Nigeria’s economic woes tighten as cement prices shoot above rooftops

Analysts say:

• Reduce inflation 

• Stabilise exchange rate 

• Improve liquidity in foreign exchange market

• Lower energy costs are critical steps needed

ONOME AMUGE 

The  skyrocketing prices of cement in Nigeria has left consumers, especially those in the construction and building industries, reeling from the impact. What was once a commodity priced at N2,000 per 50kg bag as of 2015, has now risen to as much as N9,000 and above at retail value.

As if things couldn’t get any worse, the soaring cost of cement is yet another blow for Nigerians already grappling with inflation which has hit a record high of 29.90 percent in January 2024. With each passing day, the price of cement continues to rise, leading many to wonder how much more they will have to pay for what is a basic construction material.

According to the findings of Business a.m., the price of cement has risen significantly in Lagos retail shops since January. The price has gone up from around N6,000 to N6,500, and then jumped to over N9,000 in the span of just a few weeks.

Due to the erratic price increases, some retailers have decided to stop selling cement altogether, fearing that the price could increase even more in the near future. This has led to a shortage of cement in some parts of Lagos, with many customers struggling to get their hands on the product amid fears that the commodity is likely to cost higher in the coming days. The situation is reportedly even worse in Abuja, the capital city, where the cost of a 50kg bag of cement has surged to between N10,000 and N15,000.

The Nigerian cement industry is dominated by three major players: Dangote Cement Plc, Lafarge Africa Plc, and BUA Group. Dangote Cement is the market leader, with a local installed capacity of 29.3 million metric tonnes (MT) and a 60.6 percent market share. Lafarge Africa is rated the second largest player, while BUA Group makes up the top three. Despite their size and market share, all three companies have struggled to keep up with the high demand for cement.

Prior to the recent increase in cement prices, the industry saw a positive step taken by BUA Cement PLC in October 2023, when the company announced a 24.7 percent reduction in the ex-factory price of its cement product.

In a statement, the second largest cement producer in the Nigerian market with a total combined installed capacity of 11 million metric tonnes per annum, emphasised that the reduction in price was motivated by its commitment to boost growth in the building materials and infrastructural sectors. The company said it was confident that the move would result in a reduction of cement prices in the market, bringing them down to around N3,800 per bag.

The move was hailed by many as a much-needed relief for the building and construction industry, which had been struggling with the high cost of cement for some time. At the time, the move was seen as a sign of hope for the industry, as it would have made cement more affordable for consumers. However, the recent spike in prices has dampened this optimism, and many industry stakeholders are calling for more concrete measures to be taken to address the issue.

The recent spike in cement prices isn’t a surprise to many industry experts. In 2023, the Cement Producers Association of Nigeria (CPAN) warned that the federal government’s plan to construct concrete roads could lead to a significant increase in cement prices.

According to the association, the price of cement could potentially rise to N9,000 per bag from the then price of N5,000.

In the statement, the association called on the federal government to take measures to facilitate greater participation in the cement industry, in order to permanently address the issue of rising cement prices. According to the statement, Nigerians should not have to pay more than N5,600 per bag of cement, and the government has a duty to ensure that this is the case.

The statement read in part, “Our findings from various parts of the country show that cement sells for as high as N6000 per bag in the rainy season.

“Our prediction is that it will sell for over N9,000 per bag in the dry season, especially with the pronouncement of the Honourable Minister of Works on cement technology and the marching order on housing by Mr President if the government does not take proactive steps.”

The increase in the price of cement is consistent with a forecast made by Cardinal Stone, a financial services firm, which predicted that the cost of cement would remain high in 2024 due to the increased cost of production.

The leading investment bank in Nigeria projected that cement prices in the country will remain high in 2024 due to increased government focus on infrastructure and construction projects.

The Cardinal Stone report, titled “Nigeria Cement Rebounding from a Tumultuous Year,” noted that the increased budget allocations for critical sectors and ambitious infrastructure initiatives are likely to boost demand for cement, leading to a resurgence in the industry.

The report stated that cement manufacturers are responding to the expected increase in demand by increasing production capacity and improving efficiency. It further noted that challenges remain for cement manufacturers, such as high inflation, limited infrastructure and power supply, and the threat of more disruptions in gas supply. However, the report remains optimistic about the overall outlook for the industry, with potential opportunities for growth as the economy recovers.

The report considered the possibility of a price war among cement manufacturers, but concluded that it was unlikely to occur in 2024. Instead, it projected that cement prices would remain high in 2024.

It stated, “Barring a potential price war between players in response to BUACEMENT’s ex-factory price slash, we maintain that average cement prices would remain elevated in Q4’23E and FY’24E.”

Cardinal Stone highlighted that rising operating costs and high inflation will be the key factors driving manufacturers to maintain high prices in the year ahead. It also noted that volatility in foreign exchange rates could impact cement prices, as manufacturers may need to factor in the cost of imported raw materials.

Adebayo Adeleke, the group executive chairman of Lancelot Group, an asset management company, explained that the increasing price of cement in Nigeria is due to the country’s reliance on cement for infrastructure development. He noted that the domestic demand for cement has been growing rapidly, but local production has not kept pace, leading to a persistent shortage.

Adeleke noted that basic infrastructure such as roads, water supply, hospitals, schools, houses, and ports all rely heavily on cement, and the lack of adequate supply is driving up prices.

According to Muda Yusuf, the chief executive officer of Centre for the Promotion of Private Enterprise (CPPE), the cement price hike is indicative of the wider macroeconomic environment in Nigeria, and is a reflection of the inflationary trend.

Yusuf explained that the phenomenon of inflation is affecting all sectors of the economy, not just the cement sector. He noted that inflation is eroding purchasing power, and that this is contributing to the increased cost of goods and services across the board.

Commenting on the nationwide impact, he said, “So that means that the cost of construction will go up, our ability to meet housing needs and bridge the housing deficit will also be negatively affected because of the high cost of cement and other construction materials.”

Yusuf outlined several measures that the government could take to improve the macroeconomic environment and bring down the cost of cement. He stated that reducing inflation, stabilising the exchange rate, improving liquidity in the foreign exchange market, and lowering energy costs are all critical steps that need to be taken.

The CPPE CEO  remarked that improving the liquidity in the foreign exchange market and strengthening the naira would be beneficial in bringing down the cost of cement.