Cement makers in Africa’s largest economy are poised to take advantage of increased infrastructure spend by the federal government and private sector as they are implementing strategic plans with a view to increasing their share of the market.
Analysts say Nigeria’s infrastructure gap is a sustainable demand point for cement demand as the debt office estimates the country’s annual infrastructure need at $3 trillion over the next 30 years.
This is on top of the rising population that crave for accommodation and a housing deficit of 17 million units.
President Muhammadu Buhari has presented to a record budget of N8.83 trillion for 2019 to the National Assembly, of which N2.83 trillion has been earmarked for capital expenditure.
Cement makers are strengthening strategies that will give them the leeway to taking advantage of the above fiscal policy opportunities.
For instance, Cement Company of Northern Nigeria (CCNN), owners of the 500,000 metric tonnes per annum Sokoto Cement Plant, merged with Kalambaina Cement Company Limited Plant- which owes 1.5 million metric tonnes per annum- to form a combined entity with 2 million metric tonnes per annum cement plant. Both firms are owed by BUA Group of companies.
Lafarge Africa, the second largest cement producer, with a market share of 25 percent, bought a plant in Calabar, in south-eastern Nigeria, that can produce 5 million metric tons of cement a year and is also investing in its South African operation as it seeks to increase capacity to 17.5 million tons from 14 million tons across the continent.
The company plans to raise N131 billion in rights issue to trim debt and further lower the cost of borrowing for future expansion. It has total debt to N254.52 billion (long and short term debt) in its balance sheet while leverage or gearing ratio has hit 191.52 percent as at September 2017. Total Finance costs of N34.92 billion exceeds operating income of N19.15 billion, resulting in a loss of N10.12 billion.
Dangote Cement, Nigeria’s largest cement producer, with 67 percent market share and cement operations in ten African countries, having invested more than $8bn in cement plant capex, as it seeks to consolidate efficiency optimization across its Pan African operations.
The company’s owner and President, Aliko Dangote, has said that it’d planning to raise $500 million from a Eurobond sale and will also issue N300 billion in local-currency bonds to refinance debt and boost expansion.
“We estimate concrete roads and public-sector housing spend could unlock up to 53mt and 24mt of cement demand, respectively, by 2020e,” said Gbenga Sholotan, analyst at RMB Nigeria Stock Broker Ltd.
“The planned recapitalisation of the Federal Mortgage Bank of Nigeria to N500bn (from N2.5bn) could lead to a vibrant mortgage market improving Nigeria’s home ownership rate beyond the 25%, serving to boost cement sales,” said Sholotan.
Analysts are of the view that public private partnerships will help propel cement consumption.
Some of the projects identified as having an impact on consumption include: The planned Apapa-Wharf road in Lagos (Lagos state government/private investors) in exchange for tax credits. The Bonny-Bodo Road (Federal government and Nigeria LNG Ltd). The N100bn Sukuk bond for the development of 25 roads (PPP).
For the first nine months through September 2018, Cement consumption in Nigeria was estimated at 15.6 million MT, 10 percent higher than the same period in 2017, according to a latest report by Vetiva Research.
However, heightened political activities in 2019 could result in delayed capital expenditure disbursement, and such a delay could lead to slower than estimated cement consumption in first and second quarter of next year.
“In light of the upcoming general elections, we are understandably not optimistic about disbursement in the first half of 2019, especially with the seemingly tight nature of this race and we draw comparisons to 2015 – the year of the previous, also keenly contested election,” said Onyeka Ijeoma, Building material analyst with Vetiva Research.
Nigeria’s cement consumption per capita of 104kg is sub-optimal for an economy of its size and sub-optimal relative to EM peers and traditionally-favoured African investment destinations, according to RMB Nigeria Stock Broker Ltd.
“This supports our argument for a structural upside for cement consumption. For Nigeria to attain South Africa’s 234kg-per-capita consumption, our estimates show that Nigeria would have to consume 52mt of cement compared with the 36mt we forecast for 2023e,” said Sholotan.
BALA AUGIE
