The glut in the cement industry has assumed global dimension. This is why China, where most of our import comes from, export the product at highly subsidised cost to keep their factory running
It was very clear something had gone wrong with the multi-billion naira plants – the Lafarge Cement WAPCO Nigeria Plc’s plants in Ewekoro, Ogun State. The usual hustle and bustle of this important industrial area was gone – no trucks were seen going in and moving out of the premises. We had a smooth drive in and had a good view of idle trucks parked on the right wing adjacent to the security post.
It was a facility tour to verify the claim in the industry that the Nigerian cement industry had become the victim of cement importers who have flooded the market with cheap stock of the product. Stakeholders who, in answer to the Federal Government’s call to backward integrate had invested billions of dollars in new plants and employed new hands and thus helped to create new jobs. Now they are in trouble and are crying out.
Ewekoro and Sagamu plants
Lafarge Cement WAPCO Nigeria Plc’s cement production in its three plants in Ewekoro and Sagamu has gone down by 50 percent, Lanre Opakunle, plant manager of Lafarge told BusinessDay Thursday in Ewekoro in Ogun State. Lafarge’s three plants before now was doing between 10,000 metric tonnes and 15,000 metric tonnes per day but it is currently doing about 7500 metric tonnes per day, which means a 50 percent fall in production, the plant manager explained.
This is a spin-off from a cement glut in the market brought about by an unchecked continuous importation of cement into the country in spite of the fact that local plants are effectively meeting local demand, Opakunle said.
But how is the imported cement coming in when government claims it has not given anyone new licence to bring in cement? The answer is that the imported cement in question is coming in through unofficial channels, BusinessDay’s government informed source confirmed last week. In clear terms, they are smuggled cement bags.
Nigerian textile sector/Dunlop and Michelin case
One is therefore reminded of the sad cases of the Nigerian textile sector, Dunlop and Michelin which became a victim of unchecked inflow of tyres into the country.Way back in eighties Nigeria had 120 textile factories. This was a period we can rightly refer to as the era of textile boom. Today, this figure has dropped to 45. The productive capacity of the sector is so low to the extent that about 90 per cent of textiles/fabrics needs of the country are being fed through importation. The implication of this is that we now depend almost wholly on the outside world for our clothing needs. Studies carried out on small scale traders in Nigeria by analysts show that we spend a minimum of about $158.4 million annually on importation of fabrics and textiles from Dubai alone.
We have witnessed the demise of Michelin and Dunlop. We are watching the open onslaught on Nigerian farmers as typified in unfavourable government policies on agricultural commodities like cassava and palm oil. Michelin and Dunlop were killed by government’s punitive policies.
At Ewekoro, we saw, in the parking lot adjacent to the security gate, loaded bulk cement trucks waiting for customers to pick up; we saw overfilled clinker silos (clinkers are processed into cement along with other additives), excess clinkers in domes in strategic storage, and idle parkers. We found no trucks moving out, and factory operatives were seen doing cleaning. Opakunle said 800 tons an hour of clinker are wasted daily (clinkers that should be used but are unused), 15,000 metric tonnes of cement are lost daily in Lafarge’s three plants daily, that there are 220,000 tonnes of clinker on ground now; “and we have 60,000 metric tonnes of cement on ground in our three plants as at today.”
He argued Nigeria has sufficient local capacity and demand will continue to grow. “We therefore need further investment to take place. If we kill the manufacturing sector, further investment will be killed,” the plant manger argued.
The Dangote’s Benue Cement Company’s case
The Lafarge case is coming on the heels of a similar case of Dangote Cement whose report was published last week. Benue Cement Company (BCC), Gboko, Benue State, a subsidiary of Dangote Group, which has five new generating plants installed at a total capacity of 52 mega watts to boost production capacity, according to the report, may be shut down soon as cement dumping has hit the market. In fact, the latest report on the issue says the plant has now been shut down temporarily and over 800 staffers of the plant are now idle. Dangote Cement has an inventory of 950,000 metric tonnes of cement and clinker, according to Joseph Makoju, chairman Cement Manufacturers Association of Nigeria (CMAN).
