CEMENT WAR: MANUFACTURERS, IMPORTERS BATTLE FOR MARKET CONTROL
There seems to be no end to the controversy raging in the country as a result of a new policy by the Federal Government which pegs tariff on imported cement at 35 percent.
The new policy, which has been approved by President Goodluck Jonathan, also reinstated 20 percent import duty on bulk cement, as applicable to other finished products and imposition of a levy of 15 per cent on the cost, insurance and freight price of bulk cement to substitute the N500 per tonne presently in force, to be utilized for the development of the Cement Technology Institute.
Other measures contained in the policy include the immediate cancellation of all unutilized cement import licences issued from 2002 to 2008, annual review of local production to determine the need for cement import licence or otherwise, while investors without operational land terminals, will no longer be considered for cement import licence from 2011.
Though, there is a deficit of cement to manage in Nigeria, the demand is always in excess of supply. The demand in 2009 was 17.5 Metric tonnes per annum, (mtpa), compared to the installed local capacity of 13.75mmtpa.If the supply gap is not bridged; the inevitable outcome is that cement price will continue to rise. Expectedly, the Cement Manufacturers Association of Nigeria (CMAN), which aggrieved cement importers said the new policy favoured has hailed the development, saying that it would encourage backward integration in the cement sector and thus boost local production for which they (manufacturers) had invested N120 billion (about $8 billion) over the past eight years (2002-2009), in an effort to increase local production of the commodity.
Chairman of the association, Joseph Makoju,said local cement producers are happy because the policy will enhance domestic production of the product.' According to him, although, cement importation is a quick and easy way to make money because 'you import at a fraction of your production cost, yet backward integration policy is in the interest of the local economy.
Early last month, government cancelled all permits issued to various cement importers to bring the commodity into the country and gave fresh pass to a selected group of seven importers to bring in only 2.5 million metric tonnes.
Among the privileged few are Lafarge WAPCO, which was allocated 160,000 metric tones, Dangote Cement; 895,000 tonnes, Flour mills of Nigeria; 600,000 tonnes, Bua Cement; 225,000 tonnes and Eastern Bulkcem got 245,000 tonnes.
Others include Ibeto Cement; 225,000 tonnes and West Com Technologies and Energy Services; 150,000 tonnes.
He predicted that supply of the product would be more than the demand in 2011 as local manufacturing companies are expected to produce a conservative figure of 18 million metric tonnes next year. Besides, CMAN also raised the alarm over high inventory of clinker, semi-processed cement wasting away in their factories due to falling demand for cement, just as it estimated the loss recorded as a result of the development at N42billion.
Executive Secretary of CMAN, Mr. James Salako, told Daily Sun that about 1.5 million tonnes of clinker were wasting away in cement factories across the country as a result of decline in demand for cement.
'Most of our members have their silos, kiln equipment and a large part of the factory spaces over- flowing with clinker because of low sales,'' he said According to him, the situation is taking a toll on local manufacturers and the factories may be forced to close if sales do not improve in the next three months.
Salako said that many of the factories were now operating at less than 50 per cent of their installed capacity.
He said that the current situation, which is being experienced for the first time in the country, was pushing up the overhead costs of cement manufacturers. According to him, the situation remained a clear indication that there is enough cement in the country against the perception in some quarters that local manufacturers cannot meet up with the required quantity needed for local needs.
'The high inventory will continue because we do not want to stop the klin equipment for now. Stopping the klin comes with huge challenges because the energy needed to fire the equipment back to a minimum of 1,400 degree centigrade is enormous. 'Under normal circumstance, the klin equipment is designed to work non stop expect during turn around period for maintenance,'' he said Also speaking, Managing Director, Obajana Cement Plc, Mr Jagat Rattee, put the group's quality of clinker lying waste at about 800,000 tonnes, saying that Obajajana plant alone has over 300,000 tonnes of clinker that has taken over the needed space at the factory site.
He said that local manufacturers have high inventory of clinker and cement in warehouses because of massive importation of cement and low sales from the respective factories as a result of low demand. 'Those that are canvassing for more importation of cement are not doing so in the nation's interest. The market has been saturated with cement and the local cement sector has enough to meet the nation's demand,'' he maintained.
'In spite of the fact that the group pushes out about 1000 trucks loaded with cement daily to various depots, we still have a lot. There is enough cement to meet local demand,'' he stated.
