Skyrocketing cement price: a case of productivity, supply and demand

By Victor E. Dike

The political leaders and policy makers do not appear to be concerned about the human side of economics. Mountains of reforms have been instituted in Nigeria and in spite of the lofty ideas put forward by the reformers the economy remains prostrate. Among the major issues in the polity today is the skyrocketing cement price (and high costs of foodstuffs) because the government is not instituting appropriate policies to grow the economy and spur productivity. This article examines the factors causing the rising cement price, and argues that it is a classic case of productivity, supply and demand, and offers a solution.

Productivity, supply, and demand are among the issues central to the social and economic life of every society. Growth in productivity, as experts have noted, provides a significant basis for adequate supply of goods and services, and thus improve the living conditions of the citizens and enhance social progress.^1,2The price of cement, which is the main material in-put for building houses (shelters) and other construction works in the society, has been racing through the roof. A 50kg-bag sells for about N2, 300, up from N1, 250 in 2007, and N625 in 2002³. It was recently reported that Umaru Yar’ardua was complaining to Charles Ugwu (the Minister of Commerce and Industry) about the skyrocketing cement price and barking out orders to him to bring down the price. But how would Charles Ugwu do that? Does Umaru Yar’ardua expect him to conjure magical tricks to reduce the price of a commodity that is in dire short supply? The government is always looking for solution to the nation’s socioeconomic problems at wrong places; the high cost of cement price is a case of supply not meeting public demand, and there is nothing any person can do until the causes of the imbalance are resolved. Basic economics show that the marketplace is at the heart of every economy.

The ‘medicines’ used to resolve economic ailments in advanced economies seem different from those that are used in Nigerian situation. For instance, in organized economies when the economy is not functioning as expected the managers of the economy would adjust economic policies to stimulate the economy. And efforts are always made to strengthen up the social institutions and infrastructures that support economic policies. Part of the challenges facing the economy is that monetary and fiscal policies play little, if any, role in Nigerian economy and that the supporting structures are perpetually in disrepair. Is there any wonder why Nigeria is unable to provide the people’s basic needs with all the human and material resources at her disposal?

The political leaders and managers of the economy do not seem to realize the impact of poor infrastructure and ineffective institutions on the economy. And it is absurd that the leaders do not apply the principles of economics when seeking solutions to the nation’s economic problems. The law of demand and supply shows that when the demand for goods and services is higher than the supply the prices of the goods and services would ratchet upward, ceteris paribus. How does one expect the Nigerian economy to be productive with the rampant corruption and poor governance, unreasoned policies, and poor planning? These are the fundamental reasons for the current high costs of goods and services in the society. The PHCN has gulped billions of dollars yet power supply is epileptic; and there is perennial fuel scarcity and lack of water supply, not to mention the poor state of the roads, railways, waterways, and airways. These issues, which have impacted negatively on the people’s welfare, have remained perpetually unresolved because the leaders’ lack of “moral purpose.”⁴ Fullan (1999)⁵ has defined “moral purpose” as “making a positive difference in the lives of all citizens.”  

Lack of genuine competition is part of the problem with the Nigerian economy. Experts have noted that a market-oriented economy is better suited for economic growth and development because genuine capitalistic economies are controlled by market forces⁶, and not by personal idiosyncrasies. But the leaders of Nigeria are yet to heed the advice of Adam Smith in The Wealth of Nations (1776) that the State should not interfere in the economy, and should allow the law of supply and demand to regulate the economy for the interest of everyone, and not for a privileged few. Research, however, shows that the Obasanjo administration restricted competition in the cement industry by allowing a selected few companies (Dangote Industries, Atlas Cement, Nigeria Flour Mills, Eastern Bulkcem, Ibeto Cement, etc) to manufacture, import, and supply cement⁷ to the over 140million Nigerians. (It is important to note that cement does not appear to have a popular modern local substitute). Basic economics show that monopoly breeds scarcity, high price, and low quality product⁸. The Obasanjo administration curtailed activities in cement business when it banned the importation of Portland cement into the country.^9,10 Restricting importations to protect the local industries that cannot produce enough cement contributes to the rising cost of the product. Thus poor judgment and bad market practices are part of the problem with the economy. Nothing has, however, really changed in the society because the present administration started up disappointingly while vacillating on policies. Scarcity of other material in-puts in the production of cement leads to the current high cost of cement. It must be emphasized that with the deplorable state of the infrastructures the manufacturers cannot produce enough cement to meet public demand.

There are myriad distributive consequences from the rising cost of cement, including high cost of construction and high cost of new homes. It prevents the people from building homes of their choice and exacerbates unemployment and poverty profile of the society as some construction companies could be forced out of business. And it will affect the quality of blocks and houses; substandard blocks may escalate the incidence of collapsed buildings in the society as dishonest builders could cut corners to increase their profit. And the high cost of cement will affect the broader economy because the citizens will be buying less as the prices of cement, foodstuffs, and other commodities continue to seize up. All these have the tendency to build up on the people. Although Obasanjo is out of power the consequences of his mal-administration will remain with the society for a long time.

