In 2021 Nigeria's construction industry was valued at $127.7 billion. According to GlobalData, it is expected to have an annual average growth rate of 3% between 2023 and 2026.
The industry has grown by 24.5% between 2016 and 2020, with its non-residential projects bringing in the most revenue.
The industry is recording significant growth, and John Oamen and Tayo Odunsi, Co-founders of CutStruct, have raised $600,000 to solve the problem of material procurement, one of the industry’s biggest problems.
The round was led by Zedcrest Capital, DFS Lab and LoftyInc Capital, with participation from angel investors, including Kola Aina, Founding Partner of Ventures Platform.
Oamen and Odunsi’s experiences in the real estate sector span 30 years, during which they have understood the complexity of the building material procurement process.
In construction, getting the right materials at the right time and at the best price can take time and effort. The efficiency level applied to the procurement process plays a vital role in a project's overall cost and duration.
According to the procure-to-pay platform for mid-market organisations, Planergy, "every construction project is itself a small factory producing a single item, and the procurement function exists to enable completion within the constraints of time, the scope of work, and budget."
Oamen supports this by painting a picture of the material procurement process in Nigeria.
On a call with Techpoint Africa, he said that the process involves reaching out to multiple vendors — sometimes up to ten — for one material. If the construction project requires ten kinds of materials, the contractor has to reach out to ten vendors for each material.
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All the vendors send a quotation to the contractor, who then analyses all quotes and decides based on price, material quality, and possible delivery time.
CutStruct wants to ease this process; according to Oamen, "what CutStruct has done is build a platform where we've onboarded all these people, and when you need anything, you just send a request for quotes (RFQ) on the platform, and everybody you choose gets it."
CutStruct can be seen as the platform that brings construction material vendors and contractors together, easing the material procurement process for both parties.
Once the RFQ is sent, the quotations are automatically generated, as the vendors also have a dashboard where they can input prices and product specifications.
"You'll receive the quotations in your portal, where you can sort by price and see vendors from the cheapest to the most expensive. You can also sort by delivery time and see the earliest to latest delivery."
After selecting, the platform has an automated email feature that informs other vendors.
CutStruct makes money from a take rate or a transaction charge. According to him, take rates are typical in the construction industry, and vendors offer 2% to 10% depending on the materials and the agreement.
However, CutStruct charges a 0.9% take rate which includes goods-in-transit insurance.
CutStruct’s insurance layer is another unique selling point for the platform. Oamen revealed that the goods-in-transit insurance plan does not come cheap, and the addition could help vendors and contractors get all of their materials if there's any type of loss in transit.
Efficient procurement saves money
According to CutStruct Co-founder, Tayo Odunsi, who is also the Founder of a nine-year-old real estate services company, Northcourt, 20% to 30% can be saved on a construction project if procurement is done right.
"We've had a great run at Northcourt, but this is a bigger problem, and that is just why I had to jump on board."
He explained that the middlemen in the procurement process add unnecessary costs to completing building projects. However, CutStruct eliminates these costs by connecting contractors directly to the vendors.
Odunsi added that if a vendor is not insured and loses the materials in transit, it leads to huge losses for the vendor and sometimes the contractor. CutStruct has provided insurance coverage at a discounted bulk rate in partnership with AXA Mansard.
Embedding financial services into businesses is slowly gaining momentum in Africa. According to GlobeNewswire, revenue from embedded finance in Africa and the Middle East is expected to go from $10.3 billion in 2022 to $39.8 billion by 2029.
Small businesses make up 90% of Africa’s entire business scene; however, most do not use financial services such as insurance and credit facilities.
Embedded finance could change that.
According to McKinsey & Company, “small businesses starting up today may never interact with a conventional bank. By logging into their eCommerce or accounting platform, they can open a deposit account, order a debit card, and meet most of their financing needs.”
At The Fintech Summit by Techpoint Africa, experts in Nigeria’s embedded finance space will come together to discuss how businesses can make the most of it.
Per Oamen, the company has been through five iterations since the co-founders decided to build a procurement platform in November 2021. Before what is known today as CutStruct, the founders got support from construction businesses that helped them test the company’s different iterations.
"We started manually in order to itemise key materials in the space, so we have one of the most robust databases of construction materials in Nigeria."
While CutStruct can be seen as an eCommerce platform for construction materials, Oamen pointed out that the process involved in material procurement differs significantly from buying consumer goods on an eCommerce platform.
The founders believe that tech can improve the construction sector in the same way it has for other economic sectors.