The Impact of the Year 2020 Economic Recession on the Construction Industry: Nigeria as a Case Study
Chapter One
Objective of the Study
The specific objectives of this research are as follows:
- To assess the magnitude of the impact of the 2020 economic recession on the Nigerian construction industry.
- To identify the key factors that influenced the performance of the construction industry during the recession.
- To examine the strategies employed by construction firms to mitigate the effects of the economic recession.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Review
The Concept of Economic Recession
An economic recession is a significant decline in economic activity, characterized by a contraction in Gross Domestic Product (GDP), increased unemployment rates, and reduced business investment (NBER, 2021). It is a period of economic downturn that affects various sectors, including the construction industry.
During an economic recession, several sectors experience negative impacts. For instance, the manufacturing sector often witnesses reduced demand for goods, leading to decreased production and layoffs (Olayiwola et al., 2020). The service sector also suffers as consumer spending declines, resulting in reduced demand for services such as hospitality, travel, and leisure (Kara et al., 2022). Moreover, the financial sector faces challenges due to increased loan defaults and reduced lending activities (Haldane, 2020).
The construction industry, being closely linked to economic conditions, is significantly affected by economic recessions. One of the implications is the decreased demand for construction services. As businesses and households cut back on spending, the demand for new construction projects declines, leading to reduced construction activity (Akintoye et al., 2021). This decline in demand affects both residential and non-residential construction sectors.
Furthermore, an economic recession often results in reduced investment in the construction industry. The uncertainty and financial constraints faced by investors during a recession lead to a decrease in capital expenditure for construction projects (Eze et al., 2020). This reduction in investment affects the overall growth and development of the construction industry, as new projects are delayed or cancelled.
In addition to reduced demand and investment, an economic recession also poses challenges to the financial stability of construction firms. Construction projects often require substantial capital investments, and during a recession, access to financing becomes more difficult. Construction firms may face difficulties in obtaining loans or credit facilities from financial institutions, leading to financial constraints and cash flow problems (Olawale and Sun, 2021). These financial challenges can further exacerbate the impact of the recession on the construction industry.
Moreover, the construction industry is highly reliant on the supply of materials, equipment, and labour. During an economic recession, disruptions occur in the supply chain, leading to delays in the delivery of construction materials and equipment (Aje et al., 2020). This hampers project progress and increase costs for construction firms. Additionally, the availability of skilled labour may decrease as construction companies downsize their workforce or delay hiring new workers due to uncertain economic conditions (Ezekiel et al., 2021).
In conclusion, an economic recession is characterized by a decline in economic activity, increased unemployment, and reduced investment. The impact of a recession extends to various sectors, including the construction industry. The construction industry experiences decreased demand for services, reduced investment, financial constraints, disruptions in the supply chain, and labour market challenges. Understanding the implications of an economic recession on the construction industry is essential for assessing its effects and formulating strategies for recovery and resilience.
Construction Industry
The construction industry plays a crucial role in driving economic growth, employment generation, and infrastructure development (Akintoye et al., 2021; Eze et al., 2020). It encompasses various activities related to the design, planning, construction, and maintenance of buildings, infrastructure, and other structures. The construction industry is not only a major contributor to the GDP of many countries but also a significant source of employment and income for a wide range of professionals and workers (Olawale and Sun, 2021).
The construction industry is characterized by its complex and interconnected nature. It involves multiple stakeholders, including clients, contractors, architects, engineers, suppliers, and labourers, working together to deliver construction projects (Olawale and Sun, 2021). The industry encompasses various sectors, including residential, commercial, industrial, and infrastructure construction. Each sector has its unique dynamics, challenges, and opportunities.
The construction industry is highly influenced by external factors such as economic conditions, government policies, technological advancements, and social trends. Economic factors, including GDP growth, interest rates, and investment levels, have a significant impact on construction activity (Akintoye et al., 2021). During periods of economic recession, the construction industry tends to experience a decline in demand as individuals and businesses reduce their investments in construction projects (Eze et al., 2020).
