Many Nigerians would have expected that by now the price of cement should be below N1, 000 going by the various efforts of the Federal Government to liberate the sub-sector as well as the promises and pronouncements by major cement manufacturers in the country.
The country is aiming for self sufficiency in cement production by 2013 and has put many machinery in place to achieve this but contrary to expectations that cement prices would crash, the cost of the product has been astronomical of late. The cost of cement has been on steady increase since last year. The product rose from N1, 500 early last year to N1, 800 early this year and is now being sold for N2, 400.
Kamolideen Salami, a building contractor said he has to put most of his building projects on hold pending when the price of the most essential product in building construction – cement- would abate for him not to run at a loss.
He was optimistic that the intervention of President Goodluck Jonathan would give the necessary impetus to bring the cost of cement down.
Though some of the reasons for the recent increase as espoused by the stakeholders in the industry include the shortfall in the supply of Low Pour Fuel Oil (LPFO) occasioned by the closure of Kaduna refinery as a result of post-election violence in the northern part of the country; loss of 6,000 trucks by Dangote group and increase in the price of diesel leading to high cost of transportation of the product.
When all these are fixed, which both the stakeholders and the Federal Government said they have reached consensus on fixing, would lead to the availability of cement at a reduced price.
The question is how long would this last? Many industry watchers have argued that until the cost of production reduces, goods produced in the country would be on the high side.
Director-General, Manufacturers Association of Nigeria (MAN), Jide Mike, said the price of cement would remain high because of the cost of power, which accounted for half of production cost.
“Your input will determine your output because you still want to remain in business. You cannot say because you want cement price to go down; therefore, you run at a loss. He said the price of cement could fall if the country had a stable power supply as obtained in other countries.”
The price of cement that recently hit all-time high of between N2,700 and N3, 000 was the handiwork of a cabal that was interested in making undue profits from the locally-made variety of the commodity.
Although the Federal Government has already issued a deadline within which the price of cement must come down, failure of that directive to have potency might spell doom for the Federal Government housing policy.
A cement manufacturer who is also the chairman, Cement New Entrants Forum, Prince David Iweta, expressed concern about the growing concern among the masses over their inability to buy the commodity.
Iweta disclosed that a particular cabal had, last year, hoodwinked the Federal Government into increasing the duty and levy on imported bulk cement from five to 15 per cent and introducing a certain Cement Technology Levy (CTL) of 20 per cent, adding that this caused the total levy on imported bulk cement to 35 per cent.
He said unknown to the Federal Government, the target of this cabal, members of which are major players in the cement industry as well as local manufacturers, was up the price of imported cement and surreptitiously increase that of locally-produced ones too so as to swindle unsuspecting consumers.
“I warned on this outcome when the Ministry of Commerce and Industry, in collaboration with the Ministry of Finance, recommended to the President to approve an upward review of duty on imported bulk cement from five per cent to 15 per cent and further introduce Cement Technology Levy (CTL) of 20 per cent; this made the duty and levy to go up to 35 per cent.
“This happened late last year and the effect came up this year. This is supposed to affect imported bulk cement only and not locally manufactured cement. The game plan by the cabal was to enable them to cash in on the increase on imported cement to hike the price of their locally-manufactured cement; to equate it to the cost of imported cement at N1,700 at the factory gates of local cement manufacturers. “This would also enable them to make abnormal profit to enable them to pay off their bank loans within two to three years as against long-term repayment of capital project funds of 10 to 15 years,” he said.
The industrialist added that Nigerians should not listen to some stakeholders in the cement industry who attributed the exorbitant hike in the commodity’s price to problems of Low Power Fuel Oil (LPFO) from the Kaduna Refinery and the price of diesel that had gone up to about N140 per litre, disclosing further that the Federal Government had, long ago, approved exclusive importation of LPFO, with special duty concession, to cement manufacturers.
“They should not cite the problems of Low Power Fuel Oil (LPFO) from Kaduna Refinery and price of diesel at N140 per litre as reasons for sharp increase in price of cement. The Federal Government had long approved the exclusive importation of petroleum products, particularly LPFO, with special duty concessions for cement manufacturers. They should stop passing the buck over possible inability to bring cement price down to N1, 000 by local manufacturer before the 30-day deadline.
“I want to state here that with the deceitful plot by the so-called cement manufacturers and the fake figure given for local capacity in cement production, the Federal Government will not achieve 10 per cent of its programme of housing for all.
“Therefore, I make bold to say that such programme will end in futility, except the Federal Government makes deliberate efforts to discard the tissue of lies and misleading information coming from the so-called cement manufacturers.
“Our own association was empowered by late President Umaru Yar’Adua, who deemed it necessary to break the monopoly in the cement industry by granting six companies Special Cement Import Permit to crash the price from N2, 500 it was then to between N1, 400 and N1, 600.
