The scene of Nigerian business is changing rapidly. There was a time when banking was the most profitable business in the land. Many banks sprang up in five-bedroom duplexes on Victoria Island in Lagos. Within one year of operation, they announced profits in the range of 80 per cent of gross earnings.
The sins of Mrs. Cecilia Ibru, the convicted former managing director of the defunct Oceanic Bank, and that of her comrades-in-crime ended all that. After the 2008 systemic distress that saw the industry tottering on the brink, the Central Bank of Nigeria (CBN) descended on the system with draconian lending rules and merciless clamp down on charges that clipped the profit-spinning wings of the banking system.
Banks have since returned to profit.
But they have lost the profiteering edge to a hitherto inconsequential segment of Nigeria’s endangered manufacturing sector. The cement industry is giving banks a run on profitability.
A cursory look at two of the leading performers in banking and cement manufacturing in terms of gross earnings and turnover, respectively, places cement industry ahead of banking in profitability.
The financial report for the year ended December 31, 2013 ranks First Bank and Zenith Bank respectively as leaders in the banking industry in gross earnings. First Bank’s gross earnings during the period was N395.9 billion, while Zenith trailed with N322.353 billion.
However, Zenith led with a profit before tax (PBT) of N110.957 billion, while First Bank trailed with N91.3 billion.
In the cement industry, Dangote Cement is the unrivalled supreme commander. It has a scant 17 billion issued and paid up shares in the Nigerian Stock Exchange (NSE) compared to 30 billion and 29 billion shares by First Bank and Zenith Bank respectively. Ironically, Dangote Cement’s 17 billion shares constitute a third of the NSE’s N13.7 trillion market capitalization. As at the close of business last week, the company’s market capitalization was in excess of N4 trillion as the share price hit N229.97.
Dangote brooks no rivalry. The company’s annual production capacity is 29 million metric tons.
Last year, the profit margin of Dangote Cement dwarfed that of the two leaders in banking. The company’s gross profit was above that of First Bank and Zenith put together. Its PBT was N243.66 billion on a turnover of N386.18 billion. The banking industry’s top two only managed a paltry N201 billion in aggregate PBT. Dangote’s profit margin amounted to 63.1 per cent of its turnover. First Bank’s PBT was a dismal 23 per cent of gross earnings, while Zenith’s profit was 34 per cent of gross earnings.Lafarge WAPCO Plc, the distant second in the cement industry equally recorded a performance unrivalled by the leading two firms in the banking industry. The company recorded gross profit of N38.829 billion, about 38 per cent of its N98.789 billion gross turnover.
Dangote’s profit margin borders on profiteering in a year that the industry complained bitterly about irregular supply of gas for production.
The company’s performance is a vindication of the claim earlier in the year by David Iweta, the president of Cement Producers Association, that Nigerian cement manufacturers can sell at N500 per 50 kilogram bag. The production cost of cement is N400 per bag.
Iweta argued that in Egypt and Iraq, two countries that share Nigeria’s infrastructure deficit, cement sells for N500 per bag.
Given that revelation by an insider in the industry, it is obvious that cement manufacturers produce at N400 and sell to retailers at N1,350, chalking up about 337.5 per cent profit. That is where the profiteering starts. A bag of cement currently retails at anything from N2, 000 depending on where one obtains it.
Even in 2012 when the industry complained about cement glut, the price did not drop below N1, 700. The manufacturers even used the alleged glut to intimidate the federal government. Dangote shut down its plant at Gboko, Benue state, and threatened to throw hundreds of workers into the boisterous labour market. Lafarge took similar steps.
Whether there is cement glut or dearth of gas, the truth is that cement manufacturers are fleecing consumers due to gross under-regulation. No one protects the consumer. Nigeria has a housing deficit of 16 million units, and cement manufacturers are exploiting the desperation engendered by this yawning gap.
When consumers complain (to no one in particular), the manufacturers leveraging on the alarmingly high unemployment rate in the country, feign a glut and threaten to downsize.
The Standards Organisation of Nigeria (SON) is poised to worsen a bad situation with a busy-body regulatory policy framework scripted by the monopolists in the industry.
If SON is allowed to collaborate with the monopolists in the industry, ease out the feeble competition and hand the industry to a sole entrepreneur, it would have succeeded in sealing the fate of millions of Nigerians toiling to put roofs over their heads.
Even as the high cost of doing business in Nigeria keeps lending rates above 20 per cent, the CBN has managed to tame banks profiteering tendencies by clamping down on charges, thus giving customers a measure of relief. Someone has to tame the profiteering propensity of cement manufacturers to avert the brewing housing calamity.
