• Thursday, June 20, 2024
businessday logo


Cement: Energy, more licences top experts’ recipes for affordable price

As the cement price continues to defy manufacturers-government agreement and presidential directive to the producers to bring down their price, experts and real estate operators are suggesting recipes that could drag down the price from the high horse where it is to an affordable level.

As against the manufacturers and government’s agreed price of N7,000 to N,8000 per 50kg bag, frontline brands, including Dangote, BUA, Lafarge and Ibeto are selling at an average price of N11,000 per bag. This is also despite the threat by the federal government that it might open up the borders to allow imports of the products.

This price, according to the experts and investors in the real estate sector, is unsustainable, unrealistic and anti-investment. This is affecting everybody that is connected to real estate including developers, property owners, and end users who are now paying more than the contract prices.

“It is monopoly that is driving up the price of this commodity and, for me, until that monopoly is broken, we will continue to be at their mercy,” Adeniji Adele, immediate past president of International Real Estate Federation (FIABCI)-Nigeria, told BusinessDay in an interview.

Adele said that the way to do this is to to liberalise the cement market by giving licence to more people to manufacture the product so as to increase supply to match the surging demand from commercial real estate developers, highways and bridge contractors and private home builders.

On their part, Cement Producers Association of Nigeria (CPAN) has called on President Bola Tinubu to end the monopoly in cement production and distribution, urging him to revisit the backward integration policy of past administrations so as to allow the sector to meet the available demand at affordable price.

“The President, working with the Ministry of Industry, Trade and Investment and the Ministry of Finance must dismantle monopoly and expand the scope for participation by those with verifiable local investment in cement and other interests,” the association’s chairman, David Iweta, said.

It is a widely held view that it is monopoly in the industry that is fuelling the price. Experts are of the view that the over 300 percent increase in the annual profit margin by major cement producers is a practical demonstration of the exploitation of Nigerian cement consumers by the monopolists.

“This increase in their annual profit margin is above that of bigger cement plants in other developed economies of Switzerland, China, Mexico, Taiwan and India with profit margin average of between 13 percent and 17 percent,” they noted.

Though he shares the view that the high price of cement is a huge challenge for housing and other aspects of construction, Emeka Eleh, Principal Partner at Ubosi Eleh + Co, believes that the manufacturers are simply adjusting the price to their cost of production.

“It is not only the cement manufacturers. It cuts across sectors. Many companies have shut down and those that are still in business are struggling with soaring logistics and diesel costs plus double taxation,” Eleh noted.

He explained that logistics cost has increased since after the petrol subsidy removal which has seen the price of petrol go up by over 200 percent to N600—N700 per litre, up from N165 per litre. He added that the manufacturers also contend with poor state of the roads in the country.

Diesel price, he noted, has also gone up from between N850 and N900 per litre in January this year to N1,700 per litre at the moment. Cement manufacturers need diesel to power their generators. They also need diesel to power the heavy machinery used for blasting the raw materials extracted from the quarries. So, he said, energy is a problem and that needs to be addressed for prices to come down.

Obinna Onunkwo, Founding Managing Partner and Deputy CEO at Purple, agrees, stressing that government needs to do something, not through price control but by addressing the obvious challenges which these manufacturers face such as the issue of inflation, volatile exchange rate, energy costs, etc.

Gbenga Olaniyan, CEO, Estate Links, who is canvassing opening up the borders to allow imports for a short time, say between now and December, laments the huge adverse impact of the high cement price on all stakeholders in the real estate value chain.

Olaniyan, who is an estate surveyor and valuer as well as a property developer, says the impact is at different levels, including those who are about to start projects, those who have started and those who have not started at all.

“We have seen some developers who have decided to hang on so that they can configure the project and find out its viability. Some have decided to sit back and consider the viability or market value of the project while those that have started have only two choices to make—to hold on or to continue working,” he said.

Continuing, he said, “we are already finding a lot of contractors declaring force majure, especially for fixed contracts, that’s where the contracts have been paid for in advance. When such contractors go to the cement depot to get cement, they are told that there is no cement. So, a lot of contracts are facing force majure at the moment.”

Olaniyan disclosed that a lot of projects are now going for arbitration and indeed ending up in court because with the current price of cement, the developers are actually sweating.