Articles

Of Cement Glut Theory and a Reality-Trumping Profit

09 Feb 2013

Views: 2,349

Font Size: a / A

031111Tdangote-cement.jpg - 031111Tdangote-cement.jpg

By Sola Adedeji

Ponder this scenario: a company cries out about a glut in the market that has undermined its business and forced it to shut down factories and lay off workers. But about a week later the same company posts an impressive profit forecast. Also, that company’s shares price has been in a perpetual surge.
The company in question is Dangote Cement Company plc. This cement giant which controls over 70 percent of Nigeria’s cement market has been in the news since last quarter of 2012 lamenting a dip in fortune due to a glut in the cement market which has proved to be inconsistent with reality.


In other climes, such a clamour of a dent to its business due to a glut would send the share price tumbling, but Dangote Cement’s case is an inexplicable opposite.
Amidst the outcry about the grave position of the company and its purported bashing in the local cement market, the price of its shares in the capital market has maintained a continuous bounce.


Dangote Cement announced a fabulous profit forecast of N42.09 billion for the first quarter of 2013 and at the same time the company turned around to raise the alarm over its impending collapse in the same first quarter of the same year blaming a glut in the market which appears to affect only the company.


Contrary to the stated claim by Dangote Cement plc, in the past five weeks that its business is on the verge of collapse due to the displacement of its cement from the local market by imported cement, just last week, the same cement manufacturer released a forecast that shows that its first quarter 2013 pre-tax profit will rise to an impressive N42.09 billion. According to the reports, “Nigeria’s biggest cement producer said it expected turnover of around N81.6 billion in the first quarter, compared with N64.1 billion it achieved in the same period in 2012”.


The Dangote Cement first quarter 2013 profit forecast that was extensively reported by Reuters and in the Nigerian media on the December 27, 2012, noted that it expected its first quarter pre-tax profit to rise by 38.9 percent year-on-year to N42.09 billion. This means that at the end of the first three months of 2013, Dangote Cement expects its profit to have hit N42.09 billion and this figure is 38.9 percent higher than what the company recorded during the same period in 2012.


The contradiction seems to lend credence to the position of a competitor, Ibeto Cement, that the claim of a glut in the nation’s cement market as propagated by the Dangote Group is totally false. According to Ibeto Cement, in the heat of the bitter exchange then, it “was the clear tactic of a monopolist, hell bent on choking other players out of business with Ibeto Cement being the primary target.”
There cannot possibly be glut in the nation’s cement market and the first sign of any over supplied market, which is the rapid decline in the price of the over flowing product, remains to be seen in the case of the Nigerian cement market. The price of a 50kg bag of cement in the various regions of the country in the past 24 months has not dropped lower than N1, 700, a situation that is impossible if the market was over flowing with cement as Dangote Cement has repeatedly tried to make the public believe.


While Dangote Group has for years been enjoying and continues to enjoy what appears to be open-ended government approved concessions amounting to several billions of naira annually on some of their commodities, they are clearly very uncomfortable with the fact that a good government can and should also offer encouragement to other entrepreneur-nationals. It is a well settled fact that what is good for the goose is also good for the gander.


Dangote Group was in the cement business for 25 years before venturing into cement manufacturing and now that he is into manufacturing, he appears to detest the idea of other businessmen importing cement even when there are indications that many of the cement manufacturers in the country still can’t meet local demand.  Ibeto on his part has been in cement bagging for only five years and has stated he intends to start manufacturing cement in less than half of the time it took the Dangote Group to do so. 
Dangote Group controls 81 percent stake in the Nigerian sugar market, 40 percent of the cement market; 33 percent of flour; 54 percent of pasta and 72 percent of salt.
The latest figure indicates that the Dangote Group still maintains the first position in each of these commodities; now controlling about 93 percent of the sugar market, 86 percent of cement, 73 percent of flour, 74 percent of pasta and 89 percent of salt, according available information.


Interestingly, Alhaji Aliko Dangote, is also the President of the Nigerian Stock Exchange, where his companies control some 40 percent of the total market capitalisation of the exchange. This situation ought to be a source of worry to all Nigerians who mean well for the future of this country.


But despite its obvious inconsistency with reality, the glut appears to exist in the neighbourhoods of Hon. Hassan Saleh, the House of Representatives member who moved a motion for the investigation of the reason why the federal government is not “vigorously” implementing the backward integration policy of the government. The overwhelming majority of the House members saw through the smokescreen and decisively shot down the motion, vowing to always allow a level playing field for all competing interests in the nation’s economy.


Yet, it is curious the rot in the police college did not spur Hon. Saleh to initiate a motion under “matters of urgent national importance” for the House to probe the reason police colleges in the country are in such terrible shape.

Tags: Nigeria, Featured, Politics, cement

Comments: 0

Rating: 

 (0)
Add your comment

Please leave your comment below. Your name will appear next to your comment. We'll also keep you updated by email whenever someone else comments on this page. Your comment will appear on this page once it has been approved by a moderator.

comments powered by Disqus