Nigerian price debate

Nigerian price debate
Published: 15 March 2004

The high cost of production, falling local naira currency, poor production facilities in many cases and now  the recent rise in freight charges have been blamed as reasons for the escalating prices of cement, which in the last six months has gone beyond the reach of Nigerians According to Mr. Knut Ulvmeom, Group Managing Director, Dangote Group, Nigeria at the moment consumes a total of 10Mt annually out of which a total of 8Mt are imported. He said only 2Mta are produced locally.

He said freight which used to cost about US$20 now costs as much as US$50 which invariably has given rise to the current high prices of cement in the market. He said Dangote Group imported half of the total imports last year. As of last week, all brands of cement in most building materials retail markets in Lagos sold for a whopping N950 -N1000 per 50 kilogram bag as against the N650 for the same size of the product before December last year.

In fact, most of the major cement packaging companies had penultimate week effected new prices for their products. Dangote Group which recently acquired majority shares in Benue Cement Company (BCC), Gboko was the first to announce new prices for its Dangote brand of cement. The company hiked the price of its brand from a distribution price of N780 to N840 while retail prices rose from N795 to N855 for reasons of increases in freight rates.

Similarly, Yinka Folayiwo Group through its subsidiary‹ Nigerian Spanish Cement Company Ltd., marketers of the Ox brand‹ for the fourth time since October last year jerked up its price. A 50 kg bag of cement is now sold to distributors for N819 as against the previous N761 while retail prices also rose to N850.50 from the previous N791.50.

Nigerian Flour Mills which bags and distributes the Burham cement has also effected a new price regime. The unit price of a 50kg bag had hovered between N600 and N720 before October last year when the cement manufacturers and importers started to hike prices to ³cushion the effects of an adverse operating environment².

The Nigerian cement industry could well be described as going through a crisis. There are a total of seven cement manufacturing companies in Nigeria with an estimated installed capacity of about 5.5Mt. But some of the cement companies that were shut down in the past are being reactivated while many others that were producing far below their install capacity are being refurbished. The total national demand for cement is put at about 10Mt while production is in the neighbourhood of 2.2Mt, 8Mt is imported in bulk and re-bagged in Nigeria. The cement bagging companies, about five of them, can produce about half of the cement requirement of the country when fully operational. But with Dangote investment in cement manufacturing that will soon go on stream, the country may be able to produce its domestic requirement. For instance, the Federal Ministry of Works and Housing alone is said to purchase well over 500,000 metric tonnes annually. As a result of the short fall in supply of cement in Nigeria at the moment, the prices of cement has moved from N250 in 1997 to about N1,000 in 2004 on average. The commodity¹s price is now between N950 and  N1,000.

These arguments seem to have convinced the present government leading to the decision that by 2006 all bagging companies should invest in local production of cement. From that day bulk importation of cement will no longer be allowed into the country. Out of the seven cement manufacturing companies in the country, only three‹ West African Portland Cement Plc, Ashaka Cement and Cement Company of Northern Nigeria‹ can be said to be alive. Benue Cement, the second largest in terms of installed capacity, suffered several closures until recently when Dangote finally took over the
company.   (Nairas1000 = US$7.46)