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
The research design refers to the overall plan and structure of a research study that outlines the methods and procedures used to address the research objectives and answer the research questions. It provides a framework for collecting, analyzing, and interpreting data in a systematic and organized manner (Creswell & Creswell, 2021).
There are several types of research designs that researchers can employ based on their research goals and the nature of the research questions. One commonly used research design is the experimental design, which involves manipulating independent variables to determine their effect on dependent variables (Trochim, 2020). Experimental designs allow researchers to establish cause-and-effect relationships and make inferences about the impact of specific interventions or treatments.
Another research design is the correlational design, which examines the relationship between two or more variables without manipulating them (Gliner et al., 2019). Correlational designs help researchers understand the degree and direction of association between variables and provide insights into patterns and trends.
Descriptive research design is used to describe and analyze the characteristics, behaviours, and experiences of individuals or groups (De Vaus, 2021). This design helps researchers gain a better understanding of a phenomenon or population by collecting data through surveys, observations, or interviews.
Qualitative research designs, such as case studies, ethnography, or phenomenology, aim to explore and understand subjective experiences, social processes, and cultural contexts (Creswell & Creswell, 2021). These designs often involve in-depth interviews, observations, and analysis of textual or visual data.
Mixed-methods research design combines quantitative and qualitative approaches to provide a more comprehensive understanding of the research problem (Creswell & Creswell, 2021). This design allows researchers to capture both numerical data for statistical analysis and rich contextual information through qualitative data collection methods.
A correlational research design will be adopted for this study. The adoption of a correlational research design is justified for this study on the impact of the 2020 economic recession on the Nigerian construction industry. A correlational design is appropriate as it allows researchers to examine the relationship between variables without manipulating them, which aligns with the research objective of understanding the impact of the recession on the construction industry.
By adopting a correlational research design, this study can assess the relationship between variables such as investment patterns, employment trends, and supply chain dynamics within the Nigerian construction industry. It enables researchers to examine how changes in these variables during the 2020 economic recession are associated with the overall performance of the industry.
Furthermore, a correlational research design allows for the collection of quantitative data through surveys, secondary data analysis, or statistical records, providing robust empirical evidence for the research findings. This quantitative approach enhances the objectivity and generalizability of the study’s conclusions.
Population of the Study
The population of the study refers to the specific group or set of individuals, organizations, or elements that the research aims to investigate and draw conclusions from (Creswell & Creswell, 2017). In the case of this study, the population includes macroeconomic variables related to economic growth and the performance of the Nigerian construction industry during the 2020 economic recession. These variables encompass data at the national level, such as Gross Domestic Product (GDP), government expenditure, private investment, inflation rate, interest rates, and employment levels. The population represents the entire set of observations or data points that are relevant to understanding the impact of the recession on the construction industry in Nigeria. The population of this study includes key macroeconomic variables such as gross domestic product (GDP), government expenditure, private investment, construction output, employment levels, and inflation rate. These variables are crucial in assessing the impact of the 2020 economic recession on the Nigerian construction industry and its subsequent effects on economic growth.
For instance, Olayiwola et al. (2020) analyzed the impact of the COVID-19 pandemic on the Nigerian economy and examined the relationship between the GDP growth rate and various economic sectors, including construction. The GDP growth rate serves as an indicator of economic performance and can provide insights into the performance of the construction industry during the recession.
Furthermore, the study by Folayan et al. (2022) investigated the effects of the economic recession on the construction industry in Nigeria and considered variables such as government expenditure and private investment. These variables are crucial in understanding the role of government intervention and private sector participation in the industry’s performance and resilience during economic downturns.
In addition to these variables, the population of this study may also include employment levels within the construction industry and the inflation rate. Employment levels reflect the industry’s ability to generate jobs and contribute to employment generation, while the inflation rate indicates the purchasing power and cost dynamics affecting the industry.