Solution to the skyrocketing cement price could be classified into short-term and long-term. As some analysts and practitioners have indicated short-term solution includes massive importation of cement to make up for the deficit in local production. But the effect of this will not be immediate because it would take sometime for the orders to be processed; and the goods could stay forever at the nation’s ports when they arrive. Also the nation’s poor distribution channels would hamper the availability of the product in the market. The idea of massive importation may not, however, go down well with the protectionists who would be shouting that it could strangle the weak local cement industries. But experience shows that the best solution to any problem is planning ahead to prevent the problem from occurring in the first place.

Stimulating the economy would require a holistic approach because as Rose-Ackerman (2004) notes a “dysfunctional government” is often “captured by wealthy interests.”¹¹There is no substitute for government policy actions that would improve the capacity of local industries. Thus long-term solution to the rising cement price would be to fix the dilapidated infrastructures (roads and bridges, water, truly reform the power sector, etc) and strengthening the institutions (respect for rule of law and due process).¹² Nigeria’s economic problem is largely a productivity issue and anything that can increase productivity will dampen the prices of goods and services. Conducive economic environment will enable the cement industries to expand their capacity and increase supply to meet public demand.

And for the prices of goods and services to plummet there should be free enterprise (without undue policy restriction), which would enable any person or organization with the resources to enter into any legal business.

Infusing real competition into the cement industry, for instance, will force manufacturers to compete for customers as they increase productivity and quality. This will finally reduce the price. One must not forget the effect of good labor-management relationship on productivity. The rising cement price could also be arrested by shifting demand away from cement to alternative material in-puts for building houses and other construction works. In the United State, for instance, most of the homes are built with wood with cement used mostly for foundation. Nigeria has, however, been unable to innovate because of inadequate investment in human capital and technological development. As noted earlier, good environment will increase economic activities and help the society to benefit from the power of productivity.^13,14As analysts and practitioners have noted, since cement plants are capital-intensive the government should make cheap loans available to prospective investors in the industry and make other material in-puts available and affordable.¹⁵ Because of constant power outage¹⁶ the local industries are spending a lot money in providing their own power generating plants.

The political leaders and policy makers are not doing what its takes for the nation to develop. The federal government cannot feign ignorance of the fact that its policies are not working. As usual, the present administration is now running around making excuses and finding scapegoats for the problems facing the economy instead taking responsibility for their policy failures. But taking responsibility for the things we do wrong, as well as the things we do right, is important for national development. As noted in Educating for Character “respect and responsibility are the two foundational moral values” that a society should teach its citizens. Others include honesty, fairness, tolerance, prudence, self-discipline, helpfulness, compassion, and cooperation, courage (the virtues of Aristotle) among other democratic values as they would enable the people to create a viable humane society and to act “respectfully and responsibly.”¹⁷ Unfortunately, there are unlimited numbers of crooks causing the disintegration of justice in the society. But without justice there will be no peace and stability, and without political stability the economy suffers. Any government that cannot provide food and shelter (basic needs) to its citizens is not worthy of the name.

The present administration should break away from the anti-development policies of the previous administration and truly reform and restructure the system to lay a solid foundation for the ailing economy. Evidence shows that the nation’s poor infrastructure and ineffective institutions hamper productivity, which prevents industries and businesses from supplying enough goods and services to meet public demand. In particular, the administration will make positive history and an indelible imprint on the heart of the suffering masses if it institutes reasoned policy actions to tackle the fundamental factors behind the rising cement price. Until then the skyrocketing cement price would not plummet.

References

1. N. Gregory Mankiw: Principles of Microeconomics (2nd edition) Fortworth: Harcourt College Publishers, 2001

2. William W. Lewis: The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability. University of Chicago Press, April 2004.

3. Daily Independent: “Cement Crisis: Importation as Short-term Solution,” January 4, 2008

4. Victor E. Dike: Leadership without Moral Purpose: A Study of the Obasanjo Administration, 2003-2007 (Forthcoming)

5. Michael Fullan: Change Forces: The Sequel. The Falmer Press, 1999

6.  Mankiw, Ibid.

7. Tell Magazine: “Why cement price is rising”, March 11, 2008

8. Mankiw, Ibid

9. Daily Independent, Ibid

10. Tell Magazine, Ibid

11. Susan. Rose-Ackerman: “Governance and Corruption.” In Global Crises, Global Solutions (Bjorn Lomborg, edited), Cambridge University Press, 2004, pp.301-344

12. Daron Acemoglu: “Root Causes: A historical approach to assessing the role of institutions in economic development.” Finance and Development (F&D), Vol. 40, No.2, June 2003

13. Lewis, Ibid.

14. Victor E. Dike:  “Economic restructuring and power of productivity,” Daily Champion, January 31, 2006

15. Daily Independent, Ibid

16. BusinessDay: “Power outage: Small-scale business operators count cost,” March 21, 2007

17. Thomas Lickona: Educating for Character: How Our Schools can Teach Respect and Responsibility. New York: Bantman Books (Paperback edition), October 1992

Victor E. Dike, CEO, Center for Social Justice and Human Development (CSJHD), Sacramento, California, is the author of Leadership without Moral Purpose: A Study of the Obasanjo Administration- 2003-2007 (Forthcoming).

