- Appealing to oligopolists to bring down prices won’t work. What will is restructuring both the market and cement use
Cement appears every stage trouble for the Nigerian economy. At the peak of the oil boom in the 1970s, when cement importation also peaked, it was the cement armada that choked the ports. Now, that Nigeria is reaching cement self-sufficiency, it is cement prices that never come down.
Something is definitely wrong with the way the cement market, particularly the supply end, is structured. Though no legal oligopoly — since no law formally precludes free entry and exit of players — an operational oligopoly has held the market in thrall. These oligopolists dictate price, and appear to ride rough shod over consumers.
Still, a market restructuring and further liberalisation won’t come easy. For starters, cement manufacturing is high-capital intensive. Again, because of its bulk, it is traditionally a regional industry. That tends to spawn local cement monopolies, in each region of business. The near-rail collapse has not helped this structural reality, even though one or two players, by buy-outs, mergers and take-overs, somewhat now straddle more than one business region.
That reality dawned, with Vice President Yemi Osinbajo’s appeal to cement manufacturers to slice prices, with a promise of heightened infrastructural spending. The National Integrated Infrastructure Master Plan projects some US$ 3 trillion investment in roads, bridges and allied construction, to double infrastructure upscale, from the present 35 per cent of GDP, to no less than 70 per cent of GDP by 2050. Cement would be key in these projected investments.
Though the Vice President was speaking at the commissioning of the new US$ 350 million BUA Cement Plant at Kalambina, Sokoto State, his appeal was not out of place, given that key cement players have been enjoying concessions, fit for a strategic industry, vital to the Nigerian economy.
As Prof. Osinbajo rightly noted, though the players complain of the huge challenge of inadequate electricity, among other infrastructural decay, cement is still a profitable business. It is high time, therefore, the manufacturers balanced the price question, between the profit imperative and social responsibility.
But even if cement manufacturers were not moved by this charitable pitch — they are businesses after all, not charities — the prospects of more cement roads, among the increased use of cement for public works should, other things being equal, appeal to their business sense. With a huge economy of scale, they can profitably play by volume business, instead of the present margin.
Still, while this appeal is in order — at least in the short run — the ultimate solution to high cement prices is creative government policy intervention, by which more players are drawn into the cement supply side. That way, the present oligopoly would give way to a more vibrant market, where the consumer has near-unfettered choice.
But such creative interventionist policies need not be limited to the supply side alone. The government should also weigh in, in concert with local building scientists, to promote alternatives to cement in the building of houses. With other materials like red brick and even hard wood effectively competing with cement, cement prices would be more market-driven.
That can only be a win-win for all — cement manufacturers and consumers.
