13,000 PEOPLE DIRECTLY EMPLOYED IN CONSTRUCTION SECTOR

Nigeria 2018 | REAL ESTATE & CONSTRUCTION | VIP INTERVIEW

TBY talks to Babatunde Raji Fashola, Honorable Minister of the Federal Ministry of Power, Works, and Housing, on the housing shortfall, electricity tariffs, and demand for construction materials.

What are the ministry's most recent policies to help tackle the 80 million housing shortfall in the country?

I see an opportunity to build a real housing economy. The policy is clear and undeniably global; to create affordable housing. That then morphs into various social housing concepts. All we are trying to do now is restart a national housing program that will unleash the housing economy here. Having a national program firstly entails knowing what the people want in terms of housing. Then we will know what our total construction plus infrastructure cost is, and this in turn will determine how much the houses are worth in the market. This defines the acceptability and affordability of housing here. The first leg of the housing economy is already underway; artisans are being employed and the solid minerals sector has grown positively for the first time after nine negative growth quarters. People are buying sand and other building materials, and there are quarrying activities happening. Around 13,000 people are directly engaged in construction and about 40,000 people are indirectly employed in the supply value chain. There are 653 indigenous Nigerian companies that are contractors and employing all these people. By the time we finish, the financial sub-sectors will also be involved, such as mortgages to support acquisitions, as well as the merchandising sub-sectors, for example furnishing the houses. I am focusing on the opportunity to do something that works and survives partisan politics.

How will the government fund its housing projects given shrinking oil revenues?

If we look at what government contributes to the GDP , it is barely 10%; the remainder comes from the private sector. Therefore, it is not proportionate to expect the government to bear the entire cost of funding houses. However, the government can initiate the policy and program, evolve the design, test the market, verify the principles, and support private capital to come in. This is what we are doing. We are running our pilot schemes in every state, and if they succeed, then we will multiply them 10-fold. The government, whether state or federal, will not have all the money for this. But the government can assist in certain ways because it has fiscal powers, policies, and the Federal Mortgage Bank of Nigeria (FMBN), so the government can become the financier of acquisition. Once the private sector sees that workers can get loans to purchase houses, then we will have created an incentive for the private sector to build. We are strengthening the FMBN to grant mortgage acquisition loans to workers and this is an incentive for the private sector to replicate our house building model many times more than we can. The money for this comes from the monthly contribution workers make to the National Housing Fund. In addition, we will soon announce a government guarantee for acquisitions through the FMBN. More importantly, we are thinking differently from before. We have to improve access for people in the informal economy to use vehicles, such as through cooperatives. For example, individual farmers cannot afford to buy a tractor, but each has a sum of money to form a cooperative and buy one tractor for them all to use. This model has worked in transport, farming, and refuse collection, now I want to test it in housing.

How would you assess the power supply situation in Nigeria currently and what are your plans to increase power generation and distribution in the country?

If we compare how much African countries have spent on power over the last two decades compared to western countries, Asia, and the Middle East, we can see the investment and therefore the results gap. It is perhaps in the latter half of the last decade that African countries have begun to pay more attention to their energy needs. Our energy issues have not defied solution; they have simply not received the kind of attention and investment that is needed. We have had decades of inaction. During these periods our population continued to grow. Now we are ramping up our response and the speed at which we are procuring more power now is consistent with our roadmap to get incrementally more energy, steady growth, and later to upgrade our power. In terms of incremental energy, we have increased production of power from 2,690MW when this government was inaugurated to 6,900-7,000MW today. In November 2017 we secured another 115MW from Gbarain and in December 2017 another 240MW on-stream. In March 2018 240MW will come in and by July 2018 another 40MW should be added. There are close to an additional 2,000MW coming in over the next three to 15 months in terms of production. At the same time Nigeria's national grid is expanding. We currently have around 33 transmission projects, many of which we will conclude between 4Q2017 and YE2018. Distribution projects are also being completed. This is a dynamic and evolving process, and Nigeria's transmission capacity is now close to our generation capacity. The real area of challenge now is the distribution side, because Nigeria's power generation capacity has outstripped its distribution capacity. We need to intervene and ramp up our distribution capacity. We are collecting data about where peak power needs to go from each of the distribution companies, where collection losses are lowest, and where there are more customers willing to pay. Then we will plan the roll-out of distribution equipment and how to fund it. Of course, this is the responsibility of the distribution companies, though we will give them as much help and as many incentives as we can. We are working with them, we have a clear plan, and, importantly, we have momentum. We can see that our program is bearing fruit and we want to keep going.

Some private players in the power sector believe the electricity tariffs do not match the cost of investment, which discourages them. What is your response to these claims?

That is one argument; another is that consumers are paying more than the tariff through their own self-generation, sometimes two or three times more. The question is what they can do to get consumers to trust them with that money, and the answer is that provide the service. Electricity providers have to meter because consumers are ready to self-generate power. If they provide the service, then clearly they will get more money and consumers want to see what they are paying for so they have to meter them. Another argument is the assumption that the tariff and unit costs will not guarantee recovery. Again, this argument is flawed because we only collect from disclosed consumers. Every distribution company must improve its means of auditing and censoring all the people consuming energy within its business area. They need to develop a consumer database. They are operating based on the consumer numbers given to them at the time of privatization, which is about 7 million consumers for the whole of Nigeria, which cannot be right. If they keep the same tariffs but improve the collection base, their income doubles. There is an assumption that the tariff is low when in fact the solution lies in collecting more from more consumers who are not currently paying for their electricity. In any event, ultimately the Federal Ministry of Power, Works, and Housing does not decide or approve the tariffs; that is not our job. There is a regulator with a statutory duty and the ministry does not stand in its way. Our responsibility is not just to help businesses, but maintain the balance for consumers as well. Indeed, businesses ultimately exist because of consumers. We all exist here for the consumers. It is difficult to store power and it is not as easy to control as other commodities where if the price is increased the commodity is still there. However, there is a trust breach somewhere that we need to bridge by improving service. Once people receive a better service their resistance to paying drops.

What is your outlook for the power and housing sectors, and for Nigeria in general for 2018?

2018 is clearly the year where we can expect to see some large advances. We should see more results in terms of the effect of our programs in the power and construction sectors, as well as how these drive other sectors like petroleum, bitumen, and diesel fuel for construction, along with all the industries that support construction and provide the inputs, like the steel industry and mining. This should be consistent with the real impact this government seeks to make in terms of investing in infrastructure to drive growth and development. 2018 will be a better year compared to 2017 in the same way 2017 was an improvement on 2016. This goes to show the trajectory of policies, the government gaining momentum, and change truly being imminent. In 2018 we will be measuring the results.

 

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