Nigeria's cement sector is entering a phase of major change, as producers expand capacity to cope with the country’s critical infrastructure and housing needs. The larger cement companies are beginning to find their own resources to overcome the gas and power shortages that have hampered production for years. Elderly production plants are being replaced with newer and more efficient assets. The result is a dramatic change in the fortunes of Nigeria's cement industry.
In 2008, the Nigerian cement industry had an estimated market size of N361 billion (US$2.4 billion), or in aggregate consumption terms, 13.4 million tonnes, of which 46% (6.2 million tonnes) was produced in Nigeria. The Federal Ministry of Commerce and Industry estimates that effective demand was around 18 million tonnes. Driven by the acute infrastructure deficit and significant demand for housing, domestic production volumes have grown at 25% (CAGR) over the last four years. Given the strong correlation between GDP growth and cement consumption, cement production growth has also been helped by Nigeria's strong economic performance in recent years.
According to the Central Bank of Nigeria, the country needs US$510 billion in investments in infrastructure over the next eleven years if the nation is to achieve its vision of being one of the top-twenty economies in the world by 2020. The increasing demand for good quality housing, which is estimated at around 16 million housing units, is also expected to be a key catalyst for industry sales growth. Consequently, we anticipate that demand will remain strong, with industry growth averaging between 12% and 15% in 2009 and 10%-12% in 2010, despite the weak economic environment.
Cement consumption in Nigeria is currently one of the lowest in the world. We estimate consumption at around 91kg per capita, well below the global average of 450kg per capita and those of other African countries such as South Africa, Egypt and Morocco. China dominates global cement consumption at 1,105kg per capita, representing about 50% of global cement consumption. While Nigeria’s low consumption reflects the historically weak investment in infrastructure for socio-economic and political reasons, it also lends support to the long-term growth potential of the industry. The Federal Government’s commitment to revamping the nation’s infrastructure should spur cement consumption in coming years.
The Dangote Group is by far the biggest player in Nigerian cement production, but several other major entities dominate their respective regions. While Lafarge WAPCO dominates the south-west markets with the exception of Lagos, Ashaka controls sales in the north-eastern region of the country. Both Benue Cement (BCC) and Obajana Cement Company have their sales concentrated in the north and central markets (both part of the wider Dangote Group). The recently commissioned UNICEM cement company and the Cement Company of Northern Nigeria (CCNN) are strategically positioned to serve the south-eastern and the north-western markets respectively. This regional segmentation of the cement market in the country is largely due to high haulage costs, given the lack of basic transport infrastructure such as rail and good roads.
The Dangote group is the industry leader with a market share of 60% of current installed capacity and around 48% of 2007 industry output. The Lafarge Group follows with 26% of the industry’s installed production capacity and 45% of total output.
There has been a vigorous expansion of capacity since 2006, with Obajana (Dangote Group) commencing production in 2007. Benue Cement (also controlled by Dangote) increased its capacity from an estimated 0.45 million tonnes to 2 million in 2008, and now some 2.9 - 3.0 million tonnes, as a result of successive additions to its capacity. This year, UNICEM has added a further 2.5 million tonnes of capacity, while Lafarge WAPCO will also increase its available production by 2.2 million tonnes, planned for 2011.
Capacity utilisation rates have historically been low across the industry, due to fuel supply problems and power outages. Average utilisation was probably around 60% for the industry as a whole in 2008, although this is now improving because of better stockage of fuel and improvement in electrical generating capacity.
The stock market is now giving full recognition to the industry’s turnaround. The cement sector has been the best performer alongside conglomerates this year, and from its low point in the spring, has far outstripped the performance of the rest of the market.
Ian Furnivall is Head of Research at CSL Stockbrokers
Tunde Abidoye is a Senior Analyst responsible for cement and several other sectors at CSL Stockbrokers
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