Rabiu: With AfCFTA, Nigeria Must Avoid Becoming Dumping Ground
The Chairman and Founder of the BUA Group, Alhaji Abdulsamad Rabiu in this interview spoke about a wide range of issues which included opportunities in the African Continental Free Trade Area agreement as well as the need to liberalise the cement industry so as to boost production and subsequently crash the price of the commodity. Obinna Chima and Goddy Egene provide the excerpts:
The BUA Group recently sealed a deal for a refinery project, can you take us through the expectations from that project and when is it expected to be commence production?
Nigeria is consuming a lot of petroleum products and we spend a lot of revenue in importing refined products. We spend a lot of money to transport crude oil and bring back the finished products. Most people ask why we are setting up a refinery when a big project that people believe would be producing a substantial amount is coming up. I believe Nigerians consume about 50 million litres per day. Then again, if you look at the region, there is a huge potential. If you also look at it, the timing and the location that we have is better than any location.
Secondly, because of the pandemic and the price of crude oil, even though it is picking up a bit, the opportunity arose for us to do it now, compared with what it would have been few years ago when crude price was in the region of $100 per barrel or more. So, because crude oil prices are down to about half of what it was few years ago, the entire project cost, which I am not going to divulge right now, is lower. We would not only satisfy the local market, but also other markets. That is because Nigeria’s crude is one of the lightest and sweetest, which makes it very easy to process. So, once you are able process that, you would be able to produce a lot of products that are of the highest quality and at a cost that is lower than what it would have been if it were in other countries. So, these are the things we looked at. So, if you see a situation where you are able to go into any project at a very comparative price, you just have to jump into it. We saw the opportunity because I can’t remember the last time we saw crude prices around its current price for a long period of time. In terms of location, I think we have the best. It is an area that is at the seafront, so we have a complete marine infrastructure at same time. We took all those things into consideration before going ahead with the project. Even though there is another project that is coming, which is big, we believe this is an opportunity we should take advantage of, especially with the fact that we have a good contract with some of the best technology companies in the world. Chinese technology is good, Indian technology is good, but then when you are talking about complex type of projects of this nature, to be honest, the western world has the best. That was why we decided to go for the best. KBR is the number one consultancy firm in the world when it comes to this kind of project. So, we are using the best names and that is what we try to do in all our projects. Quality is key and by doing that, we are able to save valuable time. If a project is costing you for example, $100 million, using a lower technology and then it takes you five years to get the project completed, and you have the opportunity to pay $200 million to get the project done in two or three years, then the money you saved in finishing it on time will more than take care of the higher cost. So, at the end of the day, if you use good technology and good company, you pay a lot more, but you save a lot time. Hence the reason why we said we didn’t want to go to China or Indian and we decided to go to Europe. It is on course and we expect to break ground latest May this year and ones that is done, not more than three years the project would be completed. So, far we have everything on course.
What do we need to do to bring down the price of cement in Nigeria and are you in a position to effectively compete with the dominant player in the industry in terms of pricing?
The price of cement is high in Nigeria today simply because we don’t have enough supply. That is a simple economics of supply and demand. In Nigeria, every day people come up to say we are self-sufficient in cement and that Nigeria can now start exporting cement; it not true. Look at the numbers: Nigeria is over 200 million people today in terms of its population. If you look at the production of cement, last year, we were under 30 million metric tonnes. In fact, last year was higher than the year before. Which means that in 2019, we were doing between 26 and 27 million metric tonnes. I am talking about production capacity, and not installed capacity, which is another thing entirely. I am talking about actual cement production. Nigeria is 200 million people and that makes it about 130 kilograms per head. If you check, you will see that most countries in Africa are doing between 170 kilograms to 200 kilograms per head. So, Nigeria is actually producing less than any other country in Africa, apart from, maybe, Niger Republic. So, that means that we do not have enough capacity. Nigeria can actually take 200 kilograms per head, but we are not able to do that, hence the reason why the price of cement is high. The moment you have any problem in any of the plants in Nigeria and there is a shut-down or any challenge, immediately, you will see the impact in terms of price going up. That is because we do not have any buffer whatsoever. So, it is like hand to mouth daily. The reason why the price of cement went up recently was simply because there was an issue at one of Lafarge’s plants and they had to stop production to few months to rectify that. So, as that had happened, the supply from Lafarge reduced by about 25 per cent in Ogun State.
