Leveraging Appropriate Pricing to Address Nigeria’s Housing Deficit
Being a country enormously reliant on oil as a means of foreign exchange and subsistence agriculture forming the core of the GDP, any form of positive activity in the manufacturing industry in Nigeria is always a welcome development. A major section in the manufacturing industry is the cement industry which is a core component in the building, construction and infrastructure sector.
The importance of shelter to human existence cannot be overstated just as social infrastructure are essential to the economic and social welfare enhancement of the society at large. In the provision of both essential commodities, cement is a key ingredient which constitutes about 7% to 15% of concrete solidification. It is essential to know that the production of cement in Nigeria dates back to 1957 with the construction of the first plant in Nkalagu and the second one in Ewekoro by West African Portland Cement in 1960.
This was quickly followed by Bendel Cement in 1964, Calabar Cement in 1965, and Cement Company of Northern Nigeria Sokoto in 1967. By 1970, 10 years after independence, Nigeria had five cement plants within a decade of getting independence. Post cement armada episode of the mid-seventies, three additional plants were built in Sagamu in 1978, Ashaka in 1979, and Benue in 1980. With the entrance of Dangote (Obajana and Ibeshe Plants in 2006 and 2012 respectively) and Unicem in Calabar in 2009, there are more cement manufacturing companies in Nigeria currently, with plants located in various parts of the country.
As an essential product that has no substitute, the cement industry in Nigeria has grown in leaps and bounds over the past few years, though the country’s annual cement consumption per capita is still relatively low when compared to other select countries. Being the major provider of infrastructure in the country, government at all levels through the construction, renovation and rehabilitation of major road network, bridges and public infrastructure, constitute the largest consuming sector of cement in Nigeria while private developers and individuals consume the rest. This trend is not expected to abate any time soon as government is anticipated to favor capital projects while the growing middle class in the economy will further produce more home owners as well as business owners who will be in need of offices.
The cement industry is very capital and labour intensive and therefore, a major employer within the country and deserves government protection and encouragement especially in the face of the newly adopted Common External Tariff in West Africa and activities of smugglers.
While the sector is inhibited by different issues major of which are policy inconsistencies, high energy cost, expensive distribution channels, insufficient capacity, local cement output has increased at a remarkable rate over the past decade, largely due to the introduction of the Backward Integration Policy (BIP), which has helped drive up production capacity within the country.
At full capacity, the Nigerian cement industry produces an estimated 26 million tons of cement per annum. This makes it the largest cement producing country in Sub-Saharan Africa and if the production estimate could be maintained, the cement industry will proffer another export channel for the country as current annual consumption in Nigeria is around 18 million tons. The cement industry has over the years attracted over $6 billion into the country’s economy and accounts for over 1.6 million jobs in Nigeria. The sector contributes around 11.3 percent to the country’s GDP as at 2013 while the expansion embarked upon by different companies in the industry is expected to have increased the percentage to the GDP. The scope of job provision in the cement industry cuts across all spheres; from semi-skilled labour and factory workers to decision making top management staff.
The cement industry is characterized by numerous forces, a major point of which is product homogeneity. This makes for similar pricing for similar classification across most producing companies. With pricing not being an overly adequate strategy for market attraction and penetration, the primary selling point for major players in the industry is their relationship with the different stakeholders that envelope the industry. As with numerous manufacturing industries in Nigeria, the stakeholders in the cement industry are diverse and are expected to be treated accordingly. Principal among the stakeholders are the employees who form the industry’s biggest assets and require being provided with adequate remuneration, good working conditions, sufficient training and knowledge transfer as well as ample recognition as an invaluable asset.
Given the housing and infrastructure deficit prevalence in the country, growth in the cement industry has been steady and commendable over the past decade. According to the National Bureau of Statistics, the industry grew at a rate of 12.58 percent between 2006 and 2010, and maintained a level above 12 percent in 2011. This has inevitably enriched the various shareholders in their respective companies within the industry. The suppliers and distributors whom are indirect employees in the industry are provided with numerous value added services, some of which include after sales payment incentives for distributors, improved distribution channels, promotional activities, and other support services.
