PROPERTY TRANSACTION GUIDE

Cement Ban: Recipe For Construction, Rent Hike - Experts
Stories By Michael Simire and Dada Jackson

Published:Independent, 25th October 2009

Construction industry practitioners appear to be unimpressed by the Federal Government’s decision last week to ban the importation of bagged cement. According to them, the outcome would bring more harm than good basically because the demand for the building material is so high that it cannot be met by local production.

In an apparent bid to boost local cement production, President Umaru Musa Yar’Adua, besides reinstating the policy of banning importation of bagged cement in line with the National Industrial Policy, also approved the systematic and controlled programming of cement imports subject to appropriate tariffs, , as well as restricting issuance of cement import licences.

Yar’Adua also introduced a special levy, in the sum total of N500 per tone, on all cement imports to assist in the development of local capacity through the establishment of a Cement Training Institute in the country.

A statement issued by the Special Assistant (Communication) to the Minister of Finance, Deborah Chinwe Okafor, said the measures were part of the recommendations of a committee set up by the president to review the cement industry, under the chairmanship of the Minister of Finance, Dr. Mansur Muhtar

But in a swift reaction to the development, experts in the built environment sector described it as a policy summersault that needed to be given a second look.

A quantity surveyor, Mr. Segun Ajanlekoko, said, "Every nation must aspire to be self sufficient in all its needs. Unfortunately from empirical data available today, our consumption of cement cannot be met by local production."

Therefore, he added, it failed to make economic sense to ban what is critically needed for national development.

"It is a recipe for uncontrolled price hike and of course high cost of construction," declared Ajanlekoko, a past president of the Nigeria Institute of Quantity Surveyors (NIQS).

An estate valuer, Mr. Samuel Ukpong, observed that the Yar’Adua was consistent with policy inconsistency, pointing out that last week’s development was a typical example.

He said, "There are some people the government wants to make rich through the ban. How many factories are working now and what is their supply to the market? What are the prices of cement now and how would the ban bring down the prices?"

He predicted that the decision would soon bring about higher construction as well as rental values., saying, "No respite anywhere."

Mr. Tunde Jagun, who is also an estate surveyor, stated that the incentives appeared desirable but expressed fear that they would "be corrupted and diverted by the beneficiaries."

"The companies have to be determined to bring down bag price. All previous promises were just media hypes that dash the hopes of all," he stressed.

Another realtor, Mr. Chudi Ubosi, described the ban as "good."

But he cautioned, "Like in all things Nigerian, is it workable? Will cement not eventually end up being smuggled in?"

According to him, the ban would increase capacity utilisation in the industries but doubted if the manufacturers were ready to fill in the gap as well as rise up to the task/demand.

He went on, "My suggestion is that since we have an idea of our annual cement demand, are we sure that the established total capacity of the existing industries can meet up with this demand? If not the short fall in capacity is what the government should allow in (to be imported) and then over a period of time - five to eight years gradually reduce the allowed import whilst creating the enabling environment for the established industries to increase and meet local demand. That way it will be a win-win situation for everybody."

According to Okafor’s statement, "Government will also, henceforth, connect the granting of import licenses to guarantees that the licenses will be fully utilised within a specified period of time, and any abuses in the utilisation of the licenses will attract appropriate sanctions."

The Chairman of the Nigerian Institute of Building (NIOB) Lagos Sate Chapter, Mr. Kunle Awobodu, in his submission, noted that the essence of the ban was for government to protect and safeguard local cement manufacturing companies.

According to him, government would still allow the importation of bulk cement that would now be rebagged in the country. He was however quick to point out, that though bagged cement was cheaper but the need to protect the local cement companies largely informed the decision of government to place the ban.

Awobodu said that the decision by government though laudable, would eventually throw up another problem. He added that with the ban on the importation of bagged cement, there would be scarcity of the product which would naturally lead to a price hike.

The NIOB helmsman further said that with the inability of the local cement companies to meet the huge demand for the product, there was no gainsaying the fact that the priced of cement would shoot up astronomically.

