17 August 2008
column
Would I ever build a house of my own? Yes I would, I told myself, I shouldn't be a tenant forever. So I started starving and started saving. And as soon as I had enough money to buy a bag of cement, the price would go up. I would gather courage again and start starving and saving, keeping money inside my fridge, shoes, under the bed, under the pillow and so on. But each time I was ready, the price would go up again. So I became downcast. Then a friend told me: "Cheer up, things could be worse." So I cheered up and, truly, things got worse.
And it came to pass that the Minister of Commerce and Industry, Mr. Charles Ugwuh, put a smile on my face. He said cement prices were about to crash. He said he had given licences to some companies to import 50 kg bagged cement and in six weeks, I would start building my house at N1000 per bag. So I went to sleep, dreaming dreams and seeing visions. I pictured myself in my house, well-finished and well-furnished. I woke up six weeks later to discover that the price of cement had not crashed; it had actually gone up!
Okay, I cooked up the "starving and saving" part of my story - it is a mixture of quotes from Fela and a humorist, whose name I can't readily remember now. But I was not kidding when I said Ugwuh raised the hopes of Nigerians with his promise that his magic 50kg imports were about to change the construction landscape forever. He actually made that promise. But six weeks later (or did he mean in six years?) cement prices were concretely up in the skies. And there is no sign yet that things are about to change.
Why is cement, which now sells for about N2000 per bag, so costly? The simplest answer is "demand and supply". We are consuming more than what the market has to offer. Demand not matched by supply will push up the price, in case you've forgotten your elementary economics. In the last 10 years, construction activities in Nigeria have increased dramatically, pushing up consumption of cement. In 2000, we were consuming about 8.1 million metric tonnes; today, we are consuming over 18 million metric tonnes. Production has not increased by the same capacity - so the price just must go up. Two years ago, it was N600, now it costs an additional N1,400 - twice the price in countries such as United States and South Africa.
We import nearly every bag that we consume. Imports account for 75 per cent of consumption. Currently, the major local producers are Dangote Group, Lafarge/ WAPCO, Ashaka Cement and Cement Company of Northern Nigeria, but they cannot meet the demand. So what's the way out? The Federal Government, in trying to bring down the price, decided to offer an incentive to the local producers by allowing them to import bulk cement, which they would in turn bag in their own brands. This was intended to achieve three things: one, encourage continuous investment in production by local companies; two, reduce the pressure on supply; three, ultimately bring down the price when these measures begin to yield fruits, especially as investments are always ongoing.
The government identified 13 plant owners and some other end users in the construction industry and granted them licences to import "bulk" - as distinguished from "bagged" - cement. The companies that benefited included big players such as Dangote, Lafarge, Flour Mills, Ibeto, Eastern Bulkcem and some new investors in cement production such as Quacem, Westcom, Purechem and Topcem. The approval grossed about 12 million metric tons. But prices still remained high. In fact, when Ibeto, which had earlier been closed down by the Obasanjo government, was given the licence to import bulk cement by this administration, it promised to crash cement prices in a matter of weeks, but the magic did not happen.
What next then? I think this is where the government appears indecisive. With the policy of no importation of bagged cement, coupled with the reward and encouragement of local producers through the licences to import supplementary bulk cement, Nigerian companies had made heavier investments. From available statistics, local companies have invested about $6 billion. By any standards, this is huge. When we talk about the real sector in Nigeria, the cement industry ranks high and this is good news. With reasonable protection from foreign invasion, the local producers stand to benefit from their hefty investments, to say nothing about the jobs that are being created, a lengthy value chain and a growing contribution to the GDP.
But, in effect, there is always going to be a trade-off. Should we encourage local production, with the hope that increased investment will in the long run bring down the price? Or should we attempt to force down the price by opening up our borders to all kinds of cement products and thereby jeopardise local producers' investments? It should ordinarily not be a hard choice. In other African countries, local production is being encouraged by government policy. Also, our experience in, for instance, juice production shows that the restriction on importation has led to the flourishing of local products such as Chivita and Dansa.
I really don't know how to place Ugwuh. He was president of Manufacturers Association of Nigeria (MAN) and you would ordinarily think that his policy proposals and decisions would focus on developing the local industry. For inexplicable reasons, he woke up one day and started awarding importation licences to companies that have no record of investment in the cement industry. The original policy of "backward integration" - that is, allowing supplementary importation of "bulk cement" by only companies that are investing in the sector - has now given way to a mysterious decision to allow trading companies to import bagged cement.
It's truly amazing. Allowing bagged cement is an open invitation to economic sabotage. Smugglers will be smiling to the bank. Huge revenues will be lost to government. Most unfortunately, those who have invested billions of dollars in the sector will watch in agony as their investments get threatened and rubbished. I have often told people that even if I had $20 billion to burn, it would be very difficult for me to invest it in this economy. The government comes up with a policy; gives assurances and guarantees; you go ahead and pump in your money, sometimes huge bank loans; then, suddenly, a reversal is made and you are in soup. This is disheartening.
I honestly pity our local companies. WAPCO has invested about $300 million in modernisation and expansion, and a further $650 million spent on construction of additional lines to produce about two million tons. An industry source told me last week that the company originally intended to double that figure but had to cut back by half because of the minister's strange behaviour. Ashaka was said to have spent over $70 million on its expansion drive. Unicem reportedly invested a massive $700 million. Obajana Cement has gulped over $1.2 billion and is still a work in progress. Benue Cement Company has so far gulped $400 million on expansion of its production lines. Dangote's new investment alone which was recently made public is expected to gulp a whopping $3 billion, with new cement plants in Shagamu and Ibese. All these investments are well over $6 billion.
THISDAY recently reported the enormity of Dangote's planned investments. As part of a 28-month strategy aimed at increasing production and taking a step further to export, his cement group has invested $1.85 billion in the construction of three new cement plants. This new investment will, according to the company's projections, lead to a crash in the price of a bag of cement from the current N2000 to less than N1000 when it is completed.
Dangote's $1.85 billion investment outlay would see the total volume of cement produced by Dangote Cement rising to 26.0 million metric tonnes per annum by 2010. This is good news, I think, even though Ugwuh may beg to differ with me.
While some Nigerian brands such as Glo, Oando, UBA, GTBank, Access Bank and Dangote are being embraced with open arms in neighbouring countries, people like Ugwu are making the home space unfriendly to local investors. How on earth can you say you want to encourage Made in Nigeria and at the same time take measures that are clearly fatal to the health of Nigerian investors and manufacturers? Is there something I'm missing? And isn't it ironic that the magical 50kg imported bagged cement has not solved any problems. Instead, prices are going up?
President Umaru Musa Yar'Adua will do well to take a closer look at the policies as they affect our local manufacturers who are clearly an endangered specie and who need encouragement - not killer decisions. National interest must always be top priority.
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