Stakeholders spot loopholes in cement import ban | Dailytrust

Stakeholders spot loopholes in cement import ban

Immediately after the policy pronouncement, one of Nigeria’s biggest producers of the product and chairman of Dangote Group of Companies, Alhaji Aliko Dangote, supported the initiative. He said the ban would protect the local cement industry as well as encourage cement plants in the country.

In a statement credited to him, “We welcome the new Federal Government policy, which is one in a series of measures directed at improving the operating environment for the young Nigerian cement industry. This measure is consistent with the realisation by government that the entire manufacturing sector should increase its contribution to the country’s Gross Domestic Product (GDP), which we consider a prerequisite to achieving the government’s goal of becoming one of the top 20 industrialised nations of the world in the year 2020.”

According to the government, the current policy is aimed at protecting local cement industries with a view to creating employment and generating wealth.

Meanwhile, the building and construction companies view the importation embargo on the product as a good policy but it is going to induce scarcity before proper adjustment is achieved. They posit that scarcity is the price consumers would have to pay before the new regime stabilises. According to an Abuja-based building engineer, Jimoh Adejo, “The ban on importation of cement is a welcome development, but Nigerians should brace up for the brief challenge that would follow it, which is scarcity. Imagine these Abuja property owners, the moment price of cement increases a bit, they would skyrocket their rent charges. The truth is that at the moment, without the importation of the product, the Nigerian market cannot cope with the demand.”

He said the quantity consumed by construction companies alone   is enough to raise demand for importation, talk more of local builders. For Nigeria to meet its present housing challenges, cement has to be in abundance because Nigerians believe in building with cement blocks unlike other countries where other building materials are used. “Don’t be surprised to see people buying a bag of cement for as high as N2,500 to N3,000 anytime soon, though it will surely crash if the government gets the policy right  in the long run when the local factories settle down to real production. But even at that, I don’t see the supply meeting the demand,” he stated.

Available statistics show that by 1986, local cement production capacity in Nigeria was a record 3.5 million tonnes per annum (accounting for 81.4 percent of total supply in Nigeria). And on the reverse, in the same year, 800,000 tonnes were imported into the country (accounting for 18.6 percent of supply).  If this data is to be analysed, it means at that time, local production met over 80 percent of local demand thus creating value, employment and wealth.

Gradually, the country threw open its doors to indiscriminate importation of cement which flooded the market, thus causing the collapse of the local cement manufacturing industry. By 2003, local cement manufacturing capacity had collapsed to an all-time low of 1.98 million tonnes, thereby meeting only 23.53 percent of local supply, while 8.4 million tonnes cement were imported, accounting for over 70 percent of supply.

It could still be recalled that in 2002, the Federal Government introduced an import substitution regime designed to re-energise the industry and to once again reduce over-reliance on importation. Six years after the substitution regime in 2008, the policy marked an increase in cement consumption in Nigeria on a record of 13.04 million tonnes.

But by this time, local production had increased to 6.06 million tonnes, representing 46.50 percent of total supply with a balance of 53.50 percent (6.98 million metric tonnes) supplied via imports.

In 2008, the 6.06 million tonnes of cement that were produced locally would have cost US$770 million to import at an average import price of $127.50 per tonne. That is the money that would have been paid into the accounts of some foreign cement suppliers.

Statistical projections for 2009 suggests that local production of cement is expected to be around 10 million tonnes and is expected to significantly meet more than 50 percent of national supply. As it is with the current embargo on cement importation, it is even hoped that the expectation would be higher than the projection. A top government official in the Ministry of Commerce and Industry who does not want his name in print said.

Not a bad performance with the figures above, but  an analyst in the manufacturing industry and a Business Development Strategist  who has been critical of some of government policies, Dr Bayo Shola of City Consult, Abuja, revealed that some government policies did not really help in the cement manufacturing industry. An example of the privatisation policy of the government was sited. He said that despite concessions via privatisation, it is still obvious that the promises of ‘new investments’ are nothing other than expansion exercises to facilitate cement packaging. For example, the total industry installed capacity increased by only three percent. It was uncovered that one of the buyers turned a production plant into a warehouse for packaging imported cement.

 “In effect, local production has remained at less than 50 percent of total installed capacity and the price of cement has increased by more than 300 percent since 1999. There is still a demand-supply gap,” he concluded.

According to a major distributor of cement in the FCT, Mr Eze Duru, “Placing a ban on cement importation is not enough to help the sector; government needs to do much more than that. I am surprised they are saying all these without hammering on the main issue.” He said the industry is faced with a lot of serious challenges.

He said cement production is capital-intensive and requires long-term capital and also efficient operations require investment in maintenance. Duru noted that the high cost of capital exemplified by high interest rates on loans constrain the manufacturers’ ability to secure funding. “As it is, only a couple of the cement companies listed on the Stock Exchange was able to raise funds from the public. That was even before the stock market got bad. Even at that, such funds are often insufficient to meet the level of investment needed in the industry”.

Duru said the cement manufacturing industry is in a comatose state as most of the plants are still producing (if at all) using obsolete, inefficient technologies. However, because cement production is energy-intensive, the extent to which a cement plant can operate efficiently depends critically on uninterrupted energy supply.

The Bureau for Public Enterprises estimates that the manufacturing industry alone loses about US$ 440 million annually due to inadequate energy supply. Imagine the portion that is likely to hit the cement sub-sector.

In a statement, the Cement Manufacturers Association of Nigeria on its own part estimates that operating cement kilns for major production requires 36 tankers of fuel to maintain production at about 50 percent capacity utilisation. But due to the shortage of fuel, the average daily supply to the sector is seven tankers, representing only 21 percent of daily total fuel requirement.

“Beyond just placing an embargo on the importation of the product, efficiency in the cement supply chain depends critically on the presence of a well-functional infrastructural network (e.g. the transport system). The bulky nature of the commodity makes rail transport the most suitable.

“This and other issues of funding are critical areas that need serious attention by the government. In fact, these are even more important to the industry than the placement of ban. These would naturally boost local production level. It is only logical to know that most of these additional costs are effectively passed on to the consumer in the form of high prices,” Duru submitted. The most recent embargo on cement importation could be traced to the previous administration of Olusegun Obasanjo before he vacated office in May 2007.