On the issue of quality, Rattee said, quality is better managed by the people that are producing because they would not want to compromise on standards thereby jeopardizing their company's integrity, unlike those who do not have stake in the sector. According to him, some leading cement producing countries have excess products and have introduced incentives to encourage export of cement to African countries.
'We should not allow Nigeria to be a dumping ground for such substandard products that has low life span. Such products cannot be trusted because it could lead to construction and engineering failures,'' he said.
On his part,the factory manager of Lafarge Cement Plc, Ewekoro, Ogun State ,Mr.Sola Adeyemi, noted that the factory alone had over 200,000 tonnes of clinker wasting away unutilized. He said that the situation was threatening the existence of the factory's production line, which he said, normally produced between 3,000 tonnes and 4,000 tonnes of cement daily.
Adeyemi said that the factory could be shut down if the situation persisted.
'We may have no other option than to shut down the factory if production should drop to 2,000 daily,'' he said
But in a swift reaction, cement importers have countered the claim that the 2.5 million metric tonnes gap between demand and local production of cement bandied about is not correct.
'The gap between demand and locally produced cement is more than 2.5 million and to frame a policy around this may plunge us into crisis in future. Before the end of the year when the import permits that have been issued out may have been exhausted by allotees,we will find that the locally produced cement will be unable to satisfy the demand for the commodity and then there will be scarcity and so the price of the essential product will shoot up' an importer said.
The importer also flayed the increase of duty payable on imported cement from 5 percent to 35 percent saying that it will contribute to the ballooning of the price of the product before the end of the year. Aligning with the position of importers, the co-ordinator of Building and Construction Industry Forum,Mr.Celestine Emeka Onochie ,condemned the Federal Government for imposing the duty wondering what the motive was.
'Was it to meant to cripple our business and pave way for increase in the price of cement?' he queried.
The forum described the duty as outrageous, saying the policy was sinister and a dangerous attempt to muscle competition by a cabal of local manufacturer's hell bent on profiting from their demise by deliberately hiking the price of cement.
'They will deliberately create scarcity of the product because they know that their local capacity cannot meet demand. Tell me where in the world does a government, wake up one morning and impose a 35 percent duty on the importation of a product as essential as cement, when clearly its local manufacturers don't have the capacity to meet local demand. It is a sinister policy despite the fact that they male it look patriotic.
The Minister of Commerce and Industry, Jubril Martins-Kuye, should be fired because he is acting to be in bed with the cabal that wants to increase the price of cement through the back door because the cement cabal has been lobbying the Federal Government for this stringent and obnoxious duty. They found a willing and pliable tool in the minister who has misled and misadvised the Federal Government on the issue' he said.
Also, professionals in the nation's building industry including the Nigerian Institute of Building (NIOB) and the Nigerian Institute of Quantity Surveyors (NIQS) have condemned the increase in tariff of imported cement, saying it is a hasty decision that will decrease the nation's housing stock and infrastructure. President, NIQS, Mr.Felix Onyeri said that government should allow the law of demand and supply to direct its policy on cement, adding that professionals in the industry foresee an uncontrollable rise in the retail price of cement that has hitherto stabilized between N1, 400 and N1, 600 in the last two years.
Onyeri noted that there was nothing wrong in government's effort to improve local production of cement but that 'The question we should ask is if the local production is sufficient to meet the demand? The only way to make cement affordable is to allow importation as a short term measure, while local producers can also be encouraged to raise their production to meet local demand.' Nigeria is Africa 's third largest consumer of cement, with a total of 17.5 million tonnes consumed in 2009, an increase of seven percent from 16.4 million tonnes consumed in 2008.
The president of NIOB, Mr. Dachollon Jambol, who suspected a 'foul play', said 'some people are just playing politics with the cement issue. In spite of the noise about the support for local initiatives, the stakeholders are not spending money on researches which could have seriously positioned local manufacturers to meet the rising demand. It is a different thing from what we say by words of mouth and what we do. How many of those people talking about local production patronize locally produced cement?'
Jambol said government should identify areas of failure and work towards correcting them rather than impose counterproductive policies in the face of poor infrastructure. However, the Manufacturers Association of Nigeria (MAN) through its Apapa branch Chairman, Mr. John Aluya, posited that the recent move by the Federal Government to increase tariff on imported cement to 35 per cent remained a step in the right direction capable of boosting the country's ailing economy while also creating thousands of jobs for the army of unemployed youths in the country.