According to Anthony Chiejina, group head, corporate communications, Dangote Group, “The move was necessitated by the glut in the market arising from the success currently being recorded with the exponential increase in local production of cement and further compounded by continued importation of subsidised cement into the country.”
The Nigerian cement industry became comatose by 2002 when total local production was a mere 1.9 million metric tonnes. But transformation came with the federal government backward integration policy for the manufacturing sector. With this integration policy, total production rose to 18.5 million metric tonnes as at 2012, with another 12 million metric tonnes expected expansion and new plants currently under construction.
According to Joseph Makoju, “The 18.5 million metric tonnes is representing just 65 percent of the present total installed capacity of the industry. Between 2002 and May 2012, a total of $6 billion new investment was made by the local manufacturers while the ongoing expansion and new plants is estimated to cost another $3.5 billion.
“Due to the continuous rapid growth, the nation no longer requires cement imports as local demand is being effectively met and even surpassed. However, with continuous importation of the product into the country, as at today, most local cement plants have huge inventory of unsold cement and the clinker, signifying the attainment of self-sufficiency.”
Lafarge WAPCO Cement has completed the construction of Ewekoro Cement plant. The company’s production capacity has gone up by 2.5 million metric tonnes of cement per annum with this new plant. The company’s Lakatubu plant commissioned recently, added 2.2 million metric tonnes to the current 2 million metric tonnes capacity from the two plants at Ewekoro and Sagamu in Ogun State.
BUA Group, another indigenous firm and owner of Edo Cement with FLSmidth, a Danish company, are working on the expansion of cement line in Edo Cement plant in Okpella community of Edo State. The plant, when completed, will produce 2.5 million tons of cement annually.
Makoju argued that importation of cement to the detriment of the local economy has been very attractive “because it comes with paltry duty of 20 percent and 15 percent levy and clinker at 10 percent, a development which makes the landing cost of imported cement to be very cheap with a bag going for as much as $35 per ton FOB (Free On Board)”.
Makoju argued further: “Of course the glut in the cement industry has assumed global dimension, this is why China, where most of our import comes from, export the product at highly subsidised cost to keep their factory running. Production in countries such as China is comparatively lower than in Nigeria. Virtually all cement plants in China is comparatively lower than in Nigeria. All cement plants in China use coal which is very cheap when compared to Nigeria where Low Pour Fuel Oil (LPFO) is used.
Makoju proffered reasons for the current retail price of cement in Nigeria which many consider high: “Energy cost accounts for over 35 percent of production cost in Nigeria whereas it is 10 percent in China. In Nigeria, the price of LPFO has jumped from N25 per litre to N107.76 per litre as at November 2012, an increase of 331 percent. Haulage is another factor that is out of the control of manufacturers. Haulage cost alone accounts for between 20 and 25 percent of the open market price of cement. All bulk products are affected by this factor due to deplorable state of Nigerian roads.”
He said cement manufacturers have kept their ex-factory prices constant at an average of N1450 per bag since 2009 while input costs continue to rise.
The cement manufacturers pains, according to Makoju is that the development is happening at too early a stage in the investments circle when the investors are yet to recoup significant part of their investment; it has high potential to cripple the industry and has damaging multiplier effects on the economy in terms of number of job loss and the decline in all other economic activities that are dependent on the cement industry.
Interestingly, only recently, Olusegun Aganga, Minister of Trade and Investment, flagged off a two-day workshop on enhancing the productivity of Nigeria’s industries, an event organised by the Ministry of Trade and Investment in Lagos. He spoke of an industrial Revolution that will strategically position and empower the nation’s manufacturing sector as the key driver of economic growth through job creation and increased contribution to Gross Domestic Product.