By Michael Eboh

Few days after the expiration of the 30-day ultimatum of the Federal Government to cement manufacturers to bring down the price of their product, the price of the product is still high, at between N1,800 and N2,200 per 50 kilogram bag from N2,500 per bag, a point which forced government’s intervention.

This represents only a reduction of between 14 per cent and 39 per cent; a development which analysts say is a negation and total disregard for the directive of the Federal Government.

Cement manufacturers fight back

The general notion in the country, at the time the directive was given to the manufacturers, was that cement should be sold for not more than N1,000 per 50 kilogram bag, as is the case in other economies in the world, where cement is being sold for as low as N600 ($4) per 50kg bag.

The manufacturers, under the aegis of Cement Manufacturers Association of Nigeria, CMAN, kicked against any attempt at price-fixing, and said that they are not aware of calls asking that cement be sold for below N1,000 per bag or at any other price.

According to the manufacturers who spoke to Vanguard, nobody can tell you the actual price to sell your product because all the manufacturers have their own different cost structure.

Executive Secretary, CMAN, Mr. James Salako, in an exclusive interview with Vanguard, said that it is not proper for any person to dictate how cement should be sold and that CMAN does not dictate price to its members.

He said: “At CMAN, we do not dictate price, we do not have a uniform price. Every cement manufacturer decides his own price based on his own cost structure.”

Salako blamed the rising cost of cement in Nigeria on the high cost of doing business in Nigeria, especially with the rising transportation and energy costs.

He said: “I have not heard anywhere that any government said that the price of cement should be N1,000. I was aware that there was a meeting where an agreement was reached between the president and the cement manufacturers that each party should go and look at how prices can go down. Government said that it will look at the part that affects it, while manufacturers will look at the part that concerns them, because they are so many factors affecting the price of cement.

“One of the factors is the high cost of diesel. As at January, diesel was sold for about N50 per litre, but by end of May, it became N180 per litre. People are going to use diesel in transporting cement.

“If for example, transporting 600 bags of cement from Lagos to Abuja is going to cost about N400,000, if you work that one out, you will discover that it costs not less than N400 to transport each bag. This means that more than 25 per cent of the cost of cement is transportation. If there is rail, for example, maybe, where they are supposed to pay N400 per bag, they will be paying about N50.

“The way to bring down the cost of cement, includes any way that will bring down the cost of transportation and also bring down the cost of energy. Not only the cost of cement, but the price of many other commodities will come down.”

On the manufacturers’ response to the Federal Government’s directive, he said: “It is not correct to say that price has not gone down, price has been going down in all locations. In Abuja, for example, at the time we met Mr. President, price of cement was about N2,200, but now, it is about N1,700 and N1,800.

“Also, Dangote Cement has been advertising the price of its own product, ex-factory price which is about N1,500.”

Also speaking, an economic analyst, Mr. David Adonri, Managing Director, Lambeth Trust and Investment Limited, kicked against the directive to cement manufacturers and called on the government to address issues of escalating price of diesel, extortion by security agencies on the highways, multiple taxation and lack of engineering infrastructure across the country.

He said: “In a free market capitalist or mixed economy, government can only use tax to correct excessive profiteering and not administrative directives. At best, recent directive by government for price reduction can be regarded as advisory. If the manufacturers are compelled to sell below cost price in the absence of government subsidy, the growing capacity being acquired in cement production due to reasonable profitability will fizzle out.

“Industrialised nations subsidise production heavily to keep cost low, whereas Nigeria subsidizes consumption. If government is really interested in reducing prices, more urgent attention should be given to escalating cost of diesel and kerosene.

“Right now, distribution is the major abnormal contributor to the high price of cement and other goods due to the escalating price of diesel, extortion by security agencies on the highways, multiple taxation and lack of engineering infrastructure to support cost effective production. If these issues are seriously addressed, cost of locally produced goods will reduce remarkably.”

Economic implications of meeting FG’s directive

On the current production capacity, demand and supply of the product in Nigeria, Salako said: “Last year, total production in the country by local manufacturers was 10.1 million metric tonnes. Total supply into the Nigerian market was 15.8 million metric tonnes.

“Total supply measures consumption in a way, but not totally, because the total supply included what we had as inventory as at the end of the year. What this signifies is that the total supply was slightly below the actual demand; and the reason for that was that in that year, we ended that year with a high volume of inventory, both in terms of finished products and semi-finished.

“Therefore, in a year where you have excess products as inventory — unsold inventory, what that means is that there is no unsupplied demand in 2010.

“If 2010 was like that, and consumption was roughly at about 15.8 million, what that means is that demand is less than 15 million. Let us take demand to be 15 million for 2010.

“Over the past six years, the yearly average growth in demand has been in the region of six per cent. However, let us be more realistic and assume a 10 per cent increase in demand last year, therefore, if last year it was 15 million and you add 10 per cent to that, it would be in the region of 16.5 million, approximately 17 million metric tonnes. So, if you ask me the current demand for cement in the country in 2011, due to developments in the economy, such as elections among others, I will say it is 17 million metric tonnes.

“Talking about supply in the year 2011, as at when we were closing 2010, the estimate CMAN was planning to produce locally, our projection was that we will be able to produce about 15 million to 17 million metric tonnes this year. Now, events have proved us slightly wrong because we are already in May.

“Concerning the capacity currently, the national capacity for the production of cement is 14.2 million metric tonnes. However, we have in progress, a number of factories that will come on stream at different times within the year, starting from the next quarter 2011. We are hoping that by January 2012, at the latest, the total installed capacity in Nigeria should be in the region of about 28.5 million metric tonnes. As at today, it is 14.2 million, we are expecting that it will more than double to about 28.5 million.”

Going by the demand for the product in the country, economists have highlighted the implications of price-fixing and other related directives to manufacturers on the reduction of the prices of their products to the economy.

According to the experts, market forces of demand and supply should be allowed to determine the price of the product, otherwise, the efforts of the government will only be a temporary measure that will end up worsening the plight of stakeholders in the sector and the Nigerian economy in general.