• Sunday, April 14, 2024
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The political economy of cement

The political economy of cement

Cement is synonymous with the strength of the economy and infrastructural development. It is specifically an indicator of how we prioritise housing, roads, and other infrastructure projects that rely on it. When cement prices go up consistently, it reverberates across the country, sending cold chills down the spines of many.

An increase in cement prices threatens the hope of millions of Nigerians who are struggling to afford homes, a fundamental human right. The cement industry is linked to home ownership, public works, local manufacturing, and employment, causing outrage and panic among many. The price of cement also impacts the construction industry, public works, and local manufacturing.

The recent cement price hike in Nigeria reflects the country’s economic degradation and complexity, highlighting the interconnectedness of factors affecting the economy. The government’s response to these hikes is often criticised for its reactionary approach and the wrong application of policy in society.

The government plays a crucial role in shaping the economy, often being the highest single stakeholder in certain sectors. Its primary role is to create an environment for market forces to determine cement prices while constraining market arbitrariness. However, when market structures fail, the government must intervene to produce public value by diagnosing and solving problems appropriately. Government officials should not act like elected kings, using coercive powers to solve problems that require collaboration.

Between May 2023 and January 2024, the price of cement increased by 100-200 percent, affecting all construction industry segments. The government responded by threatening cement producers to lower prices or allowing massive importation to flood the market. This reflects the government’s mindset, but it is unrealistic to solve problems by threatening everyone. The public uproar prompted the government to take action.

The Nigerian government faces a dilemma between protecting the local cement industry and promoting trade liberalisation to reduce prices. The recent cement price hike is rooted in the perception of cement monopoly, with the Obasanjo presidency’s selective protectionism allowing industrialists to establish large plants for cement. However, there is an unwritten understanding that these investors will reciprocate by keeping prices low, posing a challenge for the government.

Cement manufacturers have raised fundamental issues that need appropriate diagnosis and solutions. Issues raised by cement manufacturers are grouped into 5 categories:

-First, with the general paucity of power in Nigeria, almost all manufacturers generate their own energy, and many rely on gas. Despite being a gas-endowed nation, it is simply unavailable—a paradox of plenty. The available gas is denominated in USD, and the price has increased by over 300 percent in the past 6 months.

-Second, cement production relies on many imported inputs, such as gypsum, machinery, explosives to blast the mines, spare parts, and propylene to produce bags, all of which are imported using USD. The foreign exchange volatility against the naira has not helped matters.

-Third, customs duties are indexed in USD, and lately, they have moved from 450/USD to 1700/USD in just a few months, a more than 300 percent increase.

-Fourth, the cost of diesel, which is critical in the transportation of cement and for excavators to mine limestone, has tripled over the past three months. Fifth, the unfriendly operating environment characterised by corruption, strangulating bureaucracy, and multiple taxes is devastatingly affecting the industry.

The issue of excessive cement price hike requires a comprehensive approach involving various stakeholders. Addressing factors such as gas availability, rail transportation, foreign exchange components, tax harmonisation, insecurity, and bureaucratic interference is crucial. The government should not ignore these factors and assume the problem has been solved, as any solution that doesn’t address these issues is unsustainable.

All factors considered, because of the socio-economic impact of cement, the government needed to diagnose the challenge correctly, consult widely, and develop a sustainable policy solution. The impression I get is that this is not the case. If cement prices continue to skyrocket, the cost of public infrastructure will escalate, many will lose their jobs, and the nation will be thrown into further economic depression. There may not be a straight answer to resolving the paradox of cement price hikes, but it is urgent and imperative that a holistic approach to tackling the problem be followed.

Addressing the high cost of cement requires collaboration between the government, industry players, and other stakeholders to implement sustainable and practical solutions. The government must work with the industry to develop policies that stabilise prices and prevent unnecessary fluctuations. It must enforce policies that ensure fair competition and avoid price gouging. It should invest in infrastructure development to improve transportation networks and reduce the cost of transporting raw materials and finished products. Put mildly, the government must create an external environment that is business-friendly.

The cement industry on the other hand must implement energy-efficient technologies to reduce operational costs and explore alternative and renewable energy sources.