As Nigerians Await Price Relief after FG, Cement Makers’ Parley
Amidst rising concerns over the soaring cost of cement, Nigerians eagerly anticipate tangible outcomes from the recent dialogue between the federal government and cement manufacturers, at least to avoid the spectre of abandoned building projects and construction of new ones which may worsen the current economic turmoil in the country, writes Festus Akanbi
Again, it was a period of uncertainty and despondency for operators in the building industry last week as cement prices defied the resolution between the federal government and cement manufacturers to slash the product’s price.
Reports as of the time of going to press suggested that contrary to the situation at the building materials market in the first two weeks of February when a bag of cement was sold for an average price of N5,500, prices of cement as of the weekend still hovered between N8000 and N15,000 depending on locations.
It was gathered that the surge was a combination of the recent adjustment in price by the manufacturers and the decision of the distributors and retailers to reflect the rising cost of transportation, energy, and labour in the final price that gets to the end-users.
As it is, there is the fear that the spectre of project abandonment brought about by the sharp adjustment in the price of cement may further worsen the nation’s inflationary rate when the February figure is released.
In January 2024, the headline inflation rate increased to 29.90% relative to the December 2023 headline inflation rate which was 28.92%.
Many Nigerians have been wondering why the price of cement would be so high because over 90 per cent of its raw materials are sourced locally.
Experts who spoke with THISDAY last week warned that in the face of the current skyrocketing exchange rates, Nigeria’s building sector is reeling from a series of challenges that threaten to derail projects, unsettle homeowners, and disillusion investors.
They also believe that with building material costs soaring to unprecedented heights, estate developers find themselves grappling with dwindling profit margins and stalled projects.
Although market watchers explained that it would take some time for the resolution between the federal government and cement manufacturers to reflect in the price of the product which spiralled over two weeks ago from an average of N5,300 per 50-kg bag to an all-high price of N15,000 per bag in some locations, building industry operators warned that the damage done by the alarming increase in the price of cement will continue to haunt the economy for a long time.
Weighing the Options of Cement Importation
In an apparent response to the current frustration in the land, the federal government threatened the possibility of opening the borders for cement importation if Nigerian cement manufacturers refuse to play ball on cement price reduction.
The Minister of Housing and Urban Development, Mr. Ahmed Dangiwa, said: “Honestly speaking, we have to sit down and look at this critically and know how you should go back and think of it.
“The government stopped importation of cement to empower you to produce more and sell cheaper.
“Otherwise, the government can open the borders for mass importation of cement, the price will crash, but you will have no business to do”.
Dangiwa said the reasons given by cement manufacturers for the price increase – the high cost of gas and manufacturing equipment – were not enough for such astronomical pricing.
He expressed his displeasure at the position of the Cement Manufacturers Association of Nigeria (CEMAN) that the association “does not interfere with the pricing of cement”. He said the association should not just fold its arms when things go wrong.
“One person cannot be selling at N3,500 per bag and another selling at N7,000 per bag and you cannot call them to order.
“The association is expected to monitor price control, otherwise the association does not need to exist,” he said.
Dangiwa’s statement was said to have been triggered by the attempts by the cement manufacturers to justify the excessive price increase which they blamed on the current foreign exchange crisis, rising energy costs, and increase in the costs of labour.
While the negotiation for a downward review of the price of cement was going on, one of the leading operators, BUA Cement announced a new salary increase for its staff. The company said the gesture was in line with the general mood of the nation’s economy. Observers said the new salary increase during this period might be the company’s way of justifying the increase in its products’ prices.
Interestingly, BUA had in September last year announced a plan to reduce the price of cement from N5,500 to N3,500 per bag, with the new rate scheduled to take effect from October 2, 2023. According to the company, the decision was made “to spur development in the building materials and infrastructure sectors.”
New Price Regime
In a meeting with federal government’s representatives, the cement manufacturers had agreed to reduce prices, noting that despite the rising cost of doing business, a 50kg bag of the product shouldn’t be higher than between N7,000 and N8,000.
At the meeting with the Minister of Works, David Umahi, and the Minister of Industry, Trade and Investment, Doris Uzoka-Anite, in Abuja, they agreed to set up a price monitoring team to ensure that there’s no price gouging.
A statement by Umahi’s Special Adviser, Uchenna Orji, said it is expected that prices will drop after securing the government’s interventions on the challenges of the manufacturers on gas, import duty, smuggling, and better road network.
“The meeting noted the challenges of the manufacturers like the cost of gas; high import duty on spare parts; bad road network; high foreign exchange; and smuggling of cement to neighbouring nations.
“The Federal Ministry of Works is to give more attention to fixing of the roads, especially around the locations of the manufacturers,” it stated.
Fallouts of FX Crisis
Building industry analysts said the current foreign exchange rate crisis has worsened the woes of the building sector in many respects. They maintained that apart from its effect on the operations of cement manufacturing companies, the effect of the skyrocketing FX rates has manifested in the prices of imported windows, doors, ceramic, tiles, plumbing appliances, and sanitary wares, which they said represent 23 per cent of materials in the building market. On Wednesday the official rate of naira to dollar was N 1,492.67, whereas the rate was N1,830 at the black market.
Similarly, the cost of local materials, which account for 37 per cent of materials in the market, has also been affected by the increase in the cost of production and transportation to end-users.
Operators said the new price trend has caught up with artisans as labour prices have gone up, saying a key factor is the cost of transport fares to the site.
Another fallout of the surge in the prices of building materials is the cost variation, which has put many projects at risk at the moment. Experts said what happened these days is that contractors will buy materials at a price but when they go back tomorrow it will be another story and that has taken a lot of projects back.
According to Yemi Ajagbe, a property developer, Lagos, which is the commercial nerve centre of Nigeria is the most prominent in terms of abandoned projects due to the high cost of materials.
“On Lagos Island, many high-rise commercial and residential building projects are either on hold or progressing at a very slow pace and something must be done urgently,” he added.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, explained that the reason for the high cement price is the general macroeconomic environment, particularly the inflationary trend in the country.
Yusuf said inflation cuts across all sectors of the economy and those in production, are experiencing higher costs because of rising costs of inputs such as costs of transportation and energy.
“Exchange rate is affecting practically all the sectors. Because like many other manufacturing industries, they also have their own imported components in their production ecosystem,” Yusuf stated.