Specifically, he said the decision of the Federal Government to initiate the tariff increase policy was a strategy meant to protect the local cement industry which has been under threat for some time, due to massive importation of the commodity into the country. 'We need to protect our own local industry.
What government has done is simply the right thing because we need to patronize our own local industry to bounce back to profitability' he said. Besides, he said a situation where the country depended so much on importation to bridge the shortfall required for local needs remained a potential threat to the country's economy, especially in the areas of revenue generation for government and creation of jobs for the citizenry, adding that, importation only creates room to develop other country's economy.
The MAN boss argued that increase in tariff would further discourage importation of cement on the long run because it would afford investors in local production to boost their capacity and expand their operations to compete in an atmosphere that would be a level playing ground for all.
Again, he said the fear being expressed in some quarters that tariff increase would bring about escalation in the price of the commodity would only be in the interim and not for eternity, saying the long term benefit of the policy should be the concern of Nigerians. And this, he said, will lead to price crash and surplus capacity in the industry.
Besides, he tasked the Federal Government to create a dedicated loan portfolio from the proceeds accruable from the 35 per cent tariff increase.
Aluya explained that the Federal Government as a way of boosting activities in the cement manufacturing sector should open an account solely dedicated for the purpose of the 35 per cent cement tariff increase to help local manufacturers establish cement manufacturing plants to bridge the shortfall needed for local use.
The move, according to Aluya, would enable the government lend to would-be investors in cement manufacturing, while also having access to cheap credit facility, saying investment in cement manufacturing remained a capital intensive venture.
Specifically, he said the proposed loan facility by the Federal Government should be a concessionary rate of not more than five to seven per cent interest rate repayable over a period of 10 to 15 years to enable cement manufacturers consolidate on their respective investments. 'Investing in cement manufacturing is capital intensive and government is not ready to provide funding in that regard. But what government can do is to provide a pool of funds in terms of loan, so that manufacturers can have cheap access to the fund' he argued.
In all of these, the Federal Government seems to be going ahead in its drive towards achieving self sufficiency in local production of the commodity as it has gone ahead to inaugurate a Monitoring Committee on the Implementation of Backward Integration Policy on Cement Sub-Sector, comprising both cement manufacturers, importers and other stakeholders. The backward integration policy, which was introduced in 2002, required that those who seek cement import licence must demonstrate verifiable evidence of plans to commence local production in the nearest future, largely through investments.
Justifying the decision however, Martins-Kuye,who was represented at the forum by a Director in the ministry, Mr. Lateef Salami, stressed: 'It is imperative to reiterate that the policy of Backward Integration encourages local manufacturing, places a ban on importation of bagged cement and restricts cement importation only to genuine and committed investors in the industry, to cover the shortfall between local production and national demand, in order to attain self-sufficiency in cement manufacturing by 2013.
The policy is in tandem with the patronage of made-in Nigeria policy of government and vision 20-2020'.
The minister while inaugurating the committee had pointed out that the objective of the committee was to ensure transparency and guarantee implementation of the backward integration policy in the sub-sector.
He recalled that the committee was proposed by stakeholders and stated that its composition was based on equal representation from established manufacturing companies and importers that have initiated moves to establish integrated cement plants.
Martins-Kuye said that the committee was expected to ascertain the level of compliance to the backward integration policy by all the investors in the cement industry and to verify the designed capacities of all cement manufacturing plants, including on-going cement projects. The committee will also ascertain the current and actual production capacities of all cement plants (manufacturing and terminal operations) and verify the extent of performance of bulk cement importers in the execution of licences granted them.
In addition, the committee will suggest and recommend any measures that would accelerate its attainment of self-sufficiency in cement production in Nigeria as well as recommend measures that would guarantee stability and reduction in the market price of cement.
The committee comprises,Director,Industrial Development Department, Federal Ministry of Commerce and Industry(Chairman),Director Fiscal Department, Federal Ministry of Finance, Representative of Raw Materials Research and Development Council(RMRDC) and Chairman, Cement Manufacturers Association,Dr.Joseph Makoju.Others are representatives of Dangote Industries, Lafarge WAPCO,Cement Company of Northern Nigeria(CCNN),Flour Mills Plc,Eastern Bulkcem Company and Ibeto Cement Company Limited.