By considering these macroeconomic variables as part of the population, this study aims to assess their trends, interrelationships, and changes during the 2020 economic recession. This analysis will help understand the overall performance of the Nigerian construction industry and its impact on economic growth.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
This study aimed to examine the impact of the 2020 economic recession on the Nigerian construction industry and investigate the factors influencing its performance during the recession. Additionally, it explored the strategies adopted by construction firms to mitigate the recession’s effects and assessed their effectiveness and associated challenges.
The analysis of the data yielded several key findings. Firstly, regarding the impact of the economic recession on the Nigerian construction industry, the descriptive statistics revealed that the Gross Domestic Product (GDP) experienced a slight decline, with a mean value of 435.8350. However, this decrease was relatively small, indicating a limited negative impact of the recession on the industry’s economic output.
Moreover, the regression analysis provided insights into the factors influencing the GDP of the Nigerian construction industry during the recession. The model summary indicated a high coefficient of determination (R^2) of 0.979, suggesting that approximately 97.9% of the variation in GDP could be explained by the selected independent variables, including the Unemployment Rate, Government Expenditure, and Inflation Rate. This indicates that these factors collectively had a strong influence on the industry’s performance during the recession.
Furthermore, the ANOVA estimates were employed to test hypotheses related to the impact of the recession on revenue, employment, and investment levels, as well as the influence of government policies, market conditions, financing access, and firm-specific characteristics on the industry’s performance. However, the results from the ANOVA test did not provide sufficient evidence to reject these hypotheses. The F statistic was not statistically significant (F sig. > 5%), indicating that the recession did not have a significant negative impact on revenue, employment, and investment levels. Similarly, the influence of the identified factors on the industry’s performance did not vary significantly.
Additionally, the study examined the strategies adopted by construction firms in Nigeria to mitigate the effects of the recession and assessed their effectiveness and associated challenges. However, the ANOVA results did not yield statistically significant variations in the effectiveness and challenges of these strategies. This implies that the diverse strategies employed by construction firms had similar outcomes in terms of mitigating the recession’s effects.
Overall, the findings suggest that the Nigerian construction industry demonstrated resilience during the 2020 economic recession. While the recession had a limited negative impact on the industry’s economic output, it did not significantly affect revenue, employment, and investment levels. Moreover, the identified factors such as government policies, market conditions, financing access, and firm-specific characteristics did not have a significant influence on the industry’s performance during the recession. Furthermore, the strategies adopted by construction firms to mitigate the recession’s effects were generally effective, with no significant variations in their effectiveness and associated challenges.
These findings have important implications for policymakers, industry stakeholders, and construction firms in Nigeria. They indicate the industry’s ability to withstand economic downturns and provide insights into the factors and strategies that contribute to its resilience. Policymakers can use these findings to inform the development of targeted policies and interventions to support the industry during economic recessions. Industry stakeholders can gain a better understanding of the factors influencing performance and the effectiveness of strategies, enabling them to make informed decisions. Construction firms can learn from the identified strategies and challenges, adapting and refining their approaches to navigate future economic uncertainties.
However, it is essential to acknowledge the limitations of this study. The analysis was based on a specific set of variables and a limited time frame, which may not capture the full complexity of the industry and its response to economic recessions. Future research should consider additional variables, such as technological advancements, market dynamics, and government interventions, to provide a more comprehensive understanding of the Nigerian construction industry’s performance during economic downturns.
In conclusion, this study sheds light on the impact of the 2020 economic recession on the Nigerian construction industry and identifies factors and strategies associated with its performance. The findings indicate that the industry demonstrated resilience during the recession, with limited negative effects on key indicators. The identified factors did not significantly influence performance, and the strategies employed by construction firms were generally effective. These findings contribute to the existing literature on construction industry performance during economic recessions and provide valuable insights for policymakers and industry stakeholders in Nigeria.
Conclusion
In conclusion, the findings of this study provide valuable insights into the impact of the 2020 economic recession on the Nigerian construction industry and the factors influencing its performance during the recession. The analysis revealed that while the recession had a limited negative impact on the industry’s economic output, it did not significantly affect revenue, employment, and investment levels. This suggests that the Nigerian construction industry demonstrated resilience and managed to maintain stable performance during the challenging economic period.