Also, one of the plants of Dangote Cement had technical issue and they couldn’t load. But it has been resolved. But because that took about one month, the price of cement went up to about N4,000, from N2,800. This is what I have been saying over the years. I had during the former President Olusegun Obasanjo regime insisted that even though this cement policy is a good one, it must be done in such a way that a lot of players must come in and participate. There is no point in making a policy that only one, two or three people are able to benefit from that policy. That does not make sense. I am benefiting from this policy, but I know it is a bad policy. I know the struggle I went through to be able to be doing what I am doing in the cement industry. Ordinarily, I would not even be here doing cement today. So, whilst the policy is good, the way it is being administered is not good. You can’t have a policy that restricts so many people from participating. At the end of the day, you are just creating a monopoly. That is exactly what is happening in the industry. No doubt, the policy has helped. It has helped us to put up so many plants in the country, but government needs to take a second look at the policy, to see how it can bring in more companies to participate. God forbid, imagine if today, I have a serious issue with Obu Plant or the Sokoto Plant and it is shut down for months, people would be buying cement at N5,000 and there is nothing anybody can do about it. That is because there won’t be enough capacity to take care of the shortfall. The cement sector is a very important sector in the economy and Nigeria has no business selling cement at N4,000. Our ex-factory price is still about N2,700 per bag, but cement is selling between N3,500 and N3,800. I had to stop my people from collecting money last week, simply because we are collecting money much more than what we can produce. And it is same thing with other companies and that is simply because there isn’t enough. So, the policy is a good one, but it has to be rejigged, so that more people that are interested can come in and participate. We have companies that have the capacity, the access to funding to be able to compete in this industry and in Nigeria, the entire country, is sitting on limestone. Anywhere you go, there is limestone in Nigeria. And the cost of production is probably the lowest in Africa. I have been thinking about this and even though I know it could be to my disadvantage, I was going to propose to the government, to even allow temporary imports, so that the price would come down. Let’s compete with imports and at the end of the day, if we see that the imported products are probably within same level, then we can come down to a price that is lower. We are making so much money in the industry, which is good for shareholders, but Nigerians are the ones paying for this. I am part of it, but I know it is wrong. Now, to the other part of the question, we do not. I can tell you that few weeks, one of the competitors, I am not going to mention the name, decided they wanted to increase price and I said they cannot. But they went ahead with it. I didn’t increase my price and I was waiting to see. Then after a few days, I say that the market has accepted the price. Why? Because we do not have enough capacity to influence the direction of price in the market. The issue is that we have one player that is controlling over 50 per cent of the market and anytime you have that kind of situation, things become very difficult. And same thing is happening in the sugar industry, with the Backward Integration Programme (BIP). You have a situation where you have only three players and there is the BIP policy which states that unless you are seen to be doing a plantation you would not be allowed to do sugar refinery. Again, it is same kind of policy where few people are benefiting and 200 million people are suffering. The business is doing well, we are making money, but how much money do you really need? We have 200 million people and they are paying more than what other countries are paying for something that ought to be cheaper. Today, I am ready to reduce my cement and sugar prices, if other companies are ready and I challenge them. If you are posting 50 per cent as profit, and Nigerians are paying for that, why can’t you make 25 per cent profit, so that instead of N4,000, they would be paying N2,000 per bag of cement, and it can happen. Even the sugar, I know what I went through before I was able to set up my sugar refinery. But whenever anybody tries to go into any of these businesses, they would be frustrated, simply because we don’t want competition. To me, competition is healthy because it brings about efficiency and if you don’t have competition, you will just be lazy and inefficient and at the end of the day, the consumers would suffer. Yes, it will be very difficult, but I can assure that by the time we finish our Sokoto line that is coming on stream this year, it will have an impact and then, maybe, we would be able to be in a position where we can say we are not increasing price and the market would go with us. On sugar, we can decide, but I am just waiting for the appropriate time. I believe the sugar price of N18,500 per bag is too high. But we have just started out Port Harcourt refinery and with that we hope to reduce the price of sugar very soon; simply because we have a greater percentage in terms of production. With that, we would be able to determine the price of sugar and we are going to do that. Hopefully, before Ramadan, we would definitely bring down the price of sugar, because it is just too high as well.
At a time when some have slowed down investment because of the pandemic, the BUA Group continues to push, what is the driving force?
I tell you, whenever there is a crisis, that is when you see opportunities. That was why our refinery project, we were able to get a good bargain and price that if it was today, we couldn’t have gotten. The steel aspect of the project for instance was consummated at very good price and terms. Of course, nobody wants to have diseases such as COVID-19 and what have you, but the issue is that when there is crisis, that is when there are opportunities. Even the three lines of cement factory expansion, we got fantastic bargains because the companies were looking for opportunities. So, we sat down and got a good deal which ordinarily we would not have gotten if there were busy. But, because they were not busy and wanted business, that was why we were able to get such a good deal and I am glad we did.
Regarding the refinery, you talked about a three- year timeline, which starts from 2021, are you certain about the target considering that investors are no longer willing to bring out funds for investment?