“It remained at these prices before the appointment of the minister, who aided the cabal in what led to the current high price being experienced in the country. It was the good effort of the late president that supported many cement stakeholders who had been denied access to Cement Import Permit from 2002 when the cabal came into force in Nigeria and was supported by the government in power from 1999 to 2007. Therefore, our presence created fear in the minds of the cabal as price became stabilised and came as low as N1 400 per 50 kilogramme bag,” Iweta explained.
He, however, said there was hope that situation would come to normal, if government could reverse levies on imported bulk cement to five per cent and approve the licence of some cement companies which applications were currently with the Ministry of Commerce and Industry, adding that it was even possible for Nigerians to buy cement for as low as N700, as obtained, according to him, in countries like China, Liberia and Turkey.
“The Federal Government’s directive that the price of cement must come down to N1, 000 per bag is very possible, particularly for locally-produced cement, while imported cement could be around N1, 400 per bag, if the duty remains at five per cent on bulk cement. The claim by cement manufacturers that price of LPFO and diesel for transporting cement from their factories to consumers is responsible for price hike is a bundle of lies.
“What is the price of diesel in China? What is the cost of diesel in Liberia? What is the price of diesel in Turkey? What is the price of cement in these countries? It ranges from equivalent of N500 to N700 per bag from their local plants. “Therefore, the so-called cement manufacturers have no business selling locally-manufactured cement above N700 per 50 kilogramme bag. I stand challenged and I am ready, willing and able to defend this position. There are facts and figures to support my position. The cement manufacturers are robbing Nigerians by over 100 per cent.
“To prove my case, only a few days ago, a member of the Cement Manufacturers Association declared financial statement for a three-month period and there was a gross profit of over 60 per cent as well as a 51 per cent net profit. Let the economic advisers to the President analyse this account and come up with a report on whether or not this is good for the country.
There is nowhere in the world today where this kind of profit is recorded and even from a product over which the masses are crying of high price. It has taken government a very long time to issue this directive because the cabal, with the aid of the ministry, has continuously told the public and the President that the country has attained self-sufficiency in local cement manufacturing and will start exporting by 2011 to African countries; these are in all national dailies and are lies.”
Meanwhile, the Federal Government has taken some proactive measures in recent past to ensure that cement is available to all and sundry and at an affordable cost.
One of such was the issuance of new import licences to some companies so as to bridge the huge supply gap in the market.
The Federal Government had in about three years ago lifted the ban on importation of bulk cement and granted import licences to six new firms, along with the existing cement manufacturers, to flood the market with the product and force prices down.
The Federal Government has said that the decision was to make up for the 11.5 million metric tonnes per year shortfall in the cement market.
Local manufacturers were supplying about 6.5 million metric tonnes while national demand was estimated at 18 million metric tonnes per year.
The six new companies that got the import licences were Minaj Holdings Limited, Enugu; Madewell Products, Sapele; BUA International Limited, Kano; NICA Limited, Maiduguri; Reagan Renaissance Limited, Calabar and MAAN Labadi, Lagos.
These companies joined the seven existing players – Lafarge Cement WAPCO Nigeria, Ashaka Cement, Benue Cement Company, Obajana Cement, UNICEM Calabar, Cement Company of Northern Nigeria, Sokoto and DURECHEM, Ogun State.
With the implementation of the backward integration policy in the cement sub-sector, some of the manufacturers have observed that the nation’s cement production would soon hit over 28 million tonnes annually. Dangote Cement for example has many ongoing cement projects in the country that are at various stages of completion. BCC has five new generating plants installed at a total capacity of 52 mega watts to boost production capacity. These projects are expected to inject millions of tonnes of cement into the market and even begin export in large quantity to other ECOWAS countries.
Dangote Group alone produced over 60 per cent of local production as the firm’s expansion project in Obajana, Kogi, and the construction of Ibese Cement Plant would inject about 17 million tonnes into the market annually. The company said it has already commenced the construction of some facilities to actualise its export dream. Also Lafarge, WAPCO Cement, said it has so far embarked on the construction of Ewekoro plant to enable it keep pace with the growth in the Nigerian cement market and maintain its market share. The company said the plant formed part of its strategic plans to boost its production capacity by 2.2 million metric tonnes of cement per annum, adding that the Lakatubu plant is expected on completion to add 2.2 million metric tonnes to the current two million metric tonnes capacity from the two plants at Ewekoro and Sagamu in Ogun State.
BUA, another cement company in the country, had also in an effort to reduce cement import recently acquired the Okpella Cement Factory and the Cement Company of Northern Nigeria (CCNN) both worth about N15 billion to consolidate the cement arm of its business.
BUA recently unveiled a facility upgrade worth N7.5 billion for CCNN also known as Sokoto Cement and another $300 million turn around plan for Okpella Cement Company.
The granting of import licences and the massive expansion projects by local manufacturers, however, has done little to influence prices as anticipated, due largely to the high cost profile of local producers and financial and logistics difficulties confronting those granted the import licences.
