Nigeria: Between importation of cement and loan re-payments

Nigeria: Between importation of cement and loan re-payments
17 September 2007

The recent threat by the Federal Government to import cement in a bid to force the prices of cement down may mean different things to different people.

Displeased with the high prices of cement by cement manufacturers in the country, President Yar’ Adua has threatened to embark on massive importation of the product if the manufacturers do nothing about the escalating prices.

Charles Ugwu, Minister of Commerce and Industry, disclosed the intention of the FG at a meeting of the stakeholders in the cement sub-sector in Abuja.

But cement manufacturers, who have taken loans to build factories and waiting for a gestation period of maturity before they start rolling out more cement products would consider their foot shot by the government’s threat.

However, a look from government perspective - will really paint a sympathetic picture of goverment’s plight.

When President Umaru Yar’Adua recently told a gathering at the just concluded Nigerian Economic Summit that the country required $9.0 billion, about N1.14 trillion to meet its infrastructural needs, a high percentage of this cost, it is believed, will bother on the prices of cement.

More critically, is the fact that boosting infrastructure is, likely key to achieving the vision 2020 project. Lack of good infrastructure, it is obvious, will scuttler Nigerian’s bid to rank among top 20 economies in the world by 2020.

He said, "Surveys consistently identify infrastructure as the major hindrance to the attainment of higher economic growth rates. Infrastructure deficit has resulted in higher costs of doing business, declining rates of capacity utilisation, and a lower quality of life for majority of our population".

On the other hand, the importation of cement to force down prices of cement will mean companies that raised monies to up-grade their factories may begin at the low end, as their products will not have protection from competing foreign goods produced with lesser over-head cost.

For instance, the International Finance Corporation, the private sector arm of the World Bank Group, is said to have invested $75 million, about N9.53 billion in Obajana Cement Plc to support a greenfield cement project at Obajana in Nigeria’s Kogi State.

The project will have an annual cement production capacity of 4.4 million tons and will include a 135 megawatt gas-fired power plant and a natural gas pipeline. It will be one of the largest private sector investments in Nigeria outside the oil sector.

Aliko Dangote, president of Dangote Industries, stated, "The IFC loan to Obajana Cement is a milestone in our transformation into one of Africa’s leading cement producers. In addition to the financing, we have found IFC to be a valuable partner in addressing the various issues associated with the project."

Other companies would have also invested borrowed monies in their cement manufacturing factories. If government goes ahead with its threat, repayment of such loans could become a problem as earlier projections may alter significantly.

Besides, the impact the importation of cement would have on indigenous comapnies’ turnover may at the end of the day affect their stock prices, at least for the ones listed on the stock exchange.

At the end of the day, investors may have to pay the price as well.
The question however remains, what is the best way forward, particularly at achieveing the country’s vision 2020?

It would be recalled that the FG has placed ban on the importation of bagged cement and plans to place total ban on importation of cement into Nigeria with effect from December 31, 2007 in order to encourage local production.

The local cement manufactures have embarked on various expansion programmes and plants rehabilitation to meet local demands.

However, they have consistently complained about infrastructural problems in Nigeria, leading to high cost of production and subsequently, high prices. With the foregoing it is a cenerally concluced fact, that imported cements will always be more competitive than the locally produced cements as long as the epileptic power supply in the country remains and the value of local currency continues to appreciate against major international currencies.
Published under Cement News