13 January 2013

Nigeria: Dangote, Ibeto Cement War - 'How Construction Companies Bear the Brunt of It'

The battle of wits between two leading businessmen, Alhaji Aliko Dangote and Chief Cletus Ibeto over the control of the nation's cement market may deal further blow to the construction industry except urgent steps are taken. Already, some of the construction companies have begun to reduce their staff strength to cut costs in the wake of the unbearable price of cement occasioned by the crisis being witnessed in the industry.

A major player in the construction industry, Mr. Kunle Awobodu, the CEO of Reo-Habilis Construction Ltd, Ikeja , Lagos, in an interview with Sunday Trust admitted that the controversy between Dangote, Ibeto and other key players in the cement industry is already affecting the industry adversely.

He observed that cement is a critical material in the construction industry and whatever affects cement affects them positively or negatively. "For long, cement determines the cost of construction in our environment. The unbearable cost of cement, therefore, is a major concern to us in the industry. We had anticipated a reduction in the price of the product but it's surprising that the price still hovers between N1,500 to N1,800 per bag which is unacceptable to us.

The cement manufacturers have been accused of forming oligarchy to determine the upward or downward price of the product. The crisis between Ibeto, Dangote and other major players in the cement industry is biting harder on us. You will be surprised to know that the price of cement in the Eastern part of the country is cheaper compared to any other part of the country. We realized that it was the competitiveness introduced into the business by Ibeto in that part of the country that was responsible for the reduction in the price of cement there," he said.

Awobodu said, Dangote claimed that it was because Ibeto is buying cheaper cement from outside the country that makes it to sell at lower price. He posited that the businessman's position on this calls for the fundamental question they have been asking in the construction industry that: If the backward integration policy of the federal government in 2002 was to encourage local production of cement and bring its price down why should the price of locally produced one be higher than the exported one.

"This has been difficult to resolve, although they attributed it to high cost of production, considering the cost of transportation, poor road network in the country and poor energy. The altercations between Dangote and Ibeto are very interesting to us because they provide answers to the fundamental question that we had raised some time ago. The intervention of government in this is very crucial at this time. We were happy that government introduced a policy in 2002 which increased the production of cement from about 2 million metric tonnes per two to 28 million metric tonnes today. If the statistics from the cement factory are correct, I think the policy should be commended. The dividend that those of us in the construction companies should enjoy is the reduction in price of the product as envisaged by the policy. We had expected the price would be as low as N800 per bag."

Few weeks ago, Dangote instituted a suit at the Federal High Court, Abuja, presided over by Justice Binta Nyako, praying the court among other things to void the payment of $40m and the sum of N7b paid by the Federal Government to Ibeto Cement Company Limited and its associate companies IBG Investment Ltd and Derima Ventures Ltd.

Former President Olusegun Obasanjo in 2005 had ordered the closure of Ibeto Cement plant over alleged 'misrepresentation of facts to obtain the quota of 800,000 tonnes of cement allocated to it by the Federal Government.

Before its closure, the Federal Government had formulated a backward integration policy whereby licenses were given to some companies to import cement in order to augment the shortfall in the supply of the product in the country. But there was a proviso attached to this: the intended beneficiaries must have proven investments in the manufacture of cement and secondly, own and operate land-based import terminals.

It was alleged by Dangote and other players in the industry that Ibeto completed the development of its land-based terminals which was leased from the Nigeria Ports Authority (NPA) to meet up with terms of the backward integration policy but it did not invest in local manufacturing of cement as demanded by the policy.

For this, the Obasanjo led government revoked the license earlier given to Ibeto until the company showed proof of its investment in local production of cement.

However, Cletus Ibeto, wrote the former president, Umar Yar'adua urging him to order the reopening of his plant. It also sought for and obtained Yar'adua's approval to import 1.5million metric tonnes of cement per anum at 5 percent import duty charge and VAT free.

Even at that, there appeared to be no remarkable reduction in the price of cement as expected. "We have done our research all over the world and we found that the price of cement is higher in Nigeria than what is obtainable in other parts of the world. We know that the manufacturers of cement are expected to make profit but they should know that a reduction in price will encourage greater patronage.

If they bring down their prices, automatically, more people will buy their products. An average Nigerian aspire to build his own house, those who have already built still aspires to build more. As a builder, for instance ,we are handling a project right now, I will say the glut has not affected us positively, it has not been rewarding. The product is not scarce but its price is unbearable. A glut is supposed to be rewarding to us, it should translate to reduction in cost of construction but as it is now activities in the construction industry are low because of cement price. Some people did not agree with this but it has affected the construction companies so much that some are reducing their staff strength and there have been lamentations from the industry over what we are witnessing today."

As the controversy in the cement market drags on Ibeto has denied causing cement glut, which Dangote said led to the closure of its Gboko plant and might force other cement producers to lay off workers.

Ibeto insisted that the company's five per cent share of the market could not have induced a glut. He maintained that a glut would have resulted in a fall in the price of cement, which has not happened.

However, Mr. Awobodu insisted that "If we have to be sincere, the essence of government policy was to encourage local production of cement. Government should keep to that policy to discourage importation because if locally produced cement is cheaper nobody will patronize exported one even Ibeto will no longer import. However, the challenge before local manufacturers of the product now is to make it competitive, make it cheaper than the exported one. If this is done whoever imports the product will regret doing so."

Although the Minister of Trade and Investment, Olusegun Aganga was reported to have stepped in to mediate in the controversy between Dangote, Lafarge and Ibeto, how this will bring about reduction in the price of cement in a short time as anticipated by the construction workers and builders will be determined by the sincerity of the warring major players in the cement market even if truce were to be.

Copyright © 2013 Daily Trust. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.