The Politics Of Cement Pricing In Nigeria: In this piece, Friday Atufe, writes about the politics surrounding the recent cut in cement prices and the need for stakeholders to work towards the overall reduction of building costs and not cement price alone Nigeria’s cement industry can be traced to 1960 when Lafarge WAPCO was established as a result of the country’s vision to gain economic freedom alongside its national independence. Lafarge WAPCO, formerly West African Cement Plc (WAPCO), was established at a time when the country was solely dependent on cement importation in the ’50s from England into the country. In a bid to ensure rapid infrastructural development of the young state, Cement Company of Northern Nigeria (CCNN) was established by Alhaji Sir Ahmadu Bello, Sardauna of Sokoto. It was incorporated in 1962 and began production in 1967 with an initial installed capacity of 100,000 tonnes per annum, using the wet process of production. The need to meet the increasing demand for cement necessitated the expansion of the plant with the commissioning of a second line with an installed capacity of 500,000 tonnes per annum in 1985 by, the then Head of state, Major General Muhammadu Buhari. In 1992, federal government, in its privatisation and commercialisation programme, divested about 20 per cent of its holding in the company and sold it to the Nigerian public. In July, CCNN was penciled down by Bureau of Public Enterprise (BPE) for full privatisation with Scancem International of Norway, a member of Heidelberg Cement group appointed as core investor and technical partner of the Company. Ashaka Cement Plc followed suit with its incorporation in August 1974 and commenced production in 1979 as a cement manufacturing and marketing company under the name Ashaka Cement Company Limited. The company was initiated by the Nigerian Industrial Development Bank Limited in collaboration with Blue Circle Industries Plc UK (now LAFARGE SA), the Nigerian Bank for Commerce and Industry, Northern Nigeria Investment Limited and the Government of the then North- Eastern State (now Adamawa, Bauchi, Borno, Gombe, Taraba and Yobe States). Ashaka Cement Plc became a subsidiary of Lafarge Group in 2001, after the acquisition of Blue Circle Industries Plc and since that time Lafarge has continued to support Ashaka’s operations to improve performance resulting in better returns to all its stakeholders. The cement industry was relatively “peaceful” with each company controlling its region until Dangote Group of Industries made incursion into it in 1992 with the incorporation of Obajana Cement. The development pushed up production volume from 2.5 million tonnes in 2004 to 10.5 million tonnes in 2010, due to the commencement of production by Obajana Cement and Unicem in 2007 and 2009 respectively. Over time, following the merger of Benue Cement Company Plc and Obajana Cement Company to become Dangote Cement, the group now controls 60 per cent of the market share while the others share 40 per cent among themselves. Dangote Cement Plc presently comprises of Obajana Cement plant, Ibese Cement plant, Benue Cement plant, Lagos Cement Terminal and Dangote Onne terminal. Further to plans for an African expansion, Dangote Industries Limited is currently establishing cement plants and terminals across Africa. Some of the countries include Liberia, Angola, Ghana, Sierra Leone, Republic of Benin, D.R. Congo, Congo Brazaville, Senegal, South Africa and Zambia. The backward integration policy In a bid to further bridge the gap between supply and demand of cement in the country, President Olusegun Obasanjo in 2002 launched the backward integration policy on cement production in Nigeria. According to the executive director, Projects and Technical of BUA Group, Yusuf Binji, the backward integration policy by the government was a very good policy. About 10 years ago, Nigeria was producing about two to three million metric tonnes of cement, but currently the installed capacity in Nigeria is about 30 million metric tonnes per annum. BUA Group is a leading conglomerate in Nigeria with investments in sugar refinery, flour manufacturing, pasta production and cement production. Some of its subsidiaries in the cement industry include CCNN, Edo Cement and OBU Cement plant. Owing to its controlling interest in the industry, any action by Dangote has significant impact on the industry and its operators. First was the war of different grades of cement in the industry, a development which among others made some operators to reclassify their assets in the country as well as in the African continent. Only recently Dangote stirred the hornets’ nest by unilaterally introducing a new price regime for both 32.5 as well as the 42.5 grades of cement. The new pricing regime In a move designed to raise the stakes in the Nigerian cement market, Dangote Cement Plc, recently announced about 40 per cent cut in the price of the essential product. According to the group managing director of Dangote Cement, Mr Devakumar Edwin, the company has pegged the Dangote 32.5 cement grade at N1,000 per 50kg bag, while the higher 42.5 grade is to sell for N1,150 per bag. The new prices which were exclusive of the Value Added Tax (VAT) represent about 40 per cent discount on the prevailing market price of the products which is currently sold for N1,700 irrespective of the grade, across the country. Edwin said the move is in line with the company’s commitment to the nation’s dire need for the development of infrastructure and to boost the federal and state governments’ ongoing effort to reduce the near 20 million housing deficit in Africa’s largest economy. “We recognise the need for a dramatic increase in the response to the huge infrastructure and housing deficit in the country, and one of the ways of addressing the issue is bringing the price of building materials down to much more affordable levels especially cement which is within our own control. This is part of our own contribution to the transformation agenda of the Goodluck Jonathan administration and the attainment of key