Cement being the major component of housing construction is at the heart of the housing shortage in the country. And until the prices come down, all other efforts at bridging the housing gap would be fruitless, experts have indicated.
Nigeria today does not only boast of self-sufficiency in cement production, but also imports cement to some neighbouring countries, unlike when the country was more or less wholly dependent on importation of the products.
However, analysts are wondering why the product that is wholly manufactured within the country with close to 90 per cent of the raw materials locally sourced, sells for more than double its price in the global market.
A metric ton (1000kg) of cement sells for between $43 to $55 in the international market, whereas in Nigeria, a 50kg bag of cement goes for between N2,700 to N2,800, depending on where you are buying from.
Beyond energy and transportation, which experts have identified as some of the challenges plaguing the industry, a good number of them are of the opinion that the oligopolistic nature of the product has made it impossible for a healthy competition that would force down the price to exist in the sector and consequently robbing Nigerians’ quest for homeownership.
In other to encourage local production, government was said to have revoked the licences of cement importers, but for Ibeto, who took them to court in 2012 and won. Government still went ahead to impose a $100 on cost and freight per metric ton of imported cement. Despite some of these variables not working against the local manufacturers, both the local and imported cement, sell for the same price.
Only recently, the duo of Dangote Cement, which made entry into cement manufacturer 10 years ago and Lafarge declared profits amidst declining power for common man to afford the price of the commodity.
Onne van der Weijde, Chief Executive Officer, Dangote Cement Plc while commenting on the unaudited results for the nine months ended 3oth September 2017 said: “Dangote Cement has continued to perform strongly in 2017 with revenues up nearly 37 per cent despite a fall in volumes. In our key operations in Nigeria we have significantly improved our fuel mix and this has helped increase margins across the Group. It is especially good for Nigeria because most of the coal we are using is mined in our own country.
Specifically, it was reported that the firm said that the gross profit margin increased to 56.47 percent (y/y) in September 2017 as against 47.15 percent as at September 2016.
For the first time since 2016, the company’s cost margins improved. Recall that an economic downturn had undermined production cost as rising inflation and a shortage of dollars impacted negatively on the firm’s input costs.
This means the firm has spent less on input cost in producing each unit of product. It must be noted that the flexibility in the foreign exchange market as evidenced by increased dollar supply has been a boon to Dangote Cement.
Lafarge on its own posted a group Profit Before Tax, PBT of N1.083 billion for the third quarter, Q3 2017 as against a loss of N40.367 billion in the corresponding period of 2016. Revenue also surged to N223.7 billion in Q3, 2017 from N161.04 billion in the corresponding period of 2016. The result saw operating Earnings Before Interest Taxation, Depreciation and Amortisation, EBITDA up four-fold to N44.4billion within the nine-month period. While, sales increased by 39 per cent within the same period.
The implication of the high cost of the commodity is high. People would be forced or tempted to stage-manage the materials in order to meet up with cost, as Pastor Timothy Ayo’ola, chairman, Association of Lagos State Block and Concrete Makers/Cement Dealers (LABCOMA), Agege Local Government Zone, once stated, it will only take the fear of God for builders and construction experts to ensure that standards such as the required quantities of ingredients for moulding houses are maintained, hence the possibility of occurrences of more collapse building when standards are not maintained.
Beyond compromising standards, it is a vicious cycle, as it is said that output is the result of input. Any landlord or developer that buys cement and other housing components at a high price, definitely would be forced to transfer the cost to the buyer or tenant, making the cost of housing itself beyond the reach of ordinary Nigerians. This could also explain why the housing deficit in the country would continually be on the rise.
The high cost has also affected the price of other cement based products such as roofing sheets, ceiling boards and concrete products like paving stones as their manufacturers have also been forced to hike their prices in reaction.
While stressing that though majority of the raw materials component of cement are sourced within the country, founder of M.I. Okoro and Associates, Chief Meckson Innocent Okoro admitted that, there are other dollar-based components that are import oriented. He also admitted that the country lacks power supply, which he said is a major component as cement manufacturers are said to be using Independent Power Suppliers, which bears a heavy cost content.
However, he confessed that all in all, cement is more or less a monopolistic commodity in Nigeria where about 80 per cent of the market share, is being controlled by Dangote. So, what do you expect, he asked, other than for him to fix any price he likes.
“Until, the government opens the floodgates on the production of cement and gives as many licences as possible to other manufacturers, then there would be competition. Right now, there is no competition; he can afford to sell at any price he likes. Apart from the foreign raw materials component and the cost of power, the fact that he maintains a monopoly and fixes his own price, there is nothing you can do about it. Added to this, licence to importation is not extended to everybody.
“Even if every other person is importing, there are other incentives that government can give to Dangote that when others come upstream, their prices would not be able to beat the one of Dangote and people would end up patronizing Dangote more than them,” he said.
Also commenting on the high cost, Bunmi Ajayi, former president of the Nigeria Institution of Town Planners (NITP) remarked that though the exchange rate is not helping matter, he maintained that Dangote could do better by lowering the price from what presently obtains.
According to Ajayi, the element of the raw materials imported is very small, but the difference between international prices and what he is charging is much.
“Now, the exchange rate has stabilized, so, I think the price should come down to at least not less than 30 per cent of what it is today. Dangote could do better; those prices are unreasonable. He is just making monopolistic profit.”