Cement manufacturers had also doused the fears of consumers on the increasing cost of cement when it came out to say that Nigerians would neither experience cement scarcity nor face absurd price increment as a result of the recent policies of the Federal Government. After conducting a country-wide survey of productive capacities and manufacturing processes among its member-companies late last year, the manufacturers, operating under the umbrella of Cement Manufacturers Association of Nigeria said the country faced the task of managing the evolving excess inventory and operational glut that were already becoming a challenge in the industry, noting that the only way out was for government to sustain the policy of backward integration, as manufacturers work hard to ensure price affordability.
The report of the survey indicated that local cement makers currently had a combined surplus productive inventory valued at N27.6bn, while the manufacturers said the high inventory was not prompted by market resistance but a product of the several investments in capacities in recent times and a result of policy shift of about two years ago that encouraged unbridled importation of cement.
Meanwhile, government investment in the cement sub- sector dates back to the 70s.
For instance, with government investment in the industry in the post-cement armada era of the mid-70s, the industry grew from five plants in 1970 to eight and local production rose from about 1.4 million metric tonnes to 2.8 million metric tonnes and peaked at about 3.6 million metric tonnes in 1986. Unfortunately, by the turn of the century in 2000, only four out of the eight cement manufacturing companies were operational with a cumulative output of 2.2 million metric tonnes.
Cement import, which had correspondently came down with the investment in cement plants in the 70s to as low as 0.8 million metric tonnes in 1980, steadily rose to over six million metric tonnes by 2002. Between 2002 and 2008, there was backward integration and policy consistency, which encouraged new players to come into the industry making it to record an additional 11.8 million metric tones. Since 2008, inconsistency in policy has had serious effect on the sector.
Statistics showed that by 1986, local cement production capacity in Nigeria was a record 3.5 million tonnes per annum, accounting for 81.4 per cent of total supply, while 800,000 tonnes were imported into the country, accounting for 18.6 per cent of supply in the same year, meaning that at the time, local production met over 80 per cent of local demand thereby creating value, employment and wealth.
The country subsequently threw open its doors to indiscriminate importation of cement which flooded the market, thus causing the collapse of the local cement manufacturing industry. By 2003, local cement manufacturing capacity had collapsed to an all-time low of 1.98 million metric tonnes, thereby meeting only 23.53 per cent of local supply, while 8.4 million metric tonnes of cement was imported, accounting for over 70 per cent of supply.
In 2002, the Federal Government introduced an import substitution regime designed to re-energise the industry and reduce over-reliance on importation. Six years after the substitution regime in 2008, the policy resulted in increased consumption peaking at 13.04 million metric tonnes.
By this time, local production had increased to 6.40 million metric tonnes, representing 46.50 per cent of total supply with a balance of 53.50 per cent (6.98 million metric tonnes sourced through imports.
Industry players have blamed policy inconsistency as the greatest challenge of the cement industry, explaining that every successive government had expressed concern about the inability of the nation to fully realise its potentials in the cement production and had sometime made genuine efforts to formulate policies that could take the country out of the bondage of dependency on imports for its cement needs. But such policies, they say, are usually not followed through to the point of yielding the desired result before they are upturned, most time, to satisfy powerful importers.
On the way forward for the cement sub-sector, Jide Mike said government needs to be consistent in its policy and follow the backward integration policy introduced in 2002, which he explained required that cement import licences would be allocated only to importers who show proof of building factories for local cement manufacturing in Nigeria.
Executive Secretary, Cement Manufacturers Association of Nigeria, James Salako, also said strict implementation of the 2002 backward integration policy that required that cement import licences be allocated only to importers who show proof of building factories for local cement manufacturing in Nigeria could be the only way out.
“The spirit of this policy is to rapidly expand Nigeria‘s cement production capacity and thereby accelerate the realisation of self-sufficiency in this critical product in which the nation has comparative advantage,” he said noting that importation should be done along with consistent strict implementation of the backward integration policy that would ultimately bring the country out of perpetual dependence on imports.
He said following the introduction of the policies, various traditional cement importers invested heavily in manufacturing by starting to build new cement plants in various locations, adding that within the first six years of this policy, no fewer than 11milliom metric tonnes per annum was added to the nation’s cement manufacturing capacity.
He also said the Federal Government had approved the grant of some concessions to the cement industry with a view to attracting further investments into the industry in order to achieve the target of self sufficiency in cement production by 2013, adding that since the announcement of the incentives, members of the association have started working towards the achievement of self-sufficiency latest by 2013. He said old investment plans are being strictly and speedily implemented, and was optimistic that the self-sufficiency target would be met even earlier than the target date.
He said the drive for lowering market prices for the common man has always been used as an excuse for indiscriminate importation of manufactured goods with very low duty rates in the country, adding that the country should accelerate economic expansion in order to join the league of the top 20 economies of the world by 2020. “Government should not be promoting policies that harm the manufacturing sector. Our achievement of our Vision 2020 goal is directly linked to the success or failure of the manufacturing sector more than any other sector,” he said
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