Wednesday, May 25, 2011

AFRICA: NIGERIA: Presidential order on cement price: Implications for the economy

President Goodluck Jonathan in a meeting with the Top Five cement manufacturers in Nigeria, gave an order for the price of the product to be crashed within 30 days. This came as a huge surprise to many Nigerians who feel that President Goodluck Jonathan has been calm on certain issues bothering the Political Economy in the past one year, and for others a new dawn and picture of what to expect in the next Four years.

A 50kg bag of Cement currently sells for 2,300.00 which means that for an Average Nigerian that desires to build his or her own house, whether a self contained, three bedroom bungalow, or an affluent Nigerian that desires to build a duplex, palatial house or a mansion there will be a high cost in expenditure considering the price at the moment.

Understanding economics and the Changing phase and trend in the Globe, it is clear that in Capitalist driven economies the price mechanism determines the price of products whether building materials, electronics, foodstuff, services, etc considering the concept of demand and supply forces which goes a long way to influence the price stability of products.

For over a decade now Nigeria has gone through the rigors of the increase in prices of products like Cement, Petrol, Kerosene ,Diesel, Gas, Furniture products, Stationeries, Toiletries , etc which explains the impact of an economy that has been more involved in Imports than developing local contents to international competitive standards for exports.

The Law of Demand in Economics states that “if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more”.

In the case of Nigerians it is a different ball game altogether because there are few alternatives to Cement product which is a major ingredient for building materials in the country. The current price regime bites into the finances especially for average Nigerians and workers in the country, some go to get loans that span for two years or three years tenure to build a house, while others put a knife in their throat and put a high saving rate of their income to raise funds to actualize the dream of building a house.

Every Nigerian desires to build a house or engage in various building projects, but a careful analysis and survey of building and construction projects recently shows that the Businessmen , Government Officials, Retired Military Officers, and Captains of Industries are the ones actively involved in building and construction projects, while the average Nigerian worker from the civil service to the private sector are less involved in building projects.

It is on this basis that a Government intervention is needful to ensure stability in the price of basic products in the economy. For some people the President may have gone too far in placing a Marching order of 30 days for the price to be reviewed, but no matter how people complain or criticize this new directive, it goes to show that we are beginning to have a face of a government that is sensitive to the challenges of Nigerians. A major challenge observed in the Cement Industry is the Monopoly of the market by the Five major Cement Manufacturers in the Country especially the Dangote Group , is one reason I believe the price of Cement has been increasing without regulation. The fact here is that most of the Cement Manufacturers import the product and that in turn has a great impact on the pricing structure for the product.

With the Marching Order agreed to by the Five Major Cement Producers, it is expected that the Presidency will also work out modalities to create and ensure a more competitive environment for more viable and prospective Cement Manufacturers to penetrate the market, and ensure an affordable price direction that will encourage Nigerians that want to build. It is also understandable that the rising cost of diesel and the hostilities witnessed sometimes in the Nation, may have also created a wind of instability for the price of Cement explaining the amazing manner in which the product has become very exorbitant and costly .I also believe that the Present Administration is working vigorously on the Power Sector reforms to ensure that there is efficiency, productivity and growth in the economy, because without a stabilized power sector the various industries and sectors from Manufacturing, Oil and Gas, Telecommunications, and Service Delivery will continue to increase prices of products and services which is quite justifiable. For me I believe a reduction to the price tune of 1,200.00 within the next 30 days will be reasonable considering the issues raised by the Cement Manufacturers surrounding about the rising cost of diesel which has doubled over time from 160.00 to 170.00 from an initial 80.00. It is also imperative that the government engages the stakeholders in the Diesel market in a strategic meeting, with a view to structuring a favorable and affordable price plan on diesel.

Indeed the Presidential Order on the price crashing of the Cement product in 30 days is a welcome development and I also believe that a very reasonable review of the price will give leverage to the Government to also intervene and positively influence the price structure of petroleum products like diesel, kerosene, and petrol. The Implications for the economy is clear, across the world from Azerbaijan, France to Greece we have seen on various occasions how the inability of the Government to intervene in the market economy on the overbearing price of products has sparked riots and protests that would have been avoided. If this new line of Action is sustained and taken other sectors of the economy, it will mark a positive turn for the long-battered Nigerian Economy.

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