Nigerian prices and imports in the spotlight again

Nigerian prices and imports in the spotlight again
Published: 29 December 2008

Every day, news about high cost of cement makes headlines in the Nigerian press and while some blame the present government for lack of political will to enforce government policy to check possible abuses in the sector, others are pointing accusing fingers at some big players in the cement sector for the formation of a monopolistic cartel.

However, the media has criticised present governmental efforts to stall the soaring prices of cement in the market and the granting of import approvals to the new entrants to join the existing 13 cement companies in the importation of bagged cement into the country.

This report follows recent government press responses in an edited format.

Government has encouraged local production of cement through various incentives to stakeholders in the industry. Such incentives include banning of importation of bagged cement in order to allow local capacity to grow.

These incentives have created opportunity to major players in the cement sub sector to invest huge capital and expand their facilities. Recently, Dangote Cement had signed US$1.25 billion financing facility as part of financing arrangement for the US$3 billion production plan by the company.

The Chairman, Dangote Group, Alhaji Aliko Dangote recently disclosed that within 28 months, Obajana Cement Company would be producing 26Mta after the three new plants are completed. Not only that, Dangote Group has started work on cement factories in Ogun State which the cost of the project is put at N115.81 billion.

Such developments has also encouraged Lafarge to embark on expansion programme in Nigeria with the CEO reporting that the company’s capacity in Nigeria alone will hit 10Mta by 2010. He was even categorical that negative perception of Nigeria will not sway it from its commitment to invest in the Nigeria economy.

These developments and comments coming from the big players in the cement sector have demonstrated government’s willingness to support and provide enabling environment for producers of cement in the country to grow capacity utilization in the cement sector. The recent rise in price of bagged cement is not acceptable to government considering enormous support it has given to local manufacturers in the country to thrive.

Following the complaint by stakeholders about short supply of gas fuels, high cost of transportation and bad roads, the Ministry of Commerce and Industry had to step in to examine the problems. It discovered that local cement companies can only supply 6.5Mt. While the total annual demand for cement in the country stands at 18Mt of cement leaving the deficit of 11.5Mt.

Government is aware that cement manufacturers cannot expand their facilities overnight to compensate for the supply deficit. This scenario has brought up dilemma for government. The urgent need to alleviate suffering of Nigerians from the high cost of cement as well as to avoid abandonment of developmental projects led to approval of license to 13 stakeholders for bulk importation of cement to enable local manufacturers bridge the deficit between the market demands and supply of cement in the country.

The companies that benefited from this government decision to grow local production were Dangote group of companies, Lafarge Group, Torcem Nigeria Limited, Flour Mills Nigeria, Ibeto Cement Company and Eastern Bulkcem Ltd. Others include Quacem Cement Company, Essette (Nig) Limited, Gateway Mining Company Ltd, Pureclem Industries Ltd, Gateway Portland Cement Ltd, Westcom Technologies and Energy Service and International Cement company Ltd.

Government’s prompt action at that time stabilised the price of cement in the market and subsequently gained a marginal reduction from N2000 to N1500. This reduction has not met government expectation of price range within N1000 - N1150 to the final end users. This short term measure was created to restore order and stability in the cement market and should therefore not be seen as policy reversal as government remains consistent in its commitment to promote backward integration as well as growth of local capacity in the industry.

However, in the face of scarcity and outrageous prices, and in order to mitigate the hardship suffered by consumers, the Nigerian government decided to intervene further by approving the importation of bagged cement as a one-off exercise, which is expected to elapse on 31st December 2008. The government claims to have acted cautiously and responsibly to ensure that only those with verifiable investments in the sector benefited from the licence.

But in defiance of the opposition from a few stakeholders bent on creating a monopoly in the sector, government has decided to extend licences to six new entrants in order to break the emerging monopoly. These are new investors, who satisfied the requirement of demonstrating ample evidence of having made significant commitment to backward integration in the sector.

By granting licences to only those with investment in the sector and designating the importation of bagged cement as a one-off exercise targeted to fill the demand-supply gap created by inadequate local capacity, Government was further demonstrating its commitment to encouraging the growth of local capacity in the sector.