How Forex Crisis Threatens FG’s N2tn Road Projects

Minister of Power, Works and Housing, Babatunde Raji Fashola

NOT fewer than 226 ongoing Federal Government road projects across the country are likely to suffer a major setback as the huge contract sum of N2tn required for their completion has lessened in value due to the current forex crisis.

The President, Federation of Construction Industry, an umbrella body for construction firms in Nigeria, Mr. Solomon Ogunbusola, said that the instability of the naira against the United States dollar had negatively affected the sector.

Ogunbusola told one of our correspondents that the value of naira attached to most of the contracts had reduced contract as a result of the forex crisis.

He, therefore, noted that the money quoted for some of the projects might not be enough to complete them due to the increment in the prices of materials caused by the forex problem.

In April, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, had during a town hall meeting in Lagos, said that the Federal Government required about N2tn to complete no fewer than 226 ongoing road projects across the country.

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“Ongoing road projects alone awarded by the government before we came, about 266 roads awarded in the various states, the liability to complete them is about N2tn,” Fashola had said.

The minister, however, added that the total amount allocated to all the sectors under his ministry in the 2016 budget was about 400bn.

This, according to experts, also signifies that low budgetary allocation is another problem that may militate against the completion of many of the ongoing road projects.

Speaking on behalf of construction firms in the country, Ogunbusola noted that the forex crisis is “affecting contractors because the contracts some of us got when the dollar was between N170 and N180 have not been completed and right now, a dollar goes for over N300. Basically, the contract sum has reduced in value by half, which is an issue.

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“However, the major issues being considered are if there are foreign and local components of the contract. For the local components, which are things that you can get locally, the prices may not be much different despite the forex crisis. But for foreign components like equipment such as spare parts and maybe payments made in foreign currency, they are the ones majorly affected by the forex issue.”

The FCI boss said it was up to contractors to demand contract reviews from the government based on the extent to which the forex crisis had affected the cost of their projects.

He said the renegotiation of contracts would “be on individual basis of contract because the contract for every contractor differs.”

“So it is going to be more effective for government to deal with each individual contractor as they come,” he said, adding, “The fact remains that the forex situation is affecting every facet of the economy and the construction sector is not an exemption.”

Also according to some contractors who spoke with Saturday PUNCH, the fluctuation in Nigeria’s foreign exchange market in the past months has largely affected the foreign components of construction companies’ operations, hence the need for contracts to be reviewed by the federal and state governments.

In a bid to address the country’s unstable forex situation, the Monetary Policy Committee of the Central Bank of Nigeria on May 24, 2016, directed the management of the apex bank to adopt a flexible exchange rate policy in the inter-bank forex management structure.

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The flexible exchange rate system, which kicked off in June, is a monetary system that allows the exchange rate to be determined by supply and demand.

An economist, Prof. Sheriffdeen Tella, admitted that contract sums would have been affected due to the lingering forex crisis and naira devaluation and that the contractors’ association should renegotiate with the Federal Government for the continuity of the projects.

He, however, played down FCI’s claim that the contract sums had been devalued by half, saying the devaluation would be less than that since the exchange rate had not been devalued by 100 per cent.

Tella urged the Federal Government to work on developing the local manufacturing sector.

He said if the government had worked on the existing refineries, the country could have been producing its own bitumen rather than importing it for the construction of roads.

He said, “There is the need for the Federal Government to renegotiate with the contractors for the continuity of the projects. We also need to start working on our refineries right away, especially the one in Kaduna which has the capacity to produce bitumen for us if it is well developed.”

Another economist, Rewane Bismarck, also urged the Federal Government to renegotiate with the contractors.

He said, “There would have been additional costs incurred in the importation of items like rods and bitumen, which would have led to the devaluation, but I don’t think it could have been devalued by half. The Federal Government’s delay in paying them could have also led to this.”

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