The business climate for manufacturers has been stormy. For instance, the dawn of textile boom in the country was eclipsed by the twin evils of cheap importation and infrastructural conundrum.
Import substitution industrialisation (ISI) is a trade and economic model that seeks to replace foreign imports with domestic production. It was developed since the 18th century by Classical economist David Ricardo. Its principles were endorsed by European countries and the Americas and it paid off. But it was abandoned by developing economies in the 1980s due largely to structural indebtedness and IMF/World Bank adjustment programmes that lend credence to trade liberalisation policy for poor countries. To say, therefore, that the consequences of trade liberalisation policy and unchecked importation on these economies have been colossal is to rehash a cliché.
Nigeria today can neither clothe nor feed itself. About 90 percent of the country’s textile needs are imported and about $158.4 million is spent on importation of textiles and fabrics from Dubai alone annually. This is scandalous and enough to send jitters down the spine of a serious government. The country has also witnessed mass exodus of tax-paying manufacturing companies. Those who choose to stay back eventually collapse due to high cost of production and the importation of cheap goods from China and elsewhere, where the cost of production is pretty low. While the government had hitherto expressed determination to encourage made-in-Nigeria goods to bolster domestic direct investment, it has, however, yet to walk it talk.
The business climate for manufacturers has been stormy. For instance, the dawn of textile boom in the country was eclipsed by the twin evils of cheap importation and infrastructural conundrum. Unbridled importation of tyres has since forced Dunlop and Michelin to kiss the dust and relocate to another African country. Nigeria’s ranking on the global scale for ease of doing business has also nosedived.
It is against this backdrop that the ongoing altercation between the country’s cement manufacturers and importers is a cause for concern for discerning Nigerians. The government’s macabre dance is not helping matters either. Both Dangote Cement and Lafarge WAPCO Cement Plc have raised alarm that the business environment is becoming intolerable. For instance, Dangote’s four million metric tonnes cement plant that employs about a thousand people in Gboko, Benue State, was shut down last month due to glut in the market. Similarly, the management of Lafarge has cut its production. Plant manager, Lafarge’s Ewekoro cement plant, Lanre Opakunle, said 50 percent of Lafarge’s Shagamu plant has been shut down. He said that the company’s Ewekoro plant had cut production by 40 percent in response to the glut in the market. According to him, the various Lafarge factories have excess cement and clinker inventory at their plants of about 300,000 metric tonnes, which cannot be absorbed by the Nigerian market.
Hence, the suspension of operation by one of Dangote’s cement factories owing to market glut created by nefarious importers should disturb the government. This is so because as a manufacturing company, the Dangote Group has contributed enormously to the development of this country. It pays an average of N50 billion in tax annually. Its philanthropic profile soared to around N20 billion between 2011 and 2012. It gave N2.5 billion to the flood victims last year. The Dangote Group is today adjudged the largest donor and biggest employer outside government. It has caused the employment of over 100,000 in direct and indirect labour. All this is made possible through MANUFACTURING, not importation.
The country’s cement subsector almost hit the rocks by 2002 when total domestic production was a paltry 1.9 million metric tonnes. But change came with the federal government’s backward integration policy for the manufacturing sector. With this policy, total production rose to 18.5 million metric tonnes as at 2012, while another 12 million metric tonnes is in the offing. According to chairman of Cement Manufacturers Association of Nigeria (CMAN) Joseph Makoju, “The 18.5 million metric tonnes is representing just 65 percent of the present total installed capacity of the industry. Between 2002 and May 2012, a total of $6 billion new investment was made by the local manufacturers while the ongoing expansion and new plants is estimated to cost another $3.5 billion. Due to the continuous rapid growth, the nation no longer requires cement imports as local demand is being effectively met and even surpassed. However, with continuous importation of the product into the country, as at today, most local cement plants have huge inventory of unsold cement and the clinker, signifying the attainment of self-sufficiency.”
The question being asked is: why has cement price not crashed in the face of the glut? It is a truism that the cost of production in Nigeria is very high. Any producer or businessman will easily confirm this. Manufacturing is not synonymous with charity. The business of business is business. As a former economics teacher, I know that the forces of demand and supply are not all there is to bring down a price in the long run. There are exceptional and abnormal situations. Nigeria’s economy, as we all know, is not normal. “Energy cost accounts for over 35 percent of production cost in Nigeria,” Makoju had explained, “whereas it is 10 percent in China. In Nigeria, the price of LPFO has jumped from N25 per litre to N107.76 per litre as at November 2012, an increase of 331 percent. Haulage is another factor that is out of the control of manufacturers. Haulage cost alone accounts for between 20 and 25 percent of the open market price of cement. All bulk products are affected by this factor due to deplorable state of Nigerian roads.”
Pundits therefore say the backward integration policy introduced by the Obasanjo government to encourage local production is once again being threatened. With the Jonathan government’s indecisiveness, the cement subsector, they say, is regretfully set to tread the path the textile sector trod. It is also worth mentioning that cement consumption in Nigeria is still very low. This speaks volumes of the state of infrastructural projects in the country when compared to other African countries. Cement consumption in Nigeria is below Senegal. It is also behind Egypt which consumes an average of 48 million tonnes. This does not speak well of a country that has an estimated housing deficit of 16 million units, and whose road networks are almost in tatters. Government can also help mitigate the glut by using concrete for its road construction projects instead of asphalt in order to save substantial outflow of foreign exchange. Concrete roads are strong, durable and evoked all over the world.
Local cement consumption was said to have risen by 11.1 percent from 8.42 mmtpa in 2004 to 9.35 mmtpa in 2005. In 2006 it grew to 10.08 mmtpa, 10.98 mmtpa in 2007, and by 22.1 percent to 13.41 mmtpa in 2008. Average consumption hit 14.80 mmtpa in 2009 and 15.83 mmtpa in 2010. In 2011, it reached 17.10 mmtpa. In 2011, cement manufacturing started closing the gap on domestic cement demand. With total local consumption projected at 20.97 mmtpa by end 2012, Dangote Cement, with over 20 mmtpa capacity, had met local demand for the product. Therefore, to allow continuous importation when Nigeria can now export is to kill the idea and the success recorded through the backward integration and import substitution policies. It would be recalled that between 2010 and 2011, cement manufacturing saved Nigeria a staggering N270 billion. The amount it costs the country to import cement yearly dropped from N300 billion to N30 billion. This corroborated the fact that import substitution policy can help free a country from its economic shackles.
With Nigeria’s huge size and comparative advantage in cement production, manufacturing is most likely to achieve economies of scale for the country. Nigeria also has additional advantage of controlling the West African market. The chorus in every corner should be: No to cement importation!
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