After making a holistic research in the cement sector in Nigeria, it is our conviction to unequivocally showcase and bring to bare the ground-braking achievement attained so far under President Goodluck's watch. It is therefore no doubt that expansion in Nigeria’s economy over the years has been followed by an accelerated growth in the country’s cement industry. While the economy has risen 14x since the country’s return to democracy in 1999, with services now accounting for the modal proportion of the economy post GDP re-basing, the cement industry has recorded 9x increase in production capacity, from 3.28MT in 1999 to 28.95MT in 2013. Production capacity in the industry has grown rapidly even as the industry has undergone a swift structural evolution, moving from near-complete dependence on imported cement just a few years ago to domestic production of large quantities of cement, enough to meet the strong and rapidly increasing cement demand of Nigeria’s robust populace. The structural evolution has been driven by positive factors, inclusive of huge investments in the industry by domestic and foreign players, growing demand, protective government policies, favourable macroeconomic factors and benign economic growth - despite intermittent global economic slowdown, domestic insecurity and political unpredictability. Nigeria can now earn export income from cement, as local capacity, estimated at 28.95MT as at Q12014, dominates annualised domestic demand at 20.95MT.
In 2012, Under the administration of president Goodluck Jonathan, Nigeria exceeded South Africa to become Sub-Saharan Africa’s largest cement producer, second largest cement producer in Africa - behind Egypt - and fourth largest cement producer in the broader Middle East and Africa - behind Egypt, Saudi Arabia and Iran in that order. Given current capacity and demand levels, Nigeria is now self-sufficient in cement production even as demand for cement has over the years been on a healthy increase, in line with growth in production. We see the
rapid progress being made in the cement industry as a major factor that will spur industrialization in Nigeria.
To consolidate and improve on current leading position, as well as position for anticipated increases in cement demand across Africa, players in Nigeria’s cement industry – led by Dangote Cement and Lafarge Cement – have earmarked plans to further invest in additional capacities. We estimate that Nigeria’s cement industry will rank in the comity of world’s top 15 cement producers no later than 2025 even as we expect the industry to overtake Egypt’s cement industry to become Africa’s largest, given the slow rate of capacity additions in Egypt’s cement industry which we expect to continue as Egypt currently is the China of Africa in cement production and thus faces a certain level of cement oversupply which is a disincentive for further capacity additions.
It is instructive to note that in terms of value creation, Nigeria’s cement industry has, on average, been a consistent value creator under the administration of President Goodluck Jonathan in the last four years. Cumulatively, the industry has also created wealth for shareholders. We estimate that between 2010 and 2013, the industry created a cumulative average value of 23.01% or ₦39.92billion in absolute Naira terms. The industry has also increased wealth levels of equity portfolio investors, creating a cumulative average wealth of 58.13% between 2010 and 2013, in our estimation. This implies equity investors who allocated equal capital to shares in the industry at the start of 2010, and held on to these shares without periodic revisions, would have earned an average return of 58.13% on the total invested capital, neglecting transaction costs.
It is clear to us that there is value in Nigeria’s cement industry. We believe in the prospects, value and wealth creation potential of the industry. The industry is favourably characterized by thin cost and high margins, as major raw materials for cement production are cheaply available domestically, though power challenges remain a problem. We side with efforts of players within the industry, as they look to not only boost local capacity to address demand but also put measures in place to produce more cheaply via diversifying fuel sources and reverting to low cost fuels. If these efforts persist, they could lead to marked declines in production costs, given the chief role power/fuel costs play in aggregate production costs. We have rated the industry outperform; our outlook on the industry remains positive.
Combined with negligible cement imports, the export income from cement— though currently at a stage of infancy in Nigeria and progressively growing—is helping to boost Nigeria’s non-oil export income, revenues and external position, and its contribution to the country’s trade balance and current account position is increasingly strengthening.
We estimate that Nigeria saved $2.24billion from cement importation in 2013 via import substitution. This was as the value of cement imports fell to $560.19million in 2013 from $2.80billion in 2012 on our estimate, and imported cement as a proportion of total imports decreased to 1.32% in 2013 from 2.23% in the previous year. Furthermore, cement contribution to non-oil export income, which historically has been insignificant, was non-zero for the first time in 2013 at 0.07%.
Although we estimate that cement trade balance (cement exports less imports) for 2013 stands at a deficit of $217.19million, implying that Nigeria imported more cement than it exported in the period, owing to non-expiration of import licenses already granted certain cement importers, it is our continued expectation that this number will swing into the surplus territory in the years ahead, as more metric tonnes of cement production capacity are added to existing local production capacity, cement exportation swings into full play and cement imports approach zero upon complete expiration of existing import licenses and if the current policy of non-issuance of cement import license continues. These are positive triggers for improvement of Nigeria’s cement trade balance.
Government has instituted a number of positive measures to ensure these positive triggers come to fruition. Incentives are now offered to all domestic producers that export excess manufactured products. For the first time in 2012, government held back issuance of new import licenses to cement importers, a policy that has proven to be supportive of the performances of domestic cement producers in recent times. Moreover, existing import licenses are nearing expiration. All these point to one thing, that the Nigerian cement industry is slowly but surely being re-positioned for growth on the back of regulatory policies that favour domestic cement production and disfavours cement importation.
Although cement importation has the potential to reduce domestic cement prices via increases in excess cement supply in the domestic market from multiple sources, the negatives it affords far outweigh the positives as cement importation is to the detriment of the success already recorded in Nigeria’s cement industry and goes against the vision of Nigeria’s government on backward integration, import substitution and diversification of export earnings.
