Nigeria: Cementing infrastructure

While manufacturers in Nigeria have long had to grapple with constraining operating conditions, such as an intermittent power supply, cement producers have managed to establish an enviable track record. In eight years, the country has built up a domestic production industry capable of meeting two-thirds of local demand for cement. With further capacity expansion slated for this year, Nigeria is on track to achieve self-sufficiency in cement production and could even become a regional exporter.

The rise of a domestic cement industry can be attributed to the policy of backward integration initiated by former President Olusegun Obasanjo’s administration in 2002. To reduce the country’s dependence on cement imports, new production facilities were built and others rehabilitated. As a protectionist measure, the government banned the import of bagged cement and reduced the number of cement import licences. In 2009, a tax of N500 (£1.98) per tonne was instituted for cement imports.

Around $8bn was invested in the industry between 2003 and 2009, during which time local production of cement increased 423% from 1.89m tonnes to 8m tonnes. In 2010, that figure rose to 10.1m tonnes, according to the Cement Manufacturers Association of Nigeria (CMAN), thereby covering 64% of the country’s total demand of 15.5m tonnes. Another 14m tonnes of production capacity is expected to be added by the end of 2012. While not all the capacity will be utilised, it should put Nigeria near self-sufficiency for cement by the end of this year.

The bulk of new capacity will belong to market leader Dangote Cement, which finished first-quarter 2011 holding N1.92trn (£7.6bn) of market value on the Nigerian Stock Exchange. The company announced plans at the end of 2010 to increase its local production capacity to 30m tonnes by 2015. At present, the company has two cement plants in the country with a combined 8.2m tonne capacity. Dangote Cement is also expanding its plant in Obajana at a price of $1.2bn, while a new N100bn (£395.5m) plant is nearing completion in Ogun State. Expected to come online in July, the latter plant will have capacity for 6m tonnes annually.

Other major cement producers include Lafarge WAPCO, which plans to increase its capacity by 2.2m tonnes during 2011, and UniCem, which is building a plant with an annual capacity of 2.5m tonnes in Cross River State.

Nigeria’s ultimate goal is “not just to become self-sufficient in cement production, but to become a net exporter of the product,” James Salako, the executive secretary of CMAN, said in February, when a monitoring committee’s progress report for the cement industry was delivered to the Minister of Commerce and Industry.

The Economic Community of West African States (ECOWAS) is a natural destination for Nigerian cement exports given the incentives in place to encourage trading. Dangote Cement, for example, has operations across the region, including Ghana, and has publicly announced intentions to export to Liberia, Sierra Leone and Côte D’Ivoire.

“If we export from Nigeria to any [ECOWAS] countries, first of all we collect 30% export incentives,” Dangote Cement’s CEO, Alhaji Aliko Dangote, told international press in November 2010. “And then secondly, when we get into those countries, we are not to pay local duties. So it will benefit us quite a lot.”

Providing to the Nigerian market, however, has hit a stumbling block recently as high prices for diesel have increased distribution costs, leading to a spike in cement prices in the first quarter of 2011. Local press reported cement was selling for N2000-2200 (£7.91-8.70) per bag in March, up from N1500-1600 (£5.93-6.33) a year earlier, despite the continuing increases in local production capacity.

Joseph Makoju, the chairman of CMAN, told the Daily Independent in late March that the rise in the price of cement is directly related to the increase in the cost of haulage. As a result, builders are having trouble purchasing the product, putting the brakes on the country’s much-needed social housing projects. Several private property developers have expressed concern that the price rises will lead to sub-standard building.

“The required quantity of cement in the mix for block-moulding, setting, plastering and for concrete will be compromised if clients could not go beyond budget or provide extra funds to catch up with the inflationary trend. The prevalence of re-bagged cement and sharp practices may lead to defective buildings that might fail in future,” a trio consisting of Victor Oyenuga, the president of the Nigerian Institution of Structural Engineers; Abombola Ajayi, the chairman of the Lagos State Chapter of the Nigerian Institute of Architects; and Moroof Abas, the chairman of the Lagos State Chapter of the Nigerian Institute of Building, said in March.

While Nigeria has already made great strides towards reducing its reliance on costly cement imports, a cheaper and more reliable source of fuel is also needed as part of the long-term solution to bringing down local cement prices. As this is a problem that extends to all parts of the industrial sector, a focus on lowering energy costs and improving logistics infrastructure would better sustain the nation’s economic growth.