Building blocks: Investing in materials production to meet growing local demand

The construction materials segment in Nigeria has expanded dramatically in recent years, primarily as a result of local manufacturers ramping up production in an effort to supply rising construction demand. Large investments have flowed into the cement, steel, aluminium, paint and equipment industries, among other segments. Despite steadily increasing supply, prices for most materials remain high, due to the cost of inputs and power supply issues. Indeed, many local materials producers rely primarily on diesel generators for energy. “We need a continuous, unbroken supply of power to operate,” said Jean-Christophe Barbant, the country manager for LaFarge Cement Nigeria, the local subsidiary of the French industrial firm LaFarge. “Consequently, we spend a lot of money on generators, gas and fuel-oil.” Rising labour and security expenses have also contributed to high material prices in the sector. It thus often remains cheaper to import some materials from outside the country than to purchase them domestically, which is considered to be a major challenge for local manufacturers.

CEMENT: This issue has been mostly overcome by the local cement industry, which has expanded dramatically over the past decade as a result of the Backward Integration Policy (BIP), a 2002 federal initiative to boost domestic production capacity. Under the BIP all existing cement import agreements were cancelled, and the government issued new licences solely to those importers that could show they were simultaneously investing in local production. The programme has had a transformative impact on the cement industry. According to Olusegun Aganga, the minister of trade and investment, local production capacity jumped from around 2m tonnes in 2002 to 28m tonnes as of the end of 2012. The segment has benefitted from $6bn in investment over the past decade, and as of early 2013 employed around 2m people.

Two major cement producers, namely LaFarge and Dangote Cement, the latter of which is the largest cement producer in Africa, dominate the industry. Ibeto Cement, which is currently Nigeria’s largest bulk cement importer, is in the process of shifting into production. Other companies in the segment include Ashaka Cement, Obajana Cement, UNICEM Calabar and Sokoto, among others. Despite rapidly rising production levels in recent years, prices have stayed relatively firm, primarily as a result of high input costs. “There is this idea that the price of cement is too high in Nigeria,” said LaFarge’s Barbant. “But compared to other countries in Africa this is not the case.” With current production outpacing local demand, estimated at around 17m tonnes in 2011, Nigeria is expected to become a cement exporter in the foreseeable future, while local demand is forecast to continue rising. At a public event in early 2013 Joe Hudson, LaFarge’s managing director, estimated cement consumption in Nigeria at around 110 kg per capita in recent years, compared to three times as much in other developing countries.

OTHER SEGMENTS: As a result of the success of the BIP in the cement industry, the federal government has announced plans to launch similar programmes in other construction materials segments. In early 2013 Aganga announced that the government planned to roll out backward integration in the steel industry, for example. “We import raw materials for the steel industry, yet we have a lot,” he said. Indeed, according to Sanjay Kumar, the CEO of African Foundries, a major local steel company, Nigeria is home to large-scale iron ore deposits, the majority of which have yet to be tapped. According to SynTerra Energy Assets, a UK-based energy and mining company, the country has around 5bn tonnes of iron ore assets in total. In April 2013 African Foundries announced that it had concluded a deal to export around 5000 tonnes of iron rods to Ghana, in one of the firm’s first export deals. The company is working to double production capacity, currently at 500,000 tonnes per annum. Like the cement segment, Nigeria’s aluminium producers face competition from importers. Imports from South Africa, China, India and Turkey have flooded the market in recent years.