Nigeria: Changes for the cement industry

A major policy rethink for Nigeria’s cement sector is set to steer the industry in a new direction aimed at building up an export market and improving competitiveness.

Although controversies over pricing and imports have been an issue in the past, local cement output has increased at a remarkable rate in the past decade, largely due to the introduction of the Backward Integration Policy (BIP), which has helped drive up production capacity from 2m tonnes in 2002 to 28m tonnes at the end of 2012, supporting the bid to reduce dependence on imports.

The industry now employs around 2m people directly and indirectly and has attracted $6bn in investment, according to the Minister of Trade and Investment, Olusegun Aganga. He said a committee of stakeholders would explore the way forward for the sector, which some press reports suggest could involve a radical shake-up, while also considering the industry’s overall structure. Topical issues such as pricing and supply, which have long been a source of tension between producers and importers, will also be discussed.

Officials suggest the BIP has been the single most effective industrial policy implemented in Nigeria during the past decade, playing a pivotal part in driving the sector forward. Aganga estimates the policy has saved Nigeria around N210bn ($1.3bn) annually in foreign exchange, pointing out that in 2012, the country’s ample domestic supply meant no import licences for cement were issued. Under the policy, Nigeria initially granted cement import licences only to companies that signalled their intention to establish manufacturing capacity in the country.

The minister was speaking after a meeting in early January with industry stakeholders that included representatives of Nigeria’s two big cement producers, Dangote Cement and Lafarge Cement Wapco, together with others from Ibeto Group, the country’s leading bulk cement importer.

He said since Nigeria had achieved the targets laid out in the BIP, the country was now preparing to take the next step to make it “a major exporter and user of cement in terms of consumption”, further pushing up the industry’s contribution to GDP. “We want to carry out a deeper review of the cement sector to ensure that it is more competitive, not just locally but internationally, because we are at a point where we should be thinking about exporting some of our products,” he said.

Nigeria now has the capacity to produce 28m tonnes, easily outstripping demand, which stands at around 18m tonnes. Last year, President Goodluck Jonathan called for producers to boost cement supplies as part of an effort to bring down prices. However, since then, the price of a 50-kg bag has dropped by an average of just N200 ($1.27), down from N2200 ($13.99) to N2000 ($12.72).

The meeting between government officials and various industry players was called after tensions over cement prices arose between producers and Ibeto. Dangote said that Ibeto was “dumping” subsidised foreign cement on the Nigerian market, which it said was harming the commercial viability of some of its plants by contributing to a supply glut. The firm closed its Gboko plant in December. In response to the allegations of dumping, Ibeto, which imports cheaper clinker to Nigeria, said Dangote was trying to force it out of the country. The company pointed out that the 1.5m tonnes of cement per year it was allowed to import under the terms of its licence was less than 10% of demand.

Dangote representatives added that in spite of the supply “glut”, cement prices were being kept high due to cost-push factors, led by rising fuel costs. Any reductions in prices forced by competition from cheaper imports would result in a harmful squeeze on profits for local manufacturers, they argued.

The government’s review of the BIP, which was announced by Aganga on January 7, is likely to include measures aimed at pushing up sales of Nigerian cement both at home and overseas. However, critics point out that creating an export industry could present challenges since many neighbouring countries produce cheaper, often subsidised cement, or have trade barriers in place that would push up the price of imports.

The domestic market is widely viewed to hold significant potential, largely due to the anticipated expansion of Nigeria’s construction industry. The industry grew at a rate of 12.58% between 2006 and 2010, according to the National Bureau of Statistics, and maintained a level above 12% in 2011. Continued growth of the economy, forecast by the NBS to remain above 7% until 2015, indicates good news for the sector.

Dangote’s announcement last year that it expects to raise capacity in Nigeria from 20m to 32m by 2015 signals that local producers are also positive about prospects for the domestic market, even if issues such as pricing and competition have yet to be resolved.