CEM ANALYSIS, REAL ESTATE | Cement, a vital ingredient in construction projects, plays a crucial role in shaping Nigeria’s infrastructure and development. However, cement price has become a source of concern for individuals and businesses in the construction sector. Even with leading cement manufacturers like Dangote, Lafarge, and BUA the price of this essential material continues to experience astronomical increases.
Comparing data from 2020 to 2024, the recent price variations of cement in Nigeria have reached over 300%. Although several factors have driven these variations, the impact is far greater on the economy.
Pre-2020: A Period of Relative Cement Price Stability
Prior to 2020, the Nigerian cement market experienced a period of relative stability in pricing. A 50kg bag of cement typically cost between ₦2,500 and ₦3,000, depending on the brand and location. This affordability fueled a construction boom, with individuals and companies readily investing in new projects.
This stability can be attributed to several factors, including:
Increased production capacity: Leading cement manufacturers like Dangote, Lafarge, and BUA consistently expanded their production capacities, meeting the growing demand without significant price fluctuations.
- Government intervention: The Nigerian government occasionally intervened to regulate prices and prevent excessive hikes.
- Competition: The presence of multiple cement producers ensured healthy competition, keeping prices in check.
According to a report by the National Bureau of Statistics (NBS), the construction sector contributed 13.94% to Nigeria’s Gross Domestic Product (GDP) in the second quarter of 2020, highlighting the industry’s significance.
2020-2021: The Rise Begins
The narrative shifted dramatically in 2020. The global COVID-19 pandemic disrupted supply chains and caused a shortage of raw materials, leading to a gradual increase in cement prices. By 2021, the cost of a 50kg bag had climbed to ₦4,000, a significant 33% rise from the pre-pandemic average. Several factors contributed to this rise, including:
- Increased demand: The post-pandemic economic recovery led to a surge in demand for construction materials, putting pressure on existing supply.
- Production disruptions: Lockdowns and restrictions due to COVID-19 impacted cement production, causing temporary shortages and driving prices upwards.
- Global factors: Rising global energy prices, a key input in cement production, also contributed to increased costs.
By the end of 2021, the average price of a 50kg bag of cement had reached ₦4,500, representing a significant increase of nearly 50% compared to pre-pandemic levels.
Read Also: Cement Prices Set to Soar in 2024 Despite BUA’s Price Cut
2022-2023: A Spike and a Promise
The year 2022 brought a significant surge in cement prices, leaving many stakeholders within the construction industry in shock. By mid-2022, the average retail price had skyrocketed to ₦5,500 per bag, representing a 137.5% increase from 2020. This dramatic rise impacted individual construction projects and large-scale developments alike.
Several factors contributed to this price hike:
- Rising production costs: The pandemic caused disruptions in the global supply chain, leading to an increase in the cost of raw materials like limestone and gypsum.
- Increased demand: Post-pandemic economic recovery and government infrastructure projects fueled a surge in demand for cement, putting further strain on supply.
- Currency devaluation: The devaluation of the Nigerian Naira against the US Dollar made imported raw materials more expensive, impacting production costs.
- Reduction in government intervention: The government’s focus on managing the pandemic’s economic fallout led to a decrease in its regulatory influence on cement prices.
- Escalating energy costs: The ongoing war in Ukraine and the subsequent global energy crisis further inflated production costs.
However, in late 2023, a glimmer of hope emerged. Dangote Cement, the dominant player in the Nigerian market, announced plans to reduce its production costs and lower the price of cement by over 50%. This announcement brought cautious optimism to the construction industry, anticipating a return to affordability.
2024: Cement Price New Reality
As of March 4, 2024, the price of cement in Nigeria remains a complex picture. While Dangote’s price reduction hasn’t fully materialized, As of March 4, 2024, the average retail price of a 50kg bag of cement in Nigeria sits between ₦10,000 and ₦14,000, depending on the brand and location. This represents a staggering 400% increase compared to 2020 and an 82% increase from 2022.
While prices remain significantly higher than pre-pandemic levels, there have been recent developments offering a glimmer of hope:
- Government-Industry Meeting: In February 2024, the Nigerian government met with cement manufacturers, aiming to find solutions for stabilizing prices. The meeting resulted in an agreement to peg the price of a 50kg bag of cement between N7,000 and N8,000, depending on the location.
- Increased Production Capacity: Leading cement manufacturers have announced plans to further increase their production capacities, potentially easing supply constraints in the long run.
In a recent interview with Thisday, Ashim Mukhopadhyay, CEO of Lafarge Africa Plc., stated, “The rising cost of inputs, energy, and logistics has undeniably impacted the cement industry. We are working diligently to optimize our operations and minimize the cost burden on consumers. However, collaborative efforts involving government, manufacturers, and stakeholders are crucial to address long-term challenges impacting the industry.”
Impact on the Construction Industry
The significant price increase of cement has had a profound impact on the Nigerian construction industry.
- Stalled projects: The rising costs have forced many individuals and businesses to delay or even cancel construction projects, hindering development and economic activity.
- Reduced profit margins: Construction companies are struggling to maintain their profit margins, as they are unable to fully pass on the increased costs to clients.
- Shift towards alternative materials: The high price of cement is encouraging some builders to explore alternative materials, potentially impacting the quality and durability of construction projects.
The Road Ahead
The future of cement prices in Nigeria remains uncertain. While Dangote’s price reduction promise offers hope, its actual implementation and long-term impact are yet to be seen. Furthermore, global economic factors and potential infrastructure challenges continue to pose risks to price stability.
The recent price fluctuations of cement in Nigeria highlight the complex interplay of market forces, global events, and domestic policies. Addressing the concerns of the construction industry requires a multi-pronged approach, including exploring ways to increase production efficiency, diversify energy sources, and improve logistics infrastructure. Only through a collaborative effort can stakeholders ensure a stable and affordable supply of cement, paving the way for sustainable growth and development in the Nigerian construction sector.