Furthermore, the study found that factors such as government policies, market conditions, financing access, and firm-specific characteristics did not significantly influence the industry’s performance during the recession. This indicates that the industry’s ability to withstand economic downturns is not heavily reliant on these identified factors. Instead, other unexplored factors or dynamics may play a more significant role in determining the industry’s performance during economic crises.
Additionally, the research showed that construction firms in Nigeria adopted diverse strategies to mitigate the effects of the recession. These strategies were generally effective, and no significant variations were found in their effectiveness and associated challenges. This suggests that construction firms were able to navigate the recession and sustain their business operations by employing various approaches tailored to their specific circumstances.
Overall, this study provides important insights for policymakers, industry stakeholders, and construction firms in Nigeria. It highlights the resilience of the construction industry during economic recessions and emphasizes the need to consider a broader range of factors that may influence performance. Policymakers can utilize these findings to develop targeted policies and interventions that support the industry’s stability and growth. Industry stakeholders can gain a better understanding of the industry’s dynamics and make informed decisions to optimize their strategies. Construction firms can learn from the effective strategies employed by their counterparts and adapt their approaches to withstand future economic uncertainties.
Recommendations
Based on the findings of this study, the following recommendations were made:
Enhance data collection: Improve data collection methods and establish a comprehensive database to capture a wide range of indicators related to the construction industry’s performance during economic recessions. This will enable more robust analyses and a better understanding of the industry’s dynamics.
Explore additional factors: Expand the scope of research to include a broader range of factors that may influence the performance of the construction industry during economic downturns. Factors such as technological advancements, regulatory frameworks, and sustainability practices should be considered to provide a more holistic analysis.
Strengthen policy support: Develop and implement targeted policies that support the Nigerian construction industry during economic recessions. These policies should focus on improving access to financing, fostering market stability, and incentivizing innovation and sustainable practices within the industry.
Foster collaboration: Encourage collaboration between construction firms, industry associations, and government agencies to share best practices, exchange knowledge, and jointly develop strategies to mitigate the effects of economic recessions. This collaboration can lead to the development of innovative solutions and a more resilient industry.
Enhance risk management practices: Strengthen risk management practices within construction firms by conducting comprehensive risk assessments, developing contingency plans, and diversifying their project portfolios. This will enable firms to better navigate economic uncertainties and minimize the impact of recessions.
Promote skill development: Invest in training and skill development programs to enhance the capabilities of construction industry professionals. By equipping workers with updated skills and knowledge, the industry can adapt more effectively to changing economic conditions and improve overall performance.
Facilitate access to financing: Improve access to financing for construction firms, particularly small and medium-sized enterprises (SMEs), through the establishment of specialized funding mechanisms and partnerships with financial institutions. This will help firms sustain their operations during economic recessions and stimulate investment in the industry.
Encourage sustainable practices: Promote the adoption of sustainable construction practices that prioritize energy efficiency, environmental conservation, and social responsibility. Integrating sustainability into the industry’s operations can enhance its resilience and contribute to long-term viability.
Foster industry-government collaboration: Foster closer collaboration between the construction industry and government agencies to address regulatory challenges, streamline approval processes, and create an enabling environment for the industry’s growth and development. This collaboration will help ensure that government policies align with industry needs and support its resilience during economic downturns.
Contribution to Knowledge
This study makes several significant contributions to the existing body of knowledge regarding the impact of the 2020 economic recession on the Nigerian construction industry. Firstly, it provides a comprehensive analysis of the extent of the recession’s impact on key indicators such as revenue, employment, and investment levels. By examining these indicators, the study offers valuable insights into the magnitude of the recession’s effects on the industry, providing a clearer understanding of the challenges faced by construction firms during this period.
Secondly, the study identifies and explores the primary factors that influenced the performance of the Nigerian construction industry during the recession. By examining factors such as government policies, market conditions, financing access, and firm-specific characteristics, the research sheds light on the various influences that contributed to variations in outcomes among construction firms. This understanding can help industry stakeholders and policymakers develop targeted strategies and interventions to mitigate the negative effects of economic recessions in the future.
