The Role of Construction Sector in Economic Growth: Empirical Evidence From Nigeria Building Industry

The Role of Construction Sector in Economic Growth Empirical Evidence From Nigeria Building Industry

Chapter One of  The Role of Construction Sector in Economic Growth Empirical Evidence From Nigeria Building Industry

INTRODUCTION

Background to the Study

The Nigerian government and policy makers have over the years developed various strategies on how the nation’s social and economic potentials can be fully realised. The available resources at Nigeria’s disposal have offered a solid foundation for ensuring rapid development and sustainable growth, but on the contrary, the nation has failed to realise its potentials. In 2009, based on the massive potentials of the country, in order to ensure the rapid growth of the nation’s economy into one of the top largest economies of the world by the year 2020, vision 2020 (NV20:2020) was then coined by the Federal Government of Nigeria. The Vision Document addresses structural weaknesses in the economy and outlines strategies for harnessing the country’s resources to realise the vision goals and targets (CBN, 2011). It was asserted by the Nigerian Institute of Social and Economic Research (NISER), 2012 that for Nigeria to overcome its developmental problems and achieved its aspiration in the nation’s NV20:2020, all sectors that significantly contribute to the nation Gross Domestic Products (GDP) must be evaluated with the aim of sustainably meeting their potentials and contributing their quota to the economic growth and development of the nation.

In 2009, the World Bank Report was of the opinion that there is the need for developing countries like Nigeria to concentrate efforts in diversifying their economies from producing just only product and natural resources based, towards more sustainable human resources which will unarguably lead to the creation of more jobs for the fast growing population. To achieve this, human and infrastructure developments must be enhanced for growth and development of small scale industries and internal micro economic development. Mosaku et al., (2006) opined that building and construction sector is among the top five sectors that are used in measuring the National Gross Capital Formation (NGCF) and the GDP of a nation and its impacts on every other sector, makes it a significant front for sustainable development. The industry’s size as well as its operation, the job creation capacity and its presence in every developmental activity have made construction an attractive area for experimentation in enhancing the effectiveness of governance and cooperative works towards sustainable economic development. Therefore, the overview of the contribution of construction sector to sustainable development in Nigeria is imperative.

The construction sector is very crucial to the development of the Nigerian economy. Housing is the main component of the construction sector. Kissick et al (2006), identified that housing is a key component of economic, social, and civic growth; many housing-related activities directly contribute to the achievement of broader socio-economic development goals; it is a major driver of economic development; globally and especially in low-income countries like Nigeria, housing construction creates job opportunities”. As also noted by Glossop (2008), housing matters to economic development as it enhances economic performance. Apparently, the construction sector has been responsible for the provision of employment opportunities for different categories of employees in Nigeria, especially in major cities of Nigeria where construction activities have been immense. These include the Federal Capital Territory (FCT), Abuja, the various State capital cities like Lagos, Port-Harcourt, Ibadan, Kaduna, Kano, among others. The sector is also pivotal in sectoral linkage as its activities have multiplier effects on the growth of other sectors, especially the building materials industry, real estate transactions, among others.

More importantly, the drive towards achieving the goal and objectives of the Nigerian Vision 20:2020 blueprint has an anchor in the building and construction sector. In the blueprint, infrastructural development is recognised as key to achieving economic transformation. Most of the activities lined up to be undertaken have strong role for the building and construction sector. Efforts at transforming the power, transport, housing and industrial sectors are not likely to bear the desired fruits without the active participation of the actors in the building and construction sector as well as the effective and efficient performance of the sector.

There are problems associated with the functioning and performance of the building and construction sector. These have always adversely affected the sector’s contribution to economic development. In view of the importance of the sector and the role it is expected to play towards achieving the country’s vision, there is need to address those challenges and put the sector in a good stead for effective and efficient performance in the years ahead. It is on these premises that this study seeks to examine the role of construction sector in economic growth: empirical evidence from Nigeria building industry.

Statement of the Problem

The construction sector contribute significantly to the economy of a nation, and the activities of the industry are also crucial to the achievement of national socio-economic development goals of providing shelter, infrastructure and employment (Anaman & Osei-Amponsah, 2007). Various researchers have addressed the role of construction in the national economy. According to Khan (2008), the construction sector and construction activities are considered to be one of the major sources of economic growth, development and economic activities. Construction sector plays an important role in the economic growth and development of a country. The construction industry is also a prime source of employment generation offering job opportunities to millions of unskilled, semi-skilled and skilled work force. Park (1989) asserted that the construction industry generates one of the highest multiplier effects through its extensive backward and forward linkages with other sectors of the economy. Ofori (1990) noted the importance of construction in the national economy and attributed it to the high linkages with the rest of the economy. The construction industry is regarded as an essential and highly visible contributor to the process of growth (Field & Ofori, 1988). World Bank, (1984) stated that the importance of the construction industry stems from its strong linkages with other sectors of the economy.

The construction industry globally is widely criticized for its lackluster performance: a significant body of published and anecdotal evidence indicates that the construction industry has among the highest rates of corruption; construction projects invariably take longer than planned; overrun budgets; seldom adds value; subject workers to irresponsible and life-threatening risks; manifests variable quality; and generally underperforms as a production entity (Edwards 2002; ILO 2000; Wyk and Chege 2004; Woudhuysen and Abley 2004). Unfortunately, the construction sector is one of the most neglected sectors as policy makers have not promoted this industry as a driver of economic growth. This is reflected in the lack of attention given to the construction industry in government policies. Therefore, this paper aims at examining the relationship between construction output and economic growth in Nigeria in a view to determine the influence of the construction sector on the aggregate economy. This will propose the necessary action which must be taken in order for the country to derive the greatest benefit from the contribution which construction can make to national growth and development.

Research Objectives

The main objective of this study is to examine the role of construction sector in economic growth: empirical evidence from Nigeria building industry. Specifically, the objectives are:

i)            To study the impacts of construction sector on the economic development.

ii)          To examine the various construction services in Nigeria.

iii)        To understand the efforts of the government towards the improvement of the construction sector in Nigeria.

Research Questions

The following are some of the questions which this study intends to answer:

i)            What are the impacts of construction sector on the economic development?

ii)          What are the various construction services in Nigeria?

iii)        What are the efforts of the government towards the improvement of the construction sector in Nigeria?

Research Hypotheses

The followings are the research hypotheses to be tested in this study:

i)            There is a significant influence of government’s on the improvement of the construction sector in Nigeria.

ii)          There is a significant correlation between construction sector and economic development.

Significance of the Study

This study informs stakeholders such as government, house developers, and quantity surveyors on factors responsible construction sector and economic development, the extent of how this affects the economy of Nigeria. The study also seeks to encourage the construction engineers on the efficient running of projects, for example, the use of various builders in achieving set goals which will contribute to the economic growth of the country. It will be beneficial to the research scholars on the the role of construction sector in economic growth.

Scope of the Study

The purpose of this study is to identify the role of construction sector in the economic growth of Nigeria. Despite there being a large number of construction companies registered in Nigeria, the research will focus on those who are based in Lagos. This is because it will be easier to access a wider pool of respondents over a given area due to their possible high concentration.

Limitations of the Study

It is expected that some respondents, especially the registered Quantity Surveyors, will not complete and return the survey questionnaires used in the study. However, it is anticipated that firms with at least two Quantity Surveyors will be more willing to fill the questionnaires than those with one, since the questionnaires can be given to one of them. Time may be another limitation considering the potential population of Quantity Surveyors, the administration of the research study may experience inadequate time to satisfactorily conduct the study.