IKECHUKWU EZE and ALEX CHIEJINA
Stakeholders in the construction industry are already debating the likely impact of government’s new cement policy on importation on the nation’s bid to improve housing, infrastructural development, as well as boost economic growth, write IKECHUKWU EZE and ALEX CHIEJINA
Recently, the Federal Government announced the imposition of a 35 percent levy on the importation quotas for bulk cement. The new cement policy which was generally seen as a measure to boost local production of the commodity, have opened a debate on the likely effect construction and infrastructural development as well as pitched local cement producers against importers. This is believed to be connected with the imposition of a 35 percent levy by the Federal Government on the latest importation quotas for bulk cement, effective July 1 2010.
The 35 percent levy comprises the reinstatement of 20 percent import duty on bulk cement, and a new 15 percent surcharge on the cost, insurance and freight price of bulk cement to substitute the N500 per tonnes that was in force before the new policy. The added 15 percent will be towards the development of the Cement Technology Institute.
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Other measures rolled out include immediate cancellation of all unutilized cement import licenses from 2002 to 2008; annual review of local production in order to determine the need for cement import license or otherwise and that investors without operational terminals will no longer be considered for cement import license from 2011. In addition, the new cement policy seeks the importation of 2,500,000 metric tonnes of bulk cement by six local manufacturers to cover the second half of the year.
For the Ministries of Finance, Commerce and Industry, the new allocation is part of the federal government’s Cement Backward Integration Policy aimed at making the country self-sufficient in cement manufacturing in the next three years. It was also taken as a measure to accelerate the growth of local capacity in cement production and provide the possibility to eventually export the product to other African nations and beyond. The ministry through the letter notified the Customs Service and the pre-shipment agents of the immediate cancellation of all unused cement import licenses issued between 2002 and 2008. According to the ministry, annual review of local production will be undertaken in order to determine the need for cement import licenses or otherwise.
It said that importers without operational land terminals will no longer be considered for cement import from next year, even as the ministry re-instated the 20 percent import duty on bulk cement, as applicable to other finished products in tandem with the ECOWAS Common External Tariff. While the new policy on cement is targeted at boosting the local production of cement in the country, this latest development has elicited various reactions from stakeholders as to what this new policy on cement holds for the building and construction sector in the country.
Speaking to BusinessDay, Omo Aisagboni, President/Chief Executive Officer, Omais Investment Group, said that the increase of duty payable on imported cement from five percent to 35 percent will no doubt contribute to the ballooning of the price of cement in the country as well as have its toll on growth of real estate. Aisagboni stated the introduction of 15 percent Cement Technology Institute Levy by the government on a mere 2.5 million tonnes of imported cement to cover only six months of July to December 2010, as cement import will end in 2010, is not investment friendly. In his words “The gap between demand and locally produced cement is huge and to frame a policy around this may plunge us into crisis.
Before the end of the year when the import permits that have been issued out have be exhausted by the allotees, we will find out that the locally produced cement will be unable to satisfy the demand for the product and then there will be scarcity.” Many developers believe that the new measure which would create scarcity and increase in cost of cement while few stakeholders would benefit from the expected rise in price of the essential product, especially as the nation is yet to develop the capacity for sufficient production. “This is because prices will not go down but will swing upward and may be out of reach of the ordinary people who will intend to construct their own homes. Don’t forget the construction industry is the one of the largest employer of labour with those involved in housing and real estates in the lot. And if this happens, your guess is as good as mine,” Aisagboni stated.
However, not everybody feels that way. For Toyin Banjo, Managing Director/CEO Cornerstone Savings and Loans, the plan to impose fresh duty on cement importation is a welcome development. The mortgage banker wants the 20 percent import duty on bulk cement to go into a special fund for construction firms to enable them access this fund for the development of the construction industry. “Don’t forget that the import duty is going to affect everyone in the construction sector- from real estate developers to builders, etc. but if this common fund from the duty can be pulled together, people can easily access it with the input of a mortgage bank at a single digit interest rate. This also should be a repayment plan for 15 years with 10 down payments. If this is in place, people will still build their houses whether the price of cement increase a little.”
Expectedly, Joseph Makoju, Cement Manufacturers Association of Nigeria (CEMAN), expressed support for the policy stating that if properly implemented Nigeria could become wholly self sufficient before the end of 2011. Makoju revealed that the boost in production was due to the Federal Government’s policy to encourage local production and ban the issuance of license for importation. According to him, the cement policy was formulated in 2003 but was not implemented until recently.
“The Federal Government’s step is a complete implementation of the road map that would enable the country to be self-sufficient in cement production to the benefit of all. What we have in place now is that the gap between local production and demand will be imported in the short run and it is no longer an all comers’ affair. However, with the huge investment in cement production across the country, the price of cement would soon drop.” He added that because of the high production of cement, many companies were already exploring ECOWAS countries and beyond for export. He said that cement companies such as Ibese, Benue Cement Plc, Obajana, plants belonging to Dangote Group, would produce more than 20 million tones annually. “Besides, there is also the 4.5 million tonnes of cement from the Nigeria Flour Mills, owners of UniCem while BUA Cement is expected to produce 500,000 tonnes annually. The Bendel Cement plant, AVA Company and other new factories are coming on stream and Nigeria has 95 percent of the raw materials. Such comparative advantage was long overdue to be tapped to grow the nation’s economy and export the commodity to other countries. Don’t forget that nations with less potential had been flooding the Nigerian market with substandard cement, leading to building and construction failure”, Makoju concluded.
No doubt, cement production is not only needed for housing, but is just as critical for infrastructure development. Like all developing countries, Nigeria suffers from a huge housing and infrastructure deficit and is in a mad rush to plug that gap.
In addition, projected economic expansion and envisaged high oil prices point to the fact that the three tiers of government would deploy considerable resources into roads and railway construction, new airports and seaports, the education and healthcare sectors, and agriculture and electricity, which are all dependent on the availability of cement as a critical component of the construction industry. The impression being created that developed nations don’t import cement may not be completely true, says Tom Dinma, a building consultant who claimed that the United States of America, Russia, the United Arab Emirates and Spain still import the commodity even as they are known producers of cement. Stressing that such policies in the past yielded only paltry results, he said: “With the US President Barack Obama recent plan to plough $50 billion into infrastructure development over the next five years, it is believed that US’s local production of cement may not be sufficient to meet the plan.
What this implies is that importers of bulk cement still have a critical role to play in making the commodity available and affordable, a goal that can be achieved if levies are not high. In essence, controlled importation of bulk cement can exist side by side local production, until a time producers can match and exceed domestic demand.”
