Ongoing Konkere Wars – An Update

Quick post.

As you know, this blog has decided to provide rolling coverage, at no charge to readers, of the ongoing drama around cement in Nigeria. I do this purely out of the Christianity (or what’s left of it) in my heart, so you don’t need to thank me for it.

If you are not up to speed – Part 1 of the War began with the mysterious ‘glut’ in the market. Hostilities were soon renewed by the belligerents after a brief period of peace, this time over ‘standards’. While battle raged, I decided to take a look at the numbers for cement production in Nigeria. They were so alarming that I was compelled to exercise my right as a citizen of the Federal Republic, guaranteed under the constitution, to write an open letter to any minister of my choice. Then a really smart reader sent me more information that added context to my letter and increased our understanding of the Nigerian cement ‘market’.

Again, as you may have guessed, I have my ‘sauces’ embedded everywhere inside the Federal Government of Nigeria and its agencies and one of them has very kindly sent me a presentation by the President of COREN [Council for the Regulation of Engineering in Nigeria] to stakeholders in the construction industry, put together by SON.

[Sidebar: Yo SSS, if you are reading, I was only joking about having people embedded. I don’t want anyone delaying me in the hot airport when next I am in Nigeria. Thank you kindly]

Forgive the style of the presentation, but it contains plenty of useful information that improves the quality of the debate currently going on over cement standards. If both sides are now fighting each other with facts and empirical evidence, then that is a much better thing than the dodgy stats that have been deployed before now.

The presentation is below. Here’s hoping that facts and logic win at the end of the day and Nigerian consumers get a better deal out of the market. Read to the end.





P.S Message to SON: Audite et alteram partem


Response to My Open Letter: An Insight Into Nigeria’s Cement ‘Market’

A friend read my open letter to the Finance and Trade Ministers and sent me an email.

I have nothing personal against Dangote (not like it matters) so it’s important to share whatever (superior) information I have especially as cement seems to be the economic topic du jour.  I’ve posted his email, with permission, below, unedited.


I think that’s a brilliant attempt at driving change in the cement industry. However, I think rather than comparing Dangote to these global guys, look much closer to home to see why the local market is distorted. Dangote, if you ask me is a brilliant capitalist in the mould of Rockefeller & J.P Morgan etc. The Nigerian cement market is your classic oligopoly featuring Dangote, Lafarge WAPCO, Ashaka (which is owned by Lafarge) CCNN, BUA and Unicem (Again partly held by Lafarge and Holcim, whose merger means they could potentially own three cement coys) and other puny players like Ibeto who import.

The table below showcases the gross margins of cement producers in Nigeria that are listed on the NSE over the last five years:

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Notice Dangote has consistently high gross margins which is an insight into direct costs. Now local cement prices are the same for all players or broadly in range. Indeed Dangote’s prices were for some time slightly lower than peers until perhaps recently. 

Still he’s always had higher gross margins. Why?

The key driver of costs for local cement players at gross margin level is energy costs. Other players predominantly use LPFO which for a reason I can’t fathom is expensive to source locally. However, Dangote uses gas to fire his kiln at his cement plants thus he’s already at an advantage across all his shiny new plants except BCC, Gboko (which is why he rarely uses it).

Gas prices in Nigeria as you know are fixed and remain well below international prices (depending on who you speak to <$2). Which explains why not much investments in gas infrastructure until recently thanks to the gradual MYTO thingie. Anyway you can see why Dangote is much more efficient. Add to the mix that his plants are all more recent vs. ageing plants at CCNN and Ashaka. 

WAPCO seems to be catching up with their new plant which is gas powered. WAPCO was recently in the news about selling power to the grid but their older plants still use LPFO due to poor gas pipeline infrastructure issues. Most manufacturers now produce electricity using gas – Nestle, FlourMills, Dangote etc

Broadly speaking, you can clearly see why other players have no incentive to slash their prices as they stand to lose more than Dangote. Logically, he should slash it and force loss making firms to exit the industry.

My theory – what we have is implicit collusion which causes all cement producers to leave prices at current levels and enjoy high profits. Entry barriers to the industry are high enough so we can all stay comfortable as long as no one slashes. This means whoever drives the most volumes ends up market leader which is why Dangote always goes BIG! His efficient plants means profits are bulkier.

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Next table is EBIT margins which gives a sense of operating efficiency. Again who’s the monster here, Dangote. Why? 

