AFRICA: NIGERIA: Cement price

Government’s ultimatum to manufacturers cannot work in a liberalised environment

FINALLY, the long drawn game of hide and seek – over the cause of the current high price of cement – seems over. Monday last week, President Goodluck Jonathan, after a parley with cement manufacturers, handed them an ultimatum to them to bring down the cost of the product – within one month.

While confirming the readiness to cooperate with the government to bring down the price, the chairman of Cement Manufacturers Association, Joseph Makoju, again insisted that the price was driven by the high price of diesel, as well as the uncontrollable costs along the distribution chain. For good measure, he claimed that part of the agreement with the Federal Government on the issue is that the latter will provide support to the manufacturers by ensuring that they get easy access to diesel from the Nigerian National Petroleum Corporation (NNPC).

Currently, a bag of cement sells for N2,500; last year, the same bag sold for N1,500 – an increase of over 66 percent.

The President obviously mean well by the directive; it is taken that the manufacturers – surprisingly agreeable to the presidential directive – also mean well.

Be that as it may, there remains a lacuna that needs to be explained. We start from when the trend of rising prices became noticeable. At the very beginning, the manufacturers found the fallguy in the distributors whom they blamed for hoarding the products to make excessive gains.Rather than do what Nigerians expected them to do –increase supply or flood the market to tame the profiteering apetite of the so-called unscrupulous distributor-cartel –if that was the case, they did nothing of the sort. No wonder Nigerians found their claim of ex-factory price being unchanged, untenable and utterly unbelievable.

The truth it seems, is only just emerging. It is certainly no small thing that the government would seek to force down prices in a liberalised market such as that of cement. Moreover, that government believes – with the concurrence of the manufacturers – that the administratively decreed price reduction can be achieved in 30 days itself suggests that the story is more than the government has cared to tell Nigerians about the factors behind the current price hike. Nigerians are therefore right to wonder why the government allowed the price to spin out of control before taking such drastic measures, if they are so effectual.

Do we understand the challenges facing our manufacturers – particularly the difficult terrains that they have to contend with? We certainly do; and this point has been made severally in previous editorials. Our business environment needs to be made more clement to enhance business competitiveness. Government needs to invest in infrastructure – particularly energy and transportation – the inadequacies of which account for the high costs of doing business.

This is no less true for manufacturers of cement as it is of other businesses.

Do we see the ultimatum handed to the cement manufacturers as a necessary pill; a case of a drastic disease needing a drastic remedy? First, we do not see any decreed price reduction working in the absence of changes in input cost fundamentals. The reduction is unlikely to be sustainable in the long run. Second, it comes across as playing to the gallery. This is because the rainy season is here already – a period considered low season for building and construction activities. It does not require the government’s hand to achieve a reasonable moderation in cement prices. It goes with the logic of low demand during the season.

Having said that, we are tempted to see the manufacturers themselves as being complicit in fostering the illiberal market in which they have come to dictate prices. That explains their ready acquiescence to the government’s ultimatum.

On the positive side – the intervention appears to us an acknowledgment of the reality and what needs to be done to bring down the costs of doing business. The manufacturers obviously need all the help they can get. What is needed is for government to work harder at the costs end while allowing businesses to set their margins in a truly liberalised environment.