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Case study: Running a successful cement business in Sokoto State
Mon, 19 May 2008 15:33

CCNN mines its own limestone about two kilometres from the factory.

The Cement Company of Northern Nigeria, producer of Sokoto Cement, has been operating in Sokoto State for more than forty years. Jaco Maritz and Caterina Bortolussi talked to managing director Alf Karlsen about the workings of the company and Nigeria's operating environment.

The Cement Company of Northern Nigeria (CCNN) was established in 1962 by the then Government of the Northern Region of Nigeria. In 1992 it was partly privatised and listed on the Nigeria Stock Exchange the next year. In 2000 it was fully privatised and sold to Scancen, part of the Heidelberg Cement Group. A few months ago Heidelberg sold all its shares to focus on markets where it believes it can attain a dominant market position.The Nigerian company Damnaz Cement Company Ltd., which has owners with sunstantial experience in the cement business, has since taken over as owners.

Why is the cement factory situated specifically in Sokoto State?

When you establish a cement factory you look for certain raw materials of which limestone is the most important. The closer the factory is to the raw materials the better. It is better to transport the finished materials instead of the raw materials. Roughly two tonnes of limestone is used to make one tonne of cement. So if you put the factory close to the raw material source you are halving the transport quantity compared to placing the plant far away from the raw materials  but close to the market. At the moment we mine the limestone ourselves and buy gypsum from smaller local mining companies.

How has the company's performance improved since privatisation in 2000?

Before the company was privatised it did not do very well financially. They had very little money for investment and the necessary maintenance. The factory has a capacity of 500 000 tonnes. When we came in eight years ago production was less than 20% of this. Last year we produced 65% of capacity. We still have some repair jobs and rehabilitation to carry out before we can utilise the equipment 100%. In 2009 we should reach full capacity.

Where do you sell your cement?

Cement is not something you like to transport over huge distances because it is bulky with a relatively low value related to its weight. We try to sell it as close to the factory as possible in the north western part of the country. Mainly in the states of Sokoto, Kebbi, Katsina, Kano, Zamfara and Kaduna.

What are the reasons for the current high price of cement in Nigeria?

It is correct that the prices for cement have increased considerably over the past years. If you take CCNN, about 50% of our total costs are related to energy – electric power and fuel. We have our own power station and use diesel to generate electricity. When the oil prices go up, our costs go up, and in order to stay in business we have to increase prices. All the cement companies in Nigeria are in this position. The cost of energy is the biggest driver of cement prices in the country.

What are the main challenges you face in doing business in Nigeria?

The main challenges we face are in the supply of energy. We get most of our products from the Kaduna oil refinery that has just started again after being closed for two years due to problems in the South. Before this we had to truck fuel all the way from Port Harcourt which is 1 500 kilometres away. It was a challenge.

But regardless of this, the Nigerian economy has been booming and has seen very good growth for several years. Cement consumption is going up. I believe cement is a very good business to be in and and a good investment opportunity.

Support from local authorities is of great importance to any foreign investor. How would you describe your relationship with the Sokoto State Government and what assistance have you received from them?

I believe that the Sokoto State Government wants to develop private industry and do what they can do. As a private investor we want predictability and a stable environment. We don’t want rapid new changes in laws, regulations, taxes and import duties. We want to be able to plan for years ahead. It is also important that all companies have the same rules for the game – what applies for company A must also apply for company B. We feel that the federal and state governments are succeeding in providing such an environment.

The Sokoto State Government is a small shareholder in the company. They have a member on the board who is very constructive and positively contributing to the development of the company. If the state government have anything they want to bring to the table they take it up through the board. There is no interference, we run our business and they run their business.

What is your message to people looking to invest in Nigeria and specifically Sokoto State?

Nigeria is expanding economically and has been for several years. It is a very interesting country with a huge market of 150 million people. At our company we have a good labour force that has been with us for a long time.

The federal government is allowing private business to expand. If you look at Sokoto State in particular we are very satisfied with our relationship with the government. They are not trying to make things difficult for us, they know that we are a business. They do what they can to stimulate the private sector