Again part of this reflects the feed through from gross margin levels but whatever Dangote is doing he’s ruthlessly efficient. OPEX includes stuff like distribution. Now I’m talking margins which mean he’s good at getting things out per unit of sales than other guys. Some of this reflects geography (my theory) – he’s centrally located vs. WAPCO; who are concentrated in the South West , CCNN; North West, Ashaka; North East and Unicem; South South.

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Lastly is the PBT and PAT margin.

Look closely now – before taxes his margins are already 45%. Now the tax credits push him above 50%. Nigeria has a policy which I remembered being taught from undergrad days called Greenfield Tax Holidays. It’s real. You build a new factory and any incomes earned on that new factory is tax free for five years. It’s not Dangote alone who enjoys this. Several other companies enjoy it but it’s only on new factories. So if 50% of your sales come from your new plant, only 50% of incomes earned there are taxable. Dangote’s plants are all largely brand new. Voila! His tax holidays.  WAPCO last year also got a huge jump in earnings as it began benefitting from tax holidays on its new Latabaku plant.

But now to the economics. Dangote enjoys those high prices because he knows other players have no incentive to slash theirs or they would be on zero margins. All he has to do is work on efficiency and expand volumes to get fat profits. This is where my thesis of implicit collusion comes in. His getting fat implies other less efficient firms are allowed to survive on those high prices.

Rather than your Keynesian sounding idea which requires the firm hand of government – which runs contrary to the free market doctrine I associate with you – I would clamour for a competition commission as this is Nigeria, that process of having a website and doing lotteries still sounds arbitrary to me. I don’t think markets are bad, I think markets fail every now and then and thus we need visible regulation or system of rules to fix them. What would happen in other climes is that a competition commission steps in and decides ‘hey guys you’re colluding. We think prices should be down here’. After that hefty fines are handed out and prices adjust downwards which will force smaller loss making firms to either get bought up or liquidate. Currently we have equilibrium at an undesirable level, we need to invent that wheel to force everybody down.

I think long term what will happen is that there will be fewer players maybe just 2. Most countries have just few players. Lafarge has been mulling merging Ashaka and WAPCO for sometime. But you know our people, they keep resisting fearing Lafarge will close down the factory in Gombe. I wonder what will happen now that Lafarge and Holcim have merged. Dangote knows this well which is why he’s aggressively expanding capacity to meet demand for the whole country so that when that time comes to slash prices it will be on his terms. This is your classic price leadership in Oligopoly outcome – standard in economic texts. I watch the sugar industry and I’m seeing the same thing playing out there as well. But the cement industry is some years ahead of this.

Dangote enjoys his high margins from gross levels largely not from taxes. Over the next 2-3 years this will lapse. His sugar business pays statutory 32%, no holidays there. I think Dangote is what happens when regulation is lax not that he’s some serial cheat. He’s the natural result of market failure. He’s exploiting the fact that others won’t slash prices.

NB: on the tax issue which a lot of people are getting worked up about – do you know how much taxes Nigerian banks pay? Hint: Sanusi was railing against the current banking model of getting cheap deposits at zero to 3-4% and investing in govt securities of over 10%. Why? Govt securities are tax free. Nigerian banks tax rates are nowhere near 32%.You can check it.

If you look closely at the Nigerian economy, everything is rigged: gas prices, petrol prices, school fees, exchange rate – the biggest subsidy of all and implicitly cement prices. We abhor competition because it creates price volatility. Yet, to unleash our economy we must break out from this mindset and move to a market based system. That change however is something we are not prepared for as you remember from the fuel subsidy protests. So it has to be gradual. 

I’m sorry I had to write this long thesis I hope it helps shape your solutions. Ironically today I was watching CNBC and the South African Competition Commissioner was saying cement is one of the most collusive industries globally. It does not need the players to do any cloak and dagger stuff all they need is some equilibrium that suits everyone which is guaranteed by high entry barriers.

Imports can work but I believe Nigeria is not at the time now. We still peg our currency implying everyone gets an implicit subsidy on imports and our size as well means imports have a negative effect on reserves.


First off, thanks to the person who sent this to me [He wants to remain anonymous]

Let’s try to unpack some of that.

1. If the above theory is true (and I think it’s very sound), then the problem is rather different from what I thought it was.

‘Entry’ and ‘exit’ are compulsory features of any functioning market. Some people will always die and leave the market. But if profits rise for the survivors, that will attract new players into the market again. And so on. To enter the market, you have to do something better than those who are already there.

