Nigeria Infrastructure Report Q1 2009

The recent decline in oil prices has raised concerns regarding the continued viability of government spending for infrastructure projects in Nigeria. In tandem the deterioration of the credit crisis has decreased dramatically the availability of finance for private sector ventures. In light of the above factors industry value, we see a decline in the rate of growth of the construction -and by extension infrastructureindustry value for 2008 and 2009. In BMI's Q109 Nigeria Infrastructure Report we forecast that the construction industry will grow by 3% in 2009 and gain marginally in 2010, growing by 3.8%.

This two year decline has also filtered into our new cement industry value forecasts. The anticipated decline in the construction activity, will also impact demand for key raw materials. Our new electricity data for Nigeria, indicate that the industry will grow on average by 11% between 2009 and 2013, half the level of average annual growth between 2005 and 2009. The reason behind this decline may lie in the general deterioration of the macroeconomic climate that will prompt demand levels to decline.

In spite of the short term challenges, that are by no means unique to Nigeria, we reiterate our optimism about the long term viability for the country's infrastructure industry. We believe that Nigeria's infrastructure presents some of the most promising opportunities for long term growth, and notwithstanding challenges in the business environment; it has characteristics that can make it Africa's most dynamic infrastructure industry. The past quarter saw the completion of the region's first toll road concession agreement for the Lekki-Epe Expressway and a promising response to the government's calls for interested bidders to take part in the Badagry Expressway PPP, including international companies Arab Contractors and Salini Costruttori. One key factor however that has proven to be the key thrust behind the development of Nigeria's infrastructure development in recent years is Chinese involvement in the sector, as part of Beijing's Africa strategy, whereby Chinese companies carry out large scale infrastructure projects in return for concessions in oil and gas contracts. China Harbour Engineering for instance, is the latest company to sign an agreement in the country, with a project for the construction of a US$1bn road in the Niger Delta.

The government's ambitions for the development of infrastructure are however thwarted by the country's poor business environment. In spite of the federal government's recent efforts to combat corruption, the practice remains entrenched within the country's business environment. Nigeria ranks at 121st place out of 180 countries in Transparency International's corruption perception index for 2008. The security risk is also very high, accentuated by the persistent instability in Nigeria's oil producing heartland, the Niger Delta.

According to BMI forecasts real GDP growth in 2009 will only reach 6.2%, down from 6.7% in 2008, before rebounding to 7.3% in 2010.