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How cement makers turned Nigeria’s big challenge into opportunity

Once upon a time, Nigeria imported cement in millions of metric tons (MT). Lafarge was the only major cement maker in Nigeria and could not even satisfy one-thirds of the market. China, India, Brazil and several countries found Nigeria a big export market.

Annual cement production between 1999 and 2002 was around 1.7 million MT, but demand was almost 8 million MT.

In 2002, Olusegun Obasanjo, then president of Nigeria, challenged the likes of Aliko Dangote, today’s Africa’s richest man, to move into the cement production business. Obasanjo came up with a policy that revolutionised the cement industry. The policy was simple: Unless you set up a local cement plant, you would not be allowed to import. Nigeria’s population was rapidly growing and it was becoming clear that cement demand would be rising. With a rising population, infrastructure gap was widening.

Between 2006 and 2007, Dangote set up local plants while Lafarge expanded. The likes of Unicem and Cement Company of Northern Nigeria (CCNN) came on board later to chase market share. In December 2018, CCNN merged with BUA’s Kalambaina plant in Sokoto, North-West Nigeria.

From mere 7.5 or 8 million metric tons, demand has shot up four times since 2002. Local production of cement is over 40 million MT today, with Dangote pushing out 70 percent of the entire capacity. Dangote has moved to Edo (Okpella) and Ogun (Itori), with the two plants having a capacity of nine million MT. Dangote has since then established many cement plants across Africa.

“Sales of cement from our Nigerian plants increased by 11.4 per cent to 14.2 million MT in 2018,” Aliko Dangote, president of Dangote Group, said on June 18, 2019, at an annual general meeting in Lagos.

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The entry of BUA changed the face of the industry, with expansion happening so fast. Fewer than six months after commissioning its 1.5million MT Kalambaina Cement Plant in Sokoto State, BUA completed its newest Obu plant in Edo State, with a capacity of three million MT annually.

This brings the total capacity of BUA Obu cement operations to six million tonnes and moves the entire group’s installed capacity to eight million MT. The cement plant started three years ago when BUA engaged Sinoma at the height of foreign exchange crisis and began production in March last year.

The plant runs on coal, heavy oils or a mixture of both, and the use of coal is expected to save over 70 percent of energy costs compared with 15 million litres of fuel oil per month or 40 tonnes or even 20 trucks of fuel that could have been used per day.

“We have built a 32 megawatts multi-fuel captive power plant and a coal mill. To put this in perspective, this new plant will be generating more power than is currently generated by the entire Sokoto State,” Abdul Samad Rabiu, chairman and CEO of BUA Group, said in Sokoto in 2018.

Lafarge has been conservative in cement investment over the years in Nigeria, but it remains a strong player in concrete. It recently divested its South African operations with a sale to another affiliate of LafargeHolcim Group.

Cement revenue and profits have helped to turn entrepreneurs into mega billionaires. Between the first quarter of 2015 and that of 2019, cement makers listed on the Nigerian Stock Exchange (Dangote, Lafarge, and CCNN) grew revenue from N180 billion to N236 billion. The number certainly exceeds N200 billion if BUA is factored in.

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In Q1 of 2019, they grew revenue by four percent. In fact, Dangote is already exporting the product while BUA is exploring markets in Nigeria, Burkina Faso and other parts of West Africa.

The huge opportunity found by cement makers is down to the country’s huge infrastructure gap.

The gap is so huge that Nigeria has to spend $100 billion for the next six years to close the hiatus, according to Bureau of Public Enterprises (BPE). A federal government data show the country must spend three to five percent of its gross domestic product (GDP) to bridge the gap.

The Financial Derivatives Company, an economic and financial research firm, puts its own estimate at $15bn annually for 15 years.

Roads are bad but increased spending to close the gap by federal and state governments is providing opportunities for manufacturers who supply cement and concretes.

Nigeria has a population of 200 million people but housing deficit is between 17 and 20 million units. Houses are springing up in cities and must be built with cement and other materials. Bridges are also critical. Federal and state governments are embarking on several bridges now and again, and cement makers are always in the mix.

More opportunities are even knocking. The Centre for Affordable Housing Finance in Africa says that currently, Nigeria has a low homeownership rate as its housing production is roughly 100,000 units, yearly which are below one million units needed annually to bridge the gap by 2033.

The transport sector is a determinant for a country’s economic development. According to an infrastructure report for 2017, budgetary allocations for the transport sector was N19.5 billion in 2015, N424.27 and N365.1 billion in 2016 and 2017 respectively.

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By Odinaka Anudu & Gbemi Faminu

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