Does the fact that Kodak went bankrupt mean that people are taking less photos? No. In fact, human beings are taking more photos than ever before but Kodak has exited the photo market and new people – like Sony – have entered. This is how capitalism in a market system is supposed to work and improve lives.

2. What has happened in the Nigerian market is a really annoying situation. Rather than kill off his competitors by pricing them out of the market, Dangote lets them stay alive to help him make as much profits as he can.

Looking at those numbers above, if Dangote drops prices by say 15%, CCNN will die in about 10 minutes and Dangote will make up the drop in revenues by selling more cement. In such a situation, will Nigerians have less cement to buy? No. In fact they will buy more cement due to the lower prices. And life will go on.

3. But if Dangote uses price and efficiency to kill off the inefficient players in the market what happens? Well, we know that technology is improving all the time and we also know that Dangote’s plants are between 1 and 5 years old. Meaning that if you build a new plant today, you have a chance to beat him at efficiency and thus price. Again, this will be to the benefit of consumers, which is the whole point of production.

Instead, prices are kept high enough to sustain people who should either invest in new plants or exit the market. In short we have one kind of fake competition going on. If those weaklings die, it cannot be long before new players (or new plants) enter the market which will put the incumbents (esp Dangote) on the defensive.

In China, the government uses force to improve efficiency in the market – it simply shuts down small inefficient players or forces them to merge with others. As at 2012, there were around 3,000 (yes, 3,000) cement manufacturers in China and the top 10 producers combined, controlled less than 25% of the market. Some regions have now started to ban any new cement plants to reduce overcapacity and pollution.

In that kind of market, you can imagine that fixing prices will be very difficult.

In Nigeria, Dangote controls close to 70% of the market and as stated above, we have only 3 players really.

4. This theory explains the ongoing war over cement grades I think. Rather than eliminate competition by bringing down prices, I reckon Dangote wants to drive them from the market while keeping prices high (and maybe higher). Why?

He’s currently in the middle of his African expansion so he will extract as much profits from the Nigerian market as he can before the referee blows the whistle on this game.

5. But all these shenanigans can go on partly because importation of cement is banned. I still think that my recommendation on allowing imports will work precisely because I am almost certain it won’t happen. Dangote has so much capacity to cut prices [I understand that even at N500/50kg bag he will make profits on his cement] that if the Nigerian government were to allow imports, there’s no way he would sit around and watch. He’d simply drop prices low enough to make importation pointless. Job done.

6. Just to clarify – I think Dangote’s zero taxes are a symptom not a cause of the problem. It is merely rubbing salt into an open wound. Certainly, no law has been broken in not paying taxes and the tax holidays have a place in encouraging people to invest in the economy.

7. Here in the UK, in January 2012, the Office of Fair Trading referred the cement industry to the Competition Commission for investigation. After a 2 year investigation, the CC concluded that the market was not competitive enough and there was some sort of collusion/co-ordination going on.

It has now decided to increase competition in the market by creating a 5th player through forcing Lafarge and Hanson to sell some of their plants to a new entrant. You can find the 103 page report released in January here. What’s amusing is that all drama is happening in a market where the manufacturers operate at around the 7% PAT margin with a 25 year time frame to make a return on investments in new plants.

When people hear ‘free markets’ they tend to think of something with no rules. But a free market actually means that the rules are clear and apply to everyone equally to ensure competition and consumer protection.

So you have the OFT constantly watching markets to ensure nothing funny is going on (sometimes its very hard for consumers to see what’s going on) and if it finds anything, it asks the Competition Commission to investigate and apply sanctions as appropriate.

There is also a Competition Appeal Tribunal to which Lafarge and Hanson have applied to challenge the ruling of the Competition Commission [I think I support the cement manufacturers here because they have been under watch and investigated 3 times in the last 10 years or so and Lafarge has already been forced to sell some plants a few years ago. They barely make profits and demand for cement crashed after the recession and has not recovered since. Perhaps the UK is an example of ‘extreme’ regulation, but you get the point]

This is broadly the kind of structure you will find in more advanced economies.

We are nowhere near that level yet but a couple of days ago, someone sent me this link. The government is currently taking submissions on a competition policy. I will send in a contribution and if you can, you should too. I don’t know how long it will take to draft the policy and then get it through the NASS (elections are coming and people will lobby against it).

In short, it looks like these high cement prices will be here for a while. Change is hard. Change in Nigeria is even harder.

