N1,351,000 in December 2023; N1,366,000 in January 2024; N1,770,280 in February and N2,008,330 in March, respectively.
Various factors such as inflation, volatile foreign exchange, fuel subsidy removal, government budget deficit and reliance on importation of materials have been adduced as reasons for the rising cost of bitumen and other construction materials.
The Minister of Works, David Umahi, had warned contractors engaged by the ministry for federal road projects that the government would not pay them variation for any project delayed by them.
The national chairman of the Nigerian Institutions of Highway and Transportation Engineers (NIHTE), Saidu Hassan, maintained that the rising cost of bitumen was bound to impact the cost of road construction.
In an interview with our correspondent, Hassan said from December to date, the price of bitumen had witnessed about 30 per cent increase, having risen from N1.4 million per metric tonne in December 2023 to N1.770 million in the current month.
He said the government, as an important stakeholder in the use of bitumen, should intervene to boost its supply for the delivery of road projects across the country.
Expressing worry over the escalating costs of materials, road contractors under the auspices of the Federation of Construction Industry (FOCI) called on the government to do a comprehensive review of existing contract templates and procurement guidelines to incorporate more robust and flexible provisions for addressing inflationary impacts on materials’ costs.
FOCI president, Vincent Barrah, hinged the appeal on the relentless inflation of construction materials and the price of diesel that has plunged the industry into a unprecedented hardship, jeopardising the viability of countless projects and threatening the livelihoods of millions of workers
Barrah emphasised that the costly construction materials like cement, steel, gravel and asphalt have significantly escalated project costs, adding that the situation has rendered players in the industry insolvent.
“The skyrocketing price of diesel, a critical fuel source for construction machinery and vehicles, has further compounded the financial burden on companies, exacerbating their already precarious financial situation.
“The current exchange rate has doubled the cost of spare parts and further reduced the investment opportunity to expand or replace current machineries,” he said.
The consequences of the inflationary pressures, the FOCI president said, have caused unprecedented delays and disruptions of projects, adding that companies now struggle to procure essential materials within budgetary constraints.
Appealing to the government, Barrah called on the federal government to take decisive actions to alleviate the plight of construction companies and “safeguard the future of our industry.”
He urged the government to adopt mechanisms such as price escalation clauses linked to relevant inflation indices or market benchmarks.
Another professional group under the auspices of the Nigerian Institute of Quantity Surveyors (NIQS) lamented that the “uncontrollable” surge in building materials’ prices has pushed contractors into financial distress.
According to the group, the hyperinflation of prices has hurt the construction industry to the extent that prospective clients could no longer afford construction projects, forcing many projects to stall.
NIQS president, Kene C. Nzekwe, said the “ugly” incident’s repercussions extended beyond stalled projects as it impeded the development of crucial infrastructure such as roads, hospitals and educational facilities.
Nzekwe said: “The repercussions are dire, disrupting economic projections and compelling government planners into an uncharted territory. The construction industry, a cornerstone of our economy, is bearing the brunt of this hyper-inflationary crisis.
“The price of cement, using a 50kg bag as an indicator, between January and February 2024, a period of about six weeks, has increased from N4,500 to between N12,000 and N13,000.
“This is an increase of between 100 percent and 150 percent. Reinforcement steel rods, another major material for construction, moved from around N590,000 and N650,000 per ton in January 2024 to N1,200,000 and N1,400,000 in February 2024, an increase of over 100 percent in a short run of less than six weeks.”
Hyperinflation on materials’ costs, Nzekwe said, have made private sector’s investors become reluctant to invest, thereby creating an adverse cycle that hampers economic growth and causes job losses in the construction industry.
“As we witness this economic storm, it is imperative that we rally together to navigate these turbulent times and secure the stability of the construction industry, a critical engine of our nation’s growth,” he said.
He identified government’s budget deficits, fuel subsidy removal, currency float, and insecurity affecting productivity and leading to moribund industries as the major cause of the hyperinflation that is almost crippling the construction sector and the entire economy.
He called on the federal government to step in with strategic interventions to ensure the stability of the construction industry and safeguard the interests of all stakeholders.
Suggesting solutions to mitigate the impacts of hyperinflation in the construction industry, the NIQS president urged government to engage local construction material manufacturers to bring down the prices.
Nzekwe stressed the need for the government to understand and address some of the challenges confronting local construction manufacturers.
“Some of the challenges highlighted by the local manufacturers include exchange rate volatility which has seen our currency depreciate by about 300 percent in a few months, thereby affecting the imported components of their manufacturing like spare parts, mining explosives and import tariff which is indexed in US dollars,” the NIQS boss said.
According to him, the construction industry in the Nigerian economy plays a vital role in the provision of commercial, industrial and infrastructural projects.
“It attracts many investments and thereby contributes substantially to the GDP. The construction industry was reported to have contributed up to 11.79 percent to the nominal GDP in the first quarter of 2023. This shows how important the construction industry is to the Nigerian economy and the need for all stakeholders to protect this important industry.
“A growing construction industry brings about positive multiplier effects, gross fixed capital formation and growth in the gross domestic product (GDP) of the economy.
“The government should, therefore, be interested in what is happening in the construction industry of the economy because the sector is an effective barometer which can be used to measure the direction of economic growth within the economy,” the NIQS president said.
