Lawmakers seek relaxed licensing restrictions for Nigeria’s cement industry

Nigerian lawmakers are taking steps to address the high cement prices in the country by considering relaxing licensing restrictions in the industry. The move aims to reduce barriers to entry and allow more local players to compete in the highly competitive cement market. Onyeka Ijeoma, an analyst at Vetiva, discussed the current state of the equities market in Nigeria, which has seen two sessions of gains this week but remains in negative territory year-to-date, down by about 3%. Lawmakers have been discussing regulating cement prices since 2017, as Nigeria's cement prices are significantly higher than the global average, standing at over 200 percent above global prices. This high cost poses challenges in an economy with limited real estate holdings and a significant housing gap. One of the main factors driving high prices is the substantial costs incurred by cement producers in Nigeria. The major cement producers in the country each operate their own power stations, collectively generating close to 150 megawatts of power. Additionally, poor transportation and distribution infrastructure further add to the production costs. While the government is looking to address these issues and improve the ease of doing business in Nigeria, simply relaxing licensing regulations may not be enough to significantly increase market participation. Another significant barrier to entry in the cement industry is the capital-intensive nature of the business. Despite efforts to open up the market to more players, Nigeria currently operates at only 40 to 50 percent of its total cement production capacity, indicating an oversupply of cement in the market. While market forces should play a role in determining prices, some level of regulation may be necessary to prevent anti-competitive practices and price manipulation in the industry. Relaxing licensing regulations alone may not be sufficient to attract new players to the market, given the substantial initial investment required to establish a presence in the industry. In order to truly make a dent in the high cement prices in Nigeria, a comprehensive approach addressing cost structures, infrastructure issues, and market dynamics may be needed. Despite the challenges facing the cement industry, the equities market in Nigeria has shown some positive signs in recent trading sessions. While the market remains in negative territory year-to-date, the gains in the past week indicate some level of optimism among investors. Analysts are closely monitoring the situation to see how the regulatory environment and market conditions evolve in the coming months, with hopes of fostering a more competitive and sustainable cement industry in Nigeria.