See, there is more money in the global market now than ever before. If you want to take $1 billion now, you can get it from the international market. Look at when we did our bond issuance, it was highly oversubscribed and nobody expected that. We were looking for N100 billion, but people dropped N140 billion. The whole world is awash with cash, so there is money and if you have a good project, investors will stake their money. But I can assure you that despite the COVID-19 challenges, we shall deliver on schedule. If there is one thing that BUA Group prides itself with, it is delivery projects on target. When we say, we will do something, we do it within the timeline that we have given. Look at our Obu Cement factory line 1 and Sokoto line one and line two. Even our projects in Port Harcourt, Rivers State. Any time we set a timeline to deliver a particular project, we also keep to it and the Refinery project will not be different.
I will like you to speak about AfCFTA and what are the opportunities you see for your business?
The AfCFTA is a very good and important development for Nigeria, but then again, it depends. It is good because there are so many opportunities for us a BUA Group and so many other companies, if we get it right. What it means is that we are going to move goods, services and people freely within the entire continent, 54 countries, duty free. So if you are able to produce in Nigeria, you can go to any country in Africa and sell your products duty free. However, the fact that Nigeria is heavily dependent on importation presents a challenge. Secondly we are very large in terms of population, consumption is very high in Nigeria. So, if we unable to produce, we may be the dumping ground. Everyone will be dumping their goods here in Nigeria because we have the market and the population. We are the biggest economy in Africa. But if we are able to produce, whatever we produce we will consume and sell here before exporting to anywhere in Africa. Why I said it is good for some us is that, for instance, when you look at our cement factory in Sokoto, that plant is only about 120 kilometers to Niger Republic and 400 kilometers to Ouagadougou in Burkina Faso. The market in Burkina Faso is four million metric tonnes and Niger Republic is about 1.5 million metric tonnes. And none of these countries produce clinker, which is cement, apart from Niger that has a very small 100,000 tonnes clinker production. Therefore, nobody around there can compete with us; that is why I said it is good for me. Burkina Faso is landlocked, which means they cannot import anything into their country and they do not have limestone, which means they cannot produce clinker; they import the clinker and then process it. And they have to import it from either Turkey, China, or maybe from North Africa, to Lome, Togo. And from Lome to Burkina Faso is same distance from Sokoto to Burkina Faso. That means they have to transport the product by sea and the nearest seaport is Abidjan, Ivory Coast or Lome and most of these areas are very far for them. So, nobody can compete with me because their cost of production will be much higher. So, it is a fantastic opportunity for BUA Cement in Sokoto, because it is next door. In fact, that is the reason why we are running another line because one line will be dedicated just to exports, because nobody can compete with us there. I have limestone and I can produce clinker and then move in. So it is good for companies like us. But for other industries in Nigeria for example, that are struggling, if we allow the importation when they are not competitive, it will be an issue for them. And I don’t want a situation where we would be importing almost everything. So, we need to step up, produce more so that we can not only satisfy our local market, but also take advantage of this AfCFTA because it is key and it is here to stay. Nigeria has signed and 54 other African countries have signed and about 40 have ratified. Therefore, it has already taken effect and you can see there are a lot of opportunities. There are many companies that will benefit from this arrangement. But if you do not step and allow a situation whereby everyone will be importing everything into Nigeria, with our meagre foreign exchange, you will see that in no distant time, we would become a dumping ground and it will be another big challenge for us. Really, I am looking forward to a situation when people will start putting up things that would enable them take advantage of AfCFTA because the market is huge. A market of about 1.3 billion people and Nigeria is about 200 million and the people will be looking for market, so we must raise our game. What we are doing in the sugar industry, if we are able to complete, within the next two years, we would be producing enough sugar for export. So, we really need to push so that people from other countries would not turn Nigeria into a dumping ground and you cannot stop it so that you won’t be seen not to be in compliant with the agreement that you have signed. So, to me, it provides a good opportunity because you cannot continue protecting your economy. You have to be open because that is what others all over the world are doing. But we just need to take advantage of this initiative. I love the AfCFTA, it is a good thing for the continent; you can move around visa free, but of course the issue of country of origin has to be looked into very well. We would not want a situation whereby some countries will import products from companies outside Africa, let’s say tyres from China, take it to Ghana and label them made in Ghana and then bring it to Nigeria. So, we have really to make sure that issues like these are taken care of. But, if you are able to produce a substantial part of anything within Africa, you can move it around countries in the continent freely. So, we must make sure that no country is allowing dumping. Even when it comes to movement of people, in Africa today, you will see that only about 30 per cent of Africans can actually travel to other African countries without visa. Today, if I want to go to South Africa, Zimbabwe, Morocco, and some others, I will need a visa. But, if a German wants to go to South Africa, he doesn’t require visa, if he want to go to Egypt and Morocco, he doesn’t require visa as well. So, foreign countries have more access to Africa than Africans, which doesn’t make sense. Really, we have to look at all these issues because it doesn’t make sense.