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AN ASSESSMENT OF THE IMPACT OF INFLATION ON CONSTRUCTION MATERIAL PRICES IN NIGERIA

FEATURED PAPER

Ogun Oghenekevwe1, Ogunsina Olusolaand Ugochukwu Stanley Chukwudi3

1 Globacom Nigeria PLC, Asaba, Delta State, Nigeria.

2 Department of Quantity Surveying, Nnamdi Azikiwe University, Awka, Nigeria.

3 Department of Quantity Surveying, Nnamdi Azikiwe University, Awka, Nigeria.

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Abstract

The goal of most countries is the desire to maintain a stable price level of goods and services. This however, appears to be an uphill task given the incidence of inflation presently ravaging developing economies of the world. Inflationary increase in the price of construction materials has been one of the major banes to development and a contributing factor to frequent cost overruns and subsequently project abandonment. The research studied the effect of inflation on construction material prices in Nigeria from 1998 to 2007, using Lagos as the study area. The study aimed at establishing a relationship between inflation and construction material prices, so as to build a model for forecasting the effect of inflation on construction materials.

A comprehensive review of literature was structured to cover inflation, the Nigerian Economy and the construction industry while Data was collected from Nigerian Institute of quantity Surveyors (NIQS) journals, Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) documents. Regression analysis was performed on the data, and the results showed that a third order polynomial equation relationship exist between cumulative inflation rate and construction material prices. Based on the results; the significant level of correlation reached, it was inferred that cumulative inflation rate can be used to predict the price of building materials.

From the descriptive analysis and literature survey carried out, it was discovered that inflation rates in Nigeria have been far from stable, and have affected material prices non-uniformly. Other macro-economic factors such as importation, interest rate, Gross Domestic Product (GDP) and political regimes also contribute to upward trend in price movement.

The study thus advocated for more involvement of construction professionals in Government policy making, a systematic reduction in importation level, more use of locally made building materials and development of the country’s construction data base to enable the usage of the Construction material inflation rate (CMIR) which will serve as a better computation method for fluctuation in material prices and consequently, more realistic estimating and cost planning.

Key Words: Assessment, Construction material, Impact, Inflation, Nigeria, Prices.

1. INTRODUCTION

Construction projects involve extensive use of materials. According to Obiegbu (2003), the construction industry is vulnerable to inflation in prices of materials. Materials needed for erecting and completing construction works could amount to about 35-45 percent of the total project cost while in some other projects, the materials cost may be as high as 60 percent.

Nwachukwu (2004) further explained that in most capital projects, materials account for more than 50 percent of their production cost. Material resources are thus the heart and life wire of any construction system. This simply means that increase in the cost of materials will affect the total cost of construction and subsequently housing supply in no small measure. Central Bank of Nigeria (CBN) (2002), stressed that inflation is a social malady as well as a pervasive economic process whose effects are felt, to some degree, by every citizen and in all sectors of the economy.

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About the Authors

pmwj21-apr2014-Assess-AUTHOR1flag-nigeriaOgun Oghenekevwe

Delta State, Nigeria

Ogun Oghenekevwe graduated with a second class (upper division) degree in Quantity Surveying from Nnamdi Azikiwe University, Awka, Nigeria. He works presently with GLO Nigeria (Globacom Nigeria PLC) as a sales executive, involved in identification and activation of new Globacom communication outlets. However, he has a very keen interest in construction quantification and estimating. He is currently undergoing his Masters degree programme in Construction Management in the Nnamdi Azikiwe University. E-mails: [email protected]; [email protected]

flag-nigeriapmwj21-apr2014-Assess-AUTHOR2Ogunsina Olusola

Anambra State, Nigeria

Ogunsina Olusola is a project professional with interests in project governance and pricing of capital construction projects. He is a member of the association for the Advancement of Cost Engineering (AACEI) and the Nigerian Institute of Quantity Surveyors (NIQS). Affiliation: Department of Quantity Surveying, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria. E-mail: [email protected]

flag-nigeriapmwj21-apr2014-Assess-AUTHOR3Ugochukwu Stanley Chukwudi

Anambra State, Nigeria

Stanley Oguchukwu is a committed professional with vast field and consultancy experience on building, estate development and civil engineering projects where he has been able to save clients millions of Naira arising from exorbitant claims. His research interests are in construction cost management, construction economics and infrastructure budgeting. As an academic, he has an unquenchable thirst to make a difference and add value to the profession   He graduated as the overall best student in Quantity Surveying, Nnamdi Azikiwe University at the B.sc level, and repeated same in his M.sc programme in construction management, University of Jos, Nigeria. He is presently pursuing a PhD programme and is a registered member of the Nigerian Institute of Quantity Surveyors. Affiliation: Department of Quantity Surveying, Nnamdi Azikiwe University, Awka, Anambra State, Nigeria. E-mails: [email protected][email protected]