Energy costs, borrowing funds challenged cement production in Nigeria – Economist

HIGH energy costs, cost of borrowing, naira depreciation, and logistics were some of the challenges that manufacturing companies face in Nigeria’s harsh operating environment, says Muda Yusuf, a renowned economist.

Yusuf underscored the challenges while commenting on the House of Representatives’ recent determination to summon Dangote Cement, BUA Cement and another major cement manufacturer over the skyrocketing price of the product.

A 50-kilogram bag of cement has surged to over N10,000 in recent times, and according to the latest World Bank annual ratings, Nigeria is ranked 131 among 190 economies in the ease of doing business.


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In a statement on Sunday, March 17, Yusuf, the chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said the business of manufacturing was perhaps the most challenging enterprise in the contemporary Nigerian economy, noting that many foreign firms in the sector have either exited the country or downsized their operations.

“Cement production is highly energy intensive, with gas being the major energy source. Gas is priced in dollars for manufacturers in the country, and they sell their products in naira.

“The logistics cost of cement distribution is humongous, given the escalating cost of diesel and the state of the roads. Exchange rate depreciation is taking a huge toll on the cost of imported components of production inputs, including spare parts and machineries.

“Cost of fund is mounting as the CBN continues its aggressive monetary policy tightening. Latest headline inflation for February was 31.7 per cent,” Yusuf said.

He stressed that all these variables were not within the manufacturers’ control and profoundly impact production and operating costs.

Rep members had on Wednesday, March 13, resolved to summon cement manufacturers, alleging exploitative and arbitrary price fixing against them.

Describing it as “unpatriotic”, Yusuf said their remarks could put the cement manufacturers in a bad light against investors and the public, urging the lower chamber to be moderate in the use of language.

He also criticised the remarks as “troubling” since the members have yet to listen to the manufacturers before rushing to criticism.

“For an economy seeking to industrialise, attract investors and create jobs, such commentaries represent negative signalling.

“It is important to stress that matters of this nature requires painstaking and thorough investigation to determine the pricing dynamics and the ramifications of the factors driving prices. This is critical to avoid hasty and emotional conclusions,” he said.

Not ruling out the risk of profiteering increases with monopoly powers in any sector, Yusuf said the risk existed in the Nigeria cement industry as there are few dominant players.

“But this is a regulatory issue that could be addressed within the framework of the Federal Protection and Competition Act of 2018,” he said.






     

     

    He maintained that the Federal Competition and Consumer Protection Commission (FCCPC) is responsible for ensuring compliance with the Act to protect the interests of the consumers and the public and should be held accountable for any proven lapses.

    “Meanwhile, the current ex-factory price of cement by the major players is less than N7,000 per bag. It follows that pricing issues and the culprits could also be within the cement distribution chain over which the manufacturers have limited control,” the CPPE boss said.

    He noted that the private sector plays a critical role in the economy, accounting for over 80 per cent of the country’s gross domestic product, providing about 90 per cent of the employment and over 70 per cent of government revenue.

    He also pointed out that the cement industry was dominated mainly by indigenous companies paying billions in taxes, creating thousands of jobs, and carrying out corporate social responsibility initiatives.

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