Further, Nigeria, with 29.2mmtpa production capacity in 2013 and expected 38.2mmtpa by 2014FY (based on various expansion programs of cement manufacturers), is set to rise to the rank of top 15 largest cement producing countries in the world, trailing Egypt’s 46mmtpa capacity (USGS Mineral Program Cement Report). China remains the world’s largest producer with 2,220mmtpa, 800% above India’s 247mmtpa capacity (the second largest globally).
While Nigeria ranked amongst the world’s top 10 importers of cement in 2011, various capacity expansions reversed the status of the country to a net exporter in 2013. In addition, several export oriented initiatives of the Ministry of Trade and Investment is set to make the country one of the leading exporting nations in no distant future.
Nigeria’s Dangote cement, driven by its aggressive expansion stance, operates as the 27th largest cement producer globally with installed capacity of 20.25mmtpa. The expected addition of 9mmtpa to its Nigerian operations in 2014 should catapult the company to the 22nd position on the global scene.
The Federal Government on September 3, 2014 said the country has now reached an installed capacity of 39.9 million metric tonnes of cement production.
President Goodluck Jonathan who spoke during the Line II Ground-Breaking ceremony of UNICEM Cement Factory, Mfamosing, Calabar, Cross River State, said the feat was achieved as a result of the backward integration policy of the Federal Government.
The president was represented by Vice President Namadi Sambo on the occasion.
President Jonathan, according to a statement endorsed by the Senior Special Assistant (Media) to the Vice President, Umar Sani said the Backward Integration Policy in the cement industry was initiated by the Federal Government in 2002 to ensure self-sufficiency in cement production.
He said: “From a paltry 2 million metric tonnes of cement hitherto produced locally per annum, by 2013 we have achieved 39.5 million metric tonnes of installed capacity.”
Describing the manufacturing industry as the backbone of the country’s growth, he said government would continue to formulate policies that would galvanize the industry.
Whilst the FG has been consistent and resilient in consolidating on the growth in cement production capacity, local players are taking the bulls by the horns by furthering expansion plans. FG expects production capacity at 39mmtpa for 2014 and this should be achieved once Dangote Cement and Edo Cement’s planned 9mmtpa and 2.5mmtpa capacity upgrade come on stream in line with project timelines. Total production capacity is forecast to hit about 55mmtpa by 2017 given companies’ planned projects, most of which are already in the pipeline. DANGCEM, WAPCO, ASHAKACEM, Edo Cement and UNICEM are set to inject USD6bn into funding current expansion plans.
Actual production figures however remain shy of installed capacity as companies continue to produce at less than full capacity with an estimated 69.1% capacity utilisation rate in 2013 (vs. 65.6% in 2012). DANGCEM added a further 1mmtpa (thus, pushing Gboko plant’s capacity to 4mmtpa) to its installed capacity in 2013. Capacity utilisation rates in 2013 were 65.6%, 76.4%, 84% and 80% for DANGCEM, WAPCO, ASHAKACEM and UNICEM in that order. As stated in our 2013 cement sector report, “Exploring the opportunities”, production downtimes for maintenance purposes and inefficient power supply remain the major lug to achieving optimum capacity utilisation levels.
The recent allegations made by construction industry stakeholders over the quality of Nigerian cement being responsible for building collapse prompted reactions from other stakeholders and industry experts. Claims were particularly directed towards the production of 32.5 grade cement. Dangote Cement Plc. countered such stating it produces 42.5-grade (Dangote 3X cement); Lafarge WAPCO and UNICEM however produce the 32.5grade alongside the 42.5 cement grade.
Federal Government and stakeholders in the cement sector have hailed the Dangote Cement Plc over huge investment in cement as well as the recent slash in the price of the commodity, describing it as unprecedented. The commendation came just as the management of Dangote denied that the price cut was motivated by monopolistic tendencies.
Minister of Industry, Trade and Investment, Olusegun Aganga, who led others at a stakeholders’ meeting in Abuja, said the decision of Dangote Cement Plc to bring down price of cement was a patriotic one in line with the aspiration of Nigerians and the Federal Government.
According to him, the Federal Government had attracted new private sector investment in cement sector to the tune of $7 billion within three years and that government was happy with that.
To buttress his claim, the minister said: “In 2011, the installed capacity in the cement sector was 16.5 million metric tonnes per annum, today it is 39.5mmt per annum. We came in, there were about $9 billion investment in the cement sector, but today it is more than $15billion. In 2011, the direct and indirect jobs from the cement sector were less than 6,000, today the sector provides about 2.2 million direct and indirect jobs.”
Chairman of the Trusted Shareholders Association, Mukhtar Mukhtar, said the cement price slash was a positive development for the Nigerian economy, adding that it would create jobs, encourage the poor, middle class to build houses and bring down house rent on the long run.
“I want to on behalf of shareholders commend Aliko Dangote for yet another feat,” he said.
Coordinator of the NGO Network, Mr Muhammad Attah, said the Dangote Cement deserved commendation, adding that the company had invested more than any other in the cement sector in the history of the country.
In conclusion, it is also instructive to note that it is as a result of the conducive and favourable economic atmosphere put in place by the Jonathan led government that these private companies like Dangote Cement where able to achieve such feat. It is therefore indeed a highly commendable posture on the side of the Federal Government.
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