The current imbroglio taking place in the Nigerian Cement Market has witnessed the industry engaging in a “blackmail” shut down of part of its production facilities. It all started like a huge joke when Aliko Dangote cried foul protesting that Ibeto cement in South East Nigeria is importing cement and undermining local production and consumption of this all – important – product. At first, we thought this must be one of Aliko’s old tricks of kicking competition in any commodity market in which he plays (and it may be!). But when Lafarge (an international brand) also joined to shut down a partial part of their production plant we realized it was more serious than that. THE BACKGROUND STORY This is what is really happening. Within the past seven (7) years, the two largest cement producers in Nigeria, Dangote cement and Lafarge (Elephant cement) embarked on a huge expansion project in order to have the capacity to produce enough cement locally. It was envisaged and well touted that by the time both companies unveil their new factories and machines, we will have plenty of cement made – in - Nigeria and the price will become cheap and affordable. By 2010/2011 both Dangote and Lafarge opened their new plants and started double production hoping that the Nigerian construction market would absorb it and even export some! Well, they only kept a little bit of the bargain – they produced more and more cement BUT kept the price HIGH! (Nigeria still produces and sells the most expensive cement in the world!). Their hope, their speculation was that the market will keep buying at “their” price and life will be good as profit mount. Remember, Nigerian cement is no good for export – otherwise it will find its way to Benin, Contonou and Ghana just like our smuggled petrol finds its way into those markets. But the price of cement sold to us here is outrageous at double the price you will find it in other West African Countries! The unfortunate outcome therefore is that less than two (2) years into a new higher production capacity, these companies can no longer survive competitively. People are not buying enough cement in Nigeria to empty their warehouses so that they can produce more! In a proper economy, this should hardly be a problem. They should export! But this is the Nigerian way – they seek to involve government and arm twists everybody else. IBETO CEMENT IS NOT THE PROBLEM. Inadvertently, Dangote has accused the Federal government of being double faced by allowing lbeto cement’s continued importation of bulk cement for rebagging. This, he says, has flooded the market with cheap imported alternatives to local cement and is eating into market share especially in South East Nigeria. Ibeto cement has cried out, alleging a plot by the “Grand Commander” to kill their business. They claim that their market share of the entire cement industry is less than 5% of the entire country. While Nigeria may not be good with statistics, this appears true – think about it in your locality anywhere you reside in the country – do you ever see lbeto’s brand? What you mainly see on cement bags are Lafarge and Dangote. THE REAL PROBLEM The problems of the cement industry are hydra – headed and in many ways reveal the Nigerian Problem. The federal government refuses to face this truth and has therefore remained in denial. Recently, the government says it will soon unveil a “New Cement Policy”. Its all balderdash – utter rubbish – an attempt by a single man to manipulate policy through government lobby to control all of us. The first thing the “cement glut” should have achieved is a 20% - 30% price reduction from factory in a normal country. Like MTN, GLO, AIRTEL, ETISALAT and other telecoms players; they ought to by now courting the buyers attention with all sorts of incentives to excite demand in people. But the cement producers will NEVER do that – it’s a cartel and they must keep the price “high” and “Protected”. The poor, so called middle class Nigerians will keep being “forced” to buy cement at high prices to keep Africa’s richest man in his number one position of wealth in Africa! It is all a huge deception but it won’t last much longer! As we write, the federal government‘s cronies are on the drawing board mapping out ways to exclude all other players and leave the market to just Dangote and Lafarge! Unfortunately, they may succeed BUT this is not the real problem. WEAK PURCHASING POWER The major real problem is the weakening purchasing power of average Nigerians. Let us paint a macro-economy picture for all to see (including those in government). The major users of cement are those in the construction industry and yearly cement is used in the construction of infrastructure, public building projects, private commercial and residential buildings. In today’s reality 2012 – 2013, the larger part of government funds has been voted to pay civil servants salaries (70%) Recurrent expenses) 30% voted for capital projects, security, education and so on. This is not enough to generate significant projects to sustain the cement industry. As a matter of fact, almost N1 trillion goes to fighting Boko Haram, Kidnappers, Armed robbers and South South oil saboteurs. This is one quarter of Nigerria’s budget! As a nation, the governments’ therefore NOT Building. Businesses have been crashing since 2009 when the banks were dismantled hurriedly by Sanusi – CBN governor and millions of bankers in aggregate lost their jobs – He wiped out a prosperous middle class of Nigerians with no feasible alternatives. These are the builders of personal houses, the buyers of cement, iron rods etc who today can hardly put food on their family tables. Who then is Dangote really expecting would buy his cement which he now produces at double capacity? A castrated set of working class Nigerians? The Nigerian middle class which OBJ empowered in his 8 years rule is now fast disappearing. Their purchasing power is really weak now – Nobody will buy cement for now! If price drops, it will excite a few to try – maybe a small bungalow – maybe a pending project can now be attempted etc. FEDERAL & STATE GOVERNMENT ARE DANGOTE’S PROBLEM A major part of why demand for cement is dropping is the government’s uneducated approach to Nigerian’s real estate developments. Case in point is the counter production move of the Federal Government to demolish several estates already built and completed along the airport road corridor in Abuja. The government actually crushed hundreds of houses in gated estates before they were stopped by court orders. These were estates that had proper title documents and proper approvals before they were built! This has sent the wrong signals to the private sector and businessmen are more careful to enter this industry. It is sheer absurdity. There is a maxim in real estate that says “Planning was made for people and NOT people for planning” Government may have to honor the errors and mistakes of its own Officials/Past administration. In the States, especially South West Nigerian, the governors have continued the indiscriminate revocation of title in an apparent abuse of the Land Use Act. All these have created the impression of a hostile building environment to the Nigerian public. It is an aggregation of all these that makes cement a rather unattractive product for now. 2013 PROJECTION The truth therefore is this – unless you have a lot of money, you cannot build a personal house hoping for a drop in cement prices. In fact if all things work according to the plan of the cement cartel, price of cement is forecasted to increase by 5% - 10% this year. Where does that leave you? Tighten your belt, plan a smaller house that can suit your budget but push forward to build that dream house in 2013!
Posted on: Sun, 22 Sep 2013 13:14:36 +0000
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