Nigeria’s protectionist policies are not working out at all.
These policies protect the economy from external participation.
This is why Bubu closed the border in 2019 and the ban of FX for food importation and other items.
This caused food prices to go to the moon. Consumer goods are also affected.
This is why our inflation rate is at 15.99% and interest rate is 11.5%
Buhari has a “Buy Naira to Grow Naira” agenda.
Good policy but Nigerians are poor, with bad roads, electricity etc.
It is like setting up a KFC in Owode Ijako.
People can’t patronize, this leads the business to struggle and close up.
Lemme focus on cement today.
Fun Fact: The Cement Industry is the most valuable industry in Nigeria.
There is an oligopoly in the industry.
Just three companies are in that space.
Dangote, BUA Cement and Lafarge.
Dangote Cement controls the largest market share (60%) followed by BUA Cement and Lafarge.
These guys are balling.
Nigeria holds the record for the highest profit margin in the global cement industry.
Nigeria cement profit margin is 45%. The global average is 23%
Another terrible record we hold.
To illustrate it means if they use N1,000 to produce one bag of cement, they are selling it for N1,800 (Not N1,450)
If the calculation is odd, it is accounting stuff.
Since it is an oligopoly, there is literally no competition.
This is why the price of 50kg of cement rose by 60% from N2,500 to N4,000
No price wars at all.
These companies would just follow the lead of Dangote.
That’s just the first 4 months in 2021.
At that rate, they will pay N120 billion in December.
If we do a work-back with only Company Income Tax which is 30%.
Their Profit After Tax will be N280 billion.
Now,
Dangote’s factory can produce 32 million tonnes of cement yearly but it only produces 16 million. That’s a 49% utilization rate.
Lafarge can produce 11 million but it does only 5.5 million (50%)
BUA can do 13 million but it does 8 million tonnes (62%)
Why do they do that?
Because they can and Nigeria’s demand is low
Nigeria’s demand average yearly average is 21 million. They can do 51 million tonnes yearly.
In basic economics, if supply is higher than demand, the price drops.
The oligarchs don’t want that obviously.
So basically they operate as a cartel.
Supply just enough
Set prices anyhow. There is no competition or government intervention.
Consumers suffer and the government don’t want to intervene.
If they set a price ceiling for cement as they did with petrol, cement companies will just hoard.
This will lead to the creation of a black market for cement.
The only other solution will be to open the country to cement importation.
This will increase the supply of cement in Nigeria, forcing the oligarchs to compete.
It will ultimately drive prices down.
But Meffy would never do this!
He wants this closed economy to work which it really isn’t
Dangote Cement and the rest can keep increasing prices, remain extremely profitable and people pay the price
New entrants into the industry are very unlikely.
You would need at least $5 billion is get started in cement production in Nigeria.
How many people can afford that??
Yeah, I know it is easy to point out problems in Meffy’s policies since I am not in the position.
But really, this approach hasn’t worked for any country in a similar situation as Nigeria.
Consider China that successfully decreased it’s poverty level from 57% in 1993 to 0.6% in 2019.
Also, Vietnam, Indonesia and the Asian Tigers.
These countries never operated a closed economy we are doing right now.
Yet, they have experienced the growth we desire to have.
If we want to stick to the “Buy Naira to Grow Naira” policy which involves reduced imports and local production.
We have to consider that running a business in Nigeria is very expensive. Infrastructure (electricity, road, Internet etc) issues make costs high and producers have to increase prices to remain profitable.
This is why we depend on imports.
This isn’t working.
Meffy and Bubu don’t want to change their approach.
The question now is “Naija which way?”