Robot  Villager

# 1 ...Read the full article. Posted by Robot| 16.03.2008 10:19

salford  Villager

# 2 Very important points are made by the author. Nigeria's thirst for cement keeps skyrocketing and the supply is affected by a monopolistic cabal, disorganisation and a desensitised government. BTW whatever happened to the push to encourage the use of bricks and other prefabricated materials in our building industry? Posted by salford| 17.03.2008 11:50

Sapele Man  Villager

# 3 Since Nigerians prefer to use cement in places where they could have used wooods then demand is bound to outstrip supply. Posted by Sapele Man| 18.03.2008 08:33

Bode_Boluz  Villager

# 4 What about Clay bricks? This is a link to a company in Malaysia. There are abundant Clay deposits all over the Country. I remember the newspaper and TV images of gully erosion in Imo State and the geologist saying that one of these locations had such good quality clay, it made it hard to clean up the roads and communities after a land slide or mudslide... If only a keen private investment team looked at what the world is doing with regards to building options. Posted by Bode_Boluz| 18.03.2008 08:47

Sapele Man  Villager

# 5 =Bode_Boluz;4294996890>What about Clay bricks? This is a link to a company in Malaysia. There are abundant Clay deposits all over the Country. I remember the newspaper and TV images of gully erosion in Imo State and the geologist saying that one of these locations had such good quality clay, it made it hard to clean up the roads and communities after a land slide or mudslide... If only a keen private investment team looked at what the world is doing with regards to building options. Bode_Boluz, The government set the build standard and approve the buildingplan. It therefore requires government to publicise this alternative before investors dare put their money into this venture. Investment risk is multiplied negatively when you attempt to establish a building standard that is not promoted by the government or has no government backing. Posted by Sapele Man| 19.03.2008 16:58

Bode_Boluz  Villager

# 6 Err... This is where things are really about face. Building codes are standard all over the world for a variety of building materials. Nigerian Architectural and construction institutions both public and private subscribe to these with gleeful aplomb. So there is no draw back on these options and related technologies being pursued. It is all about adhering to properly thought out international standards. Not Nigerian Flim flam "na so we dey do am" standards. If that is done, no regulation or even legislation can touch a committed private enterprise initiative. Well meaning Architectural and construction firms can build show case buildings, promoting the options so that people can see what they can get. They can combine materials. Nothing stops the use of cement and clay bricks on the same building. Most UK buildings whether they are houses, flats or high rises are made up of an ingenious combination of the two. The main reason why things are the way they are is greed and short sightedness by those that have the resources to make such investments. All are looking for the shortest possible route to making a buck. Clay Brick making creates sustainable local jobs. It also requires a minimum of resources to make it happen as most of what is required can be sourced locally. Look at this process in China. Can this not be replicated on the ground in say the industrious East of Nigeria where they got some of the richest deposits of good quality clay and coal?? Basic Set Up More Advanced Version Oh.. and this is one business venture that definitely does not need government dilly dallying but firm commitment from the private sector to make a go of it. There is also the major factor of what I can only describe as "fear of hands on working" that many Nigerians in Nigeria seem to acquire as they grow older, rise in rank and/or make more money. It is as if they lose the ability to do anything physical or think of innovation. If there were more hands on folks running things in Nigeria, things would be a lot better. I am having my kitchen redone and the contractor, (a young 55 yr old is here every day overseeing the work directly. He even took the time to rip out sub standard work and replace the piece giving instruction to his younger employees BY DOING IT... They then sailed through the rest of the tasks with efficiency and due diligence to the standards required. Our people talk too much... They are afraid of responsibility... They are afraid of change... They envy each other something chronic. They are even afraid to act in the face of over arching injustice. They look down on manual work of any kind even when it is important, therefore, when they do have to perform, it is usually sub standard. The thing is over here in the developed world some of these Nigerians excel at some critical manual jobs. I saw on UK channel 4 last week a Nigerian Chap, (Kunle was his name), who works on the London Underground Tube network Clearing the Train tracks of debris and rubbish. They have to walk long sections after closing time between 1 am and 4 am taking time to meticulously clear and check the lines. I know another one personally who holds down 3 jobs... Manual Jobs, and he has a degree in English literature. There are thousands of such hard workers here. Why can this not be the same for work ethics in Nigeria? I digress, sorry but that is a topic for another day. God Save Nigerians.... Posted by Bode_Boluz| 19.03.2008 21:20