milestones in the Millennium Development Goals (MDGs),” he said. The GMD/CEO also noted that Dangote Cement Plc would continue to ensure alignment of its corporate social responsibility with its strategic business initiatives and also would continue to evaluate its pricing regime in Nigeria’s best interest. Stakeholders reactions Federal Government and stakeholders in the cement sector have hailed the Dangote Cement Plc over huge investment in cement as well as the recent slash in the price of the commodity, describing it as unprecedented. The commendation came just as the management of Dangote denied that the price cut was motivated by monopolistic tendencies. Minister of Industry, Trade and Investment, Olusegun Aganga, who led others at a stakeholders’ meeting in Abuja, said the decision of Dangote Cement Plc to bring down price of cement was a patriotic one in line with the aspiration of Nigerians and the Federal Government. According to him, the Federal Government had attracted new private sector investment in cement sector to the tune of $7 billion within three years and that government was happy with that. To buttress his claim, the minister said: “In 2011, the installed capacity in the cement sector was 16.5 million metric tonnes per annum, today it is 39.5mmt per annum. We came in, there were about $9 billion investment in the cement sector, but today it is more than $15billion. In 2011, the direct and indirect jobs from the cement sector were less than 6,000, today the sector provides about 2.2 million direct and indirect jobs.” Chairman of the Trusted Shareholders Association, Mukhtar Mukhtar, said the cement price slash was a positive development for the Nigerian economy, adding that it would create jobs, encourage the poor, middle class to build houses and bring down house rent on the long run. “I want to on behalf of shareholders commend Aliko Dangote for yet another feat,” he said. Coordinator of the NGO Network, Mr Muhammad Attah, said the Dangote Cement deserved commendation, adding that the company had invested more than any other in the cement sector in the history of the country. BUA Group commends Dangote over cement price slash Also, in a swift response, chairman of BUA Group, Alhaji Abdulsamad Rabiu, has thrown his weight and support behind the Dangote Cement reduction on the cost of unit bag of cement to N1,000. According to Rabiu, he has always been concerned about the high cost of cement in the country and has always advocated for reduction of the cost to enable Nigerians have access to the product and realise their dreams of owning their own houses. He said, “It is against this background that I commend Alhaji Aliko Dangote for this patriotic initiative which is long overdue”. He further revealed that he held extensive discussion with Aliko Dangote on this issue in a telephone conversation last weekend and encouraged him on the initiative. Lafarge Africa Plc Guillaume Roux who also spoke on the new cement pricing in Nigeria, remarked that, “ We don’t see ourselves as just sellers of cement but providers of solutions to contractors and dealers on a lower scale on the basis of consistency and reliability,” adding, “we believe what is important is to develop more and more solutions for construction so that at the end of the day the cost of construction is reduced for our customers.” As part of the Lafarge group global strategy to develop local construction and develop laboratories in each region of its operation, Roux said one of such laboratories would be established in Nigeria in 2015. Already the group had set up five such facilities close to local markets in L’Isle d’Abeau in 1990 and in 2012,Chongqing in 2011, Mumbai in 2012, Algiers in 2013 and Rio de Janeiro in 2014. The group vice president also said Lafarge hoped to double its production capacity in Nigeria from its current 8 million metric tonnes of cement in the next five years through new investment in Unicem and Ashaka Cement plants, adding that new expansion in both plants is expected to increase production capacity by 5.5 million metric tonnes between 2016 and 2017. Leadership investigation LEADERSHIP Sunday findings showed that consumers are not likely to enjoy the benefits of the price cut. It was learnt from a cross section of cement dealers in Lagos that Dangote Cement’s 32.5 grade have yet to hit the market. According to a dealer in Iju-Ishaga area of Agege in Lagos State, Dangote Cement is producing the 32.5 grade at Obajana in Kogi State while we buy from its cement plant at Ibese which has yet to commence the production of the 32.5 grade of the cement while other dealers said they don’t get it to buy at the price that was announced in the media. However, the price of the Dangote Cement brand of 42.5 grade is now selling at N1,500 with some dealers saying they were prepared to offer it at N1,450 to any consumer purchasing about 50 bags and above. The dealers said Lafarge Wapco was yet to reduce its price, which was selling at N1,700 at the time of writing this report. Conclusion While we laud the recent price cut by Dangote Cement, we hold the view that in future such decision should be taken by an industry wide group -the Cement Manufacturers Association, in a bid to make it all embracing and to have more bite. Also, the idea of one player dictating price of products in an industry will not augur well for the sustainable growth of the Nigerian economy for two reasons: One it is against anti-trust law and also could act as disincentive to intending investors coming into the economy. The cost of cement constitute just about five per cent of the total cost of any construction, therefore effort should be made to find ways of reducing the cost of other building materials in a bid to make such ventures more affordable for the average Nigerian. From the foregoing, the federal government should create enabling environment for industries to thrive on a sustainable basis.Original link Read More goo.gl/uXsdWL (y) ✍comment ☏share
Posted on: Sat, 06 Dec 2014 22:53:07 +0000
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