Thirdly, the study investigates the strategies adopted by construction firms in Nigeria to mitigate the effects of the economic recession. By exploring diversification, cost optimization, innovation, and other relevant strategies, the research highlights the efforts made by firms to sustain their operations and facilitate recovery. This knowledge can inform best practices and guide construction companies in developing effective strategies to navigate economic downturns and minimize disruptions to their business.
Furthermore, this study contributes to knowledge by examining the role of government interventions in supporting the construction industry during the recession. By assessing the effectiveness and impact of government policies implemented during the economic downturn, the research provides insights into the role of policy measures in promoting construction activity, attracting investments, and enhancing the resilience of the industry.
Lastly, this study contributes to the literature by identifying and analyzing the financial constraints faced by construction firms during the recession and their implications on business operations, investment, and growth. By understanding these constraints, policymakers and industry stakeholders can develop targeted interventions to alleviate financial burdens and support the growth and development of construction firms.
Overall, the findings of this study contribute to the existing knowledge by providing a comprehensive understanding of the impact of the 2020 economic recession on the Nigerian construction industry. The insights gained from this research can inform industry stakeholders, policymakers, and researchers in developing strategies, policies, and interventions to enhance the resilience and long-term sustainability of the construction industry in the face of economic challenges.
Suggestions for Further Studies
Based on the findings and limitations of this study, several suggestions can be made for future research to further enhance our understanding of the impact of economic recessions on the construction industry in Nigeria.
Firstly, future studies could focus on conducting more in-depth analyses of specific subsectors within the construction industry, such as residential construction, infrastructure projects, or commercial building construction. By narrowing the scope, researchers can gain deeper insights into the unique challenges and dynamics faced by each subsector during economic recessions. This would enable a more targeted approach to developing strategies and policies tailored to the specific needs of different segments of the industry.
Secondly, exploring the long-term effects of economic recessions on the construction industry would be valuable. This could involve conducting longitudinal studies that track the performance of construction firms and key indicators over an extended period, including the pre-recession, recession, and post-recession phases. Such studies would provide a comprehensive understanding of the recovery process and the long-term implications of economic recessions on the construction industry’s growth and development.
Thirdly, investigating the role of technological advancements and digitalization in mitigating the effects of economic recessions in the construction industry would be a fruitful area of research. With the increasing integration of technology in the construction sector, understanding how digital solutions and innovations can enhance the industry’s resilience during economic downturns would be crucial. This could include studying the adoption and impact of Building Information Modeling (BIM), virtual reality, and other emerging technologies in improving construction efficiency, reducing costs, and enabling remote collaboration during challenging economic times.
Furthermore, comparative studies that examine the impact of economic recessions on the construction industry across different countries and regions would provide valuable insights. Comparing the experiences, strategies, and policies implemented by construction firms and governments in various contexts can help identify best practices and lessons learned that can be applied to enhance the resilience of the Nigerian construction industry.
Additionally, conducting qualitative research to explore the experiences and perspectives of construction industry stakeholders, such as construction company executives, project managers, and construction workers, would provide valuable insights into the human aspects and lived experiences during economic recessions. Understanding the challenges faced by different stakeholders and their strategies for navigating economic downturns can inform the development of targeted support mechanisms and policies.
Lastly, conducting studies that incorporate environmental and sustainability dimensions would contribute to a more holistic understanding of the impact of economic recessions on the construction industry. Examining the implications of economic downturns on sustainable construction practices, green building initiatives, and renewable energy integration would align with the global focus on sustainability and provide insights into the role of the construction industry in building a resilient and sustainable future.
In conclusion, the suggestions provided above present various avenues for future research to expand and enrich our knowledge of the impact of economic recessions on the construction industry in Nigeria. By exploring these areas, researchers can contribute to the development of more effective strategies, policies, and interventions to support the industry’s resilience, growth, and long-term sustainability.
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