Host communities of the various production units in the industry are mostly dealt with through their different representatives. The needs of the various host communities are peculiar depending on their respective terrain, region and religious inclination(s). These needs are catered for through impactful Corporate Service Responsibilities (CSR) projects which include but not limited to youth empowerment programs; education; health and poverty alleviation programs, infrastructure support and low cost housing. The 2013 CSR report of one of the major players in the industry in Nigeria indicates that the company’s annual budget appropriation on community development between 2006 and 2012 had continued to witness a steady increase from an expenditure of N77million in 2006 to N189 million in 2013 while the company’s CSR budget for 2014 was over N200 million.
Activity of players in the cement industry tends to be most beneficial to the government at all levels through various burden relieving measures provided by the companies in the industry. Benefits to the government includes reduction in the unemployment and youth restiveness rate especially within the host communities through various tactical engagements, provision of infrastructure and other social amenities to the society, payment of taxes and royalties, value add to the GDP etc. A notable example of the positives that cement industries bring to the Government is the launch of an Agro Forestry Project by WAPCO Operations, Lafarge Africa Plc through its Sustainability Ambitions 2020 in conjunction with Ogun State Government. This project is expected to provide immense benefits to the community and the state through reforestation of the degraded forests and enhance food security in the state while providing Lafarge with the biomass residues required replacing fossil fuel which will inevitably reduce its CO2 emission.
The housing deficit is Nigeria is reported by various analysts to be in the region of 17 million units as over 70 percent of the over 170 million Nigerians live in substandard houses. This coupled with excessive infrastructure insufficiency the country presently witnesses means a reduction in the components used at deploying both houses and infrastructure could be a vital cog in the filling of both gaps. Cement is a major component of concrete solidification which contributes about 7 percent to 15 percent of the entire mixture. This is viewed by many as the biggest hindrance to attaining optimum housing and infrastructural facilities in the country as a large amount of cement is required for construction. Therefore a feasible deduction could be made that a reasonable decrease in the cost of production and eventual sale of cement would translate to a sharp increase in the deployment of homes and social infrastructure within the country. The other key component of building needs especially in the deployment of homes is the building block, which cement is also a core component of. Hence a reduction in the price of cement will have a positive multiplier effect on the cost of production and sale of the blocks and the eventual cost of erecting a building.
Through a mix of market dynamics, continuous investments and stake-holding in cement companies spread across different geo-political zones of the country Lafarge has helped to force down price of cement in the country and consequently make home ownership far less expensive than it used to be. The company has contributed more to the drive towards appropriate cement pricing in the industry. Besides being a global brand adept at investing in advanced and emerging markets all over the world, it has achieved so on the strength of its investments in the 4.5MT WAPCO operations from its twin plants in Ogun State, the 2.5MT in United Cement Company of Nigeria Limited, Cross Rivers State; 1MT in Ashaka Cement, Gombe State; and 0.5MT in Atlas Cement Company Limited, Rivers State. An additional 5.5MT is expected from on-going capacity expansion projects in Ashaka and Unicem.
The Economist Magazine of London noted in its June 20, 2015 Special Edition on Nigeria that falling tariffs and increased domestic competition are lowering prices of manufactured goods in Nigeria. The influential magazine commented that in the case of the cement industry, investment and expansion of production capacity by Lafarge has significantly reduced prices by more than 40 percent. As the new Nigerian Government settles down to the task of boosting the nation’s housing and infrastructure stock, an objective with wide ranging social and economic significance, its policy levers should be pulled in a manner that encourages both domestic and global investment. This is working well for Nigerians in the cement industry.
Lafarge is committed to ensuring that the cost of building is within the reach of many Nigerians through provision of good quality brands and by offering the much needed technical assistance and expertise support to its customers. As a clear demonstration of its dedication to innovation and making a difference in Nigeria, the company makes the widest range of products available to the end-users in the country. ‘Ile Irorun’, the Lafarge Affordable Housing Project set up in 2013 with the objective of improving housing conditions for 2 million people by 2020 has so far impacted over 300,000 Nigerians.