He wondered why up till now, the promise by government to bring down the price of cement to between N600 and N800 was yet to be fulfilled, adding that most of the government’s policies were lofty but that implementation was its bane.

According to him, the decision to place the ban was a good initiative but that it was bound to create another problem. He was quick to add, that it was like going back and forth without any meaningful progress.

Speaking in similar vein, the Vice-Chairman of the Nigerian Institute of Architects (NIA), Lagos State Chapter, Mr. Femi Shodunke pointed out, that the decision to ban the importation of bagged cement by the Federal Government was not only arbitrary but also tantamount to a policy summersault.

According to him, the move is not a welcome development, adding that the few local cement manufacturing companies do not have the capacity to meet the enormous demand for the product noting that what government ought to have done, was to make the ban a gradual thing and not a fiat as if we were still in the military era.

Shodunke was of the opinion that the proposed reduction of the price of cement by the Federal Government to say between N800 and N1000 being some few months back was yet to be realised, adding that with the latest development, there was no way the price of cement would not skyrocket.

He said that the position of professionals in the construction industry was for the price of building materials to come down, adding that the proposed mass housing for the citizenry by the Federal Government would continue to be a mirage if the price of cement continues to go up.

Shodunke said that in developed climes, the price of cement is not as costly as it is in Nigeria/He added that if the ban was enforced, it would definitely push up the price of the commodity as demand would far outstrip supply..

The Managing Director of Futurebridge said that the decision should be reviewed if only to make the product affordable to the generality of the public.

According to him, as a realtor, the product is an essential tool for construction, pointing out, that unless the price of the commodity comes down, there was no way the cost of a unit of housing would not go up.

He commended the position of the Federal Government on the issue but was quick to add, that with what is on ground, the local cement manufacturing companies cannot cope with the avalanche of demand that would confront them.

In his own contribution, the Managing Director of Personal Homes and Savings Limited, Mr. Anthony Owuye said that the step was in the right direction but how prepared is the local cement manufacturing companies to meet the challenges at hand.

He said that it was step ion the right direction because it would help the indigenous cement manufacturers to grow but the question is what is the total capacity of the local manufacturers?

According to him, the inconsistency of government in churning out policies could be likened to policy summersault. He was quick to add, that if government was talking of providing mass housing for its citizenry on one hand and on the other, the right environment was not being provided as a result of high cost of procuring building materials, then we are in for a lot of trouble.

Owuye said that what government ought to have done was to ask the local cement manufacturers what their present capacity was and for how long they would be able to meet up with the local demand for their products and with such information, determine when to go ahead and place a ban on the importation of bagged cement.

He posited that there was no way the price of the commodity would not go up considering the present production capacity of the local cement manufacturing companies.

As part of the measures to encourage backward integration, the statement added, Yar’Adua has approved 2013 as deadline for the completion of backward integration in the cement industry, while definite and measurable milestones, together with strict monitoring mechanisms, will be put in place.

"To fast-track the process, the duration for obtaining exploratory licences and mining licences from relevant government agencies has been shortened to 18 months and five months respectively," it further said.

Other cost-reducing measures for cement manufacturers have been approved for implementation, including concessional pricing and special allocation of LPFO, de-linking the price of gas for cement production from the price of LPFO, granting duty-free importation of LPFO during periods of acute domestic shortage of cement and classifying cement companies in the same manner as fertilizer companies with regard to gas pricing.

Other measures include examining the key cost drivers in cement production, together with cement manufacturers, with a view to articulating a sustainable price for cement in the domestic market.

The president also approved that incentives to encourage local production be granted cement manufacturers, including reinstating tariff incentives for imported spare parts and machinery items; two to three years duty-free period of importation for machinery, equipment and spare parts to cover the plant building phase and the first two years of commencement of production and tax deductible incentives on investments in system conversion to coal firing.

The government has removed all forms of restrictions on the importation of gypsum and the reduction to a maximum of five percent import duty on gypsum until its local production on a commercial basis is achieved.