Aliko Dangote is in trouble. On November 2014, Africa’s richest man announced the crashing of cement price from N1, 900 to N1, 000 per 50kg bag. That was when the naira was trading at N170 to the dollar. No one knows how many direct consumers bought cement at that magic price.
Two weeks ago the price of cement sailed perilously close to N4, 000 in some parts of Nigeria. Consumers are worried that Dangote has failed to deliver the promised cheap cement.
Before Dangote plunged into cement manufacturing, more than 60 per cent of the cement consumed in Nigeria was imported. Dangote controlled close to 80 per cent of the cement imports.
Dangote entered the Nigerian cement industry with the fury of a wounded lion. Lafarge, the French cement conglomerate was the dominant force in the industry at that moment. Lafarge was reluctant to invest in Nigeria even as the huge market was begging for an operator with the financial muscle to fill the yawning margin of supply deficit.
Dangote does not believe in competition. He kills competition and dominates the market. Even the U.S. government is worried about his style of business. The Americans complained last month that his style of operation is detrimental to Nigeria and even the U.S. economy.
Competition is the business equivalent of opposition in politics. Opposition forms the legal checks and balances against governments in democratic settings because absolute power corrupts absolutely.
In business, Dangote sees competition as evil. He works to demolish it and control the market. It has worked for him in Nigeria and consumers are probably the losers even as he is churning out hundreds of thousands of jobs.
With his monopolistic tendencies, Dangote entered the cement industry and reduced Lafarge to a miniature operator. He turned the encumbrances that hindered the French manufacturer to a stepping stone and climbed to greater heights. He bought the failed Benue Cement Company in Gboko which was being swindled by top politicians and civil servants and turned it around.
He sunk millions of dollars into the Obajana cement venture and feeder roads construction in Kogi state and turned it into Africa’s largest cement factory. He went to Ibeshe, a silent community in Ogun state where lime stone forms something as high as the mountainous region of Ephraim in modern day Israel, and established a huge cement factory that feeds the whole of the south-west with the product.
Nigeria is one strange economy that concentrates 95 per cent of its land transportation on dilapidated roads. That was a huge challenge for the distribution of Dangote cement. The Nigeria Railway Act that dates back to the 1940s gives government a detrimental monopoly of the essential means of land transportation.
Dangote turned to the Chinese for collaboration and assistance. A Chinese truck company granted him the permission to assemble its trucks in Nigeria. That reduced the transportation problem of the Dangote cement industry.
Today the company flaunts a transport division with 12, 000 trucks. That is probably more than the number of mini buses (danfos) in the whole of Lagos state.
Dangote controls more than 60 per cent of the cement market in Nigeria. Nigeria’s cement market is large enough to contain everyone. Otherwise, Lafarge would have been driven out of the market for refusing to invest at the appropriate time.
Dangote’s huge investment and control of the industry has transformed Nigeria from a net importer to exporter of cement.
Dangote does not only save billions of dollars for Nigeria in cement imports, he now generates millions of dollars for Nigeria through cement exports.
Those arguing about the high price of cement have probably glossed over the massive gains that Dangote’s investment in the cement industry has brought to the economy.
With the naira trading at N487 to the dollar at the parallel market, we probably would be buying imported cement in Nigeria at N4, 500 per bag at the moment if the industry was left in the stingy hands of Lafarge and other marginal operators who were battling with advanced stage of financial asphyxiation.
The ex-depot price of Dangote cement at the moment is N2, 510 per bag. That is about $5.1 at the current parallel market exchange rate. The cost of logistics stands at anything from N300 depending on the distance from the depot. That takes the landing cost at the retailers’ shop to N2, 810.
Nigerian retailers normally make more profit than manufacturers and even distributors. They are responsible for the N700 margin that takes cement price to N3, 500 at the moment.
Unlike the claims by competition that Dangote sells cement cheaper in Ghana and other parts of Africa than in Nigeria, the truth is that at the ex-depot price of N2,510, Dangote cement is cheaper in Nigeria than in Ghana where it is selling at the equivalent of $7 per bag.
The Ghanaian cedi trades at 5.7 to the dollar. Dangote cement therefore sells in Ghana at 39.9 cedis per bag which is clearly of higher purchasing power than the N2, 510 ex-depot price in Nigeria.
The Central Bank of Nigeria (CBN) is responsible for the tongue lashing that Dangote is now taking from consumers for the alleged high price of cement. The corruption-prone multiple exchange rates policy of the CBN is responsible for the endless depreciation of the naira even in times of commendable forex inflows.
The multiple exchange rate has dried up foreign direct investments. The lean supply of forex in the market is responsible for the massive depreciation that took the naira from N170 when Dangote crashed cement price to N1, 000 to N487 now that cement retails for N3, 500 per bag.
Cement production has considerable forex input. Gas is now priced in dollars just as the cost of imported gypsum and other inputs. Even the 12, 000 trucks distributing the product in the absence of a functional rail system, are priced in dollars.
With massive local production, Dangote would have driven cement price below N1, 000 per bag if the naira was trading at N170 to the dollar like it was when he announced the price cut. In fact, at the current local price of $5.1 per bag, cement would have been trading at N867 per bag if the naira was exchanging at N170 to the dollar. Now the market dynamics have changed drastically and he has no option than to allow market forces to dictate the price of his products.
