• Tuesday, March 05, 2024
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BusinessDay

Deploying the new Strength from LafargeHolcim’s Merger in Nigeria

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The world’s two biggest building materials companies-Lafarge, the French giant and Holcim, its Swiss rival, merged on July 15 2015, creating LafargeHolcim. The $40 billion merger has created the world’s most advanced building materials company. The new giant on the world’s construction industry bloc has vast Research & Development capability, comprising 13 product development laboratories employing over 1,000 experts. (It is listed on the stock exchanges in Paris and Zurich.)

LafargeHolcim is a major player in the Nigerian market with significant or complete ownership of Ashaka Cement, Atlas Cement, Lafarge Readymix, UniCem and WAPCO. While the merger has been covered in the Nigerian media, its implications for our construction and housing sectors have not received adequate attention.

It has been 3 years now since Nigeria attained ‘self-sufficiency’ in cement production. What this has always been taken to mean is that Nigeria is now able to produce all the cement demanded in the country. What we have never had is a proper reckoning with what exactly is the cement demand in Nigeria. A good question to start with is – if Nigeria has a deficit of 17 million housing units, how long will it take to close that gap based on the supposed current demand? Nigeria is currently building less than 100,000 homes a year. Again, Nigeria is one of the lowest cement consumers with 130kg per capita compared to world average of 300kg per capita.This is to say nothing of the almost crippling lack of infrastructure in many parts of the country which requires products made by LafargeHolcim to turn the trend around. Surely, one cannot be both self sufficient in cement production and have a yawning infrastructure and housing gap at the same time. Indeed, given how high Nigeria’s cement prices are, it is not inconceivable that a significant drop in cement prices will boost demand and open up a gap between (existing) capacity to supply and demand.

Declaring ‘self-sufficiency’ in cement production is clearly premature, as Nigeria has not even begun to scratch the surface of the severe lack of housing and infrastructure. In other words, economic growth for which cement-consuming infrastructure and housing could be both catalysts and consequences of and lower cost construction products could create the need for more investment. The LafargeHolcim balance sheet and the depth of its expertise are uniquely suited to deepen and extend the Nigerian cement market in ways that are not immediately obvious today.

Much of Nigerian construction remains rudimentary and wholly inefficient. When this inefficiency is added to the high cost of building materials and poor workmanship, the housing shortage is greatly exacerbated. The entire construction space is calling for new ideas, global best practices and standards which enhance safety, boost efficiency and lowers cost at the same time.

The global reach of the LafargeHolcim brand makes it a kind of crucible for construction knowledge and development from around the world; the best ideas from LafargeHolcim operations across the world can be deployed in Nigeria to transform building practices and create the new demand that is required to close the housing and infrastructure deficit. The French Lafarge, through its Nigerian operations, has already pioneered changes in the sector. The influential London newspaper, The Economist, recognised in a June 2015 Special Report on Nigeria that Lafarge’s investment in Nigeria has driven down costs by 40%. A good example of innovation is Lafarge ReadyMix, a product offering which eliminates the practice of mixing cement by hand in head-pans, with the guaranteed problem of varying consistency. Apart from the obvious contribution to the stability and safety of structures, Lafarge Readymix delivers increased productivity and thus cost-saving. LafargeHolcim has the opportunity to upend the current standards in the industry and make its ReadyMix the industry standard by investing in its distribution and logistics.

A concerted effort is needed to identify costs in the construction sector that can be eliminated from the building process while enhancing quality. Constructions costs, closely associated with building techniques, materials and practices, have been resistant to change. They have taken on the form of “received wisdom”; few questions are asked about them. Most attempts aimed at leveling cost in Nigeria have been the work of random people in the industry who do not have the heft to drive their ideas across the country. LafargeHolcim operates in 90 countries, including 73 emerging markets. There must be a lot it can diffuse from its experience, especially through collaboration with national and local government agencies.This may take the form of training and the adoption of techniques and materials which save costs and enhance safety. Standardisation in the industry will greatly improve quality, safety and deliver cost-savings.

Ultimately, the best way for LafargeHolcim and Nigeria to maximise the profit from its investment in Africa’s largest economy may be to invest directly in constructing buildings and infrastructure.Yes, the company is a manufacturer of cement and building materials and not a house builder. But why not? Only 15% of urban households in Nigeria own building property and the remaining 85% live in rented apartments. This presents a huge opportunity. Some Korean car manufacturers got into the business of shipping when they encountered problems with exporting their cars from South Korea in the early days of that country’s industrialisation. To make the Nigerian market bigger, ‘unconventional’ methods may have to be used. The new LarfargeHolcim-which also describes itself as “a new leader for a new world- has the financial heft and technological base for this. What is required is the boldness to take the key and directly unlock growth in a large but mainly low-income market with massive housing and infrastructure needs.

Vincent Nwani