It really is in the government’s hands to remedy the situation if it wants to. But I think there is now enough information in the public domain for consumers to keep the pressure on those who matter.

I hope you haven’t been depressed by this long post? The problem is more serious than I even imagined it to be.


An Open Letter to Ngozi Okonjo-Iweala and Olusegun Aganga

Honourable Ministers,

I write to you as someone with a lot of frustrations about the way Nigeria works (or doesnt) for the vast majority of its citizens. I tend to concern myself mostly with economic matters as I believe that economic freedom comes pre-loaded with many other benefits for a country and its people.

First the Facts

I have spent a lot of time lately looking at the model we have chosen for our industrial development using Dangote Cement as a lightning rod. The more one looks at the numbers and the reality of the situation, the more disturbing it is.

I have put together a comparison of Dangote Cement’s profits and the world’s largest cement manufacturers spanning Asia, Latin America, North America and Europe. You can find it here on iCloud or Google Docs. The numbers, without mincing words, are frightening. A Nigerian government policy is aggressively picking the pockets of its citizens by forcefully reducing choice in the market. This has inevitably led to us having the highest cement prices in the world.

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The Chinese are the most efficient cement manufacturers in the world; their profits after tax as a percentage of their revenues comes to less than 18%. Globally the average profit ratio is around 6% (brought down by lower margins in Europe). Dangote Cement has a 52% profit ratio, 3 times the most efficient manufacturers in the world. If Dangote Cement were to sell the same amount of cement as the world’s biggest manufacturer, at the current rate, it would make more profits than the top 4 makers in the world, combined.

Whereas people in Vietnam can buy cement at $67/tonne, Nigerians are condemned to paying $263/tonne for the same product. The argument that the cost of doing business in Nigeria makes things more expensive does not square with the fantastic profits that Dangote Cement is making. Both – high profits and high business costs – cannot be true at the same time.

It feels as if Nigerians are being punished for a crime that remains unclear. It gets worse – only 5% of Dangote Cement is owned by Nigerians so the level of participation in these fantastic profits are extremely limited. If and when a further 20 – 25% of the company is floated on the London Stock Exchange, and this forceful extraction of profits from Nigerians continues, we may well end up with a perverse situation where poor Nigerians will be enriching pensioners in the rich world via their pension funds who will undoubtedly invest in the company.

In taking out $1.2bn in profits from the Nigerian economy in 2013, Dangote Cement put back $43m into the economy via wages and salaries to its employees. Most painful of all, it paid nothing in taxes in the last year (or the year before) due to the various government incentives it continues to benefit from as a ‘pioneer’ company. Without these incentives, it would have contributed somewhere in the region of N70bn to the Inland Revenue as taxes. My workings I linked to earlier show this starkly – the company which sells the least amount of cement, makes the most profits and pays no taxes. All of this sits beside your stated objective to boost tax revenues as a percentage of our newly rebased GDP. Will you go after ordinary Nigerians and small businesses while leaving these huge gaps in your fiscal policy?

It is one thing to allow a loss making company get a breather from the tax man while it finds its feet, it is quite another to waive taxes while a private company rakes in the profits.

How Did We Get Here?

Whatever it is this cement policy was designed to achieve, it is hard to believe it was designed to impoverish Nigerians in this way. The reality has so far deviated from the intention that it will be difficult for you to justify keeping the status quo.

How do we square having the highest cement prices in the world with having a housing deficit of 17 million homes? This cement policy will undermine whatever you do elsewhere, especially the recently launched NMRC. It goes without saying that cement is a vital input with its real benefits in what it is used to achieve. If Dangote Cement employs 20,000 workers, then we can be certain that cheaper cement will create this number of jobs in housebuilding alone in a matter of days. By making cement the beneficiary of such lavish treatment, you are essentially driving the economy with the handbrake on.

I know people who are building their own homes at the moment and it is a painful stop-start affair because of the sky-high costs involved. While cement is not the only obstacle to building your own home (land use laws also lie in wait), is there any reason why government should so blatantly be adding to the problems in this way?

Policy Change – Catherine The Great’s Example

Often times, policy makers openly commit themselves to a policy in a way that makes a u-turn politically expensive even when the results of that policy clearly show it to be counter productive. This is made worse when the policies are ‘popular’ when first proposed. Not many would have argued with a policy that encouraged local production of cement with all the benefits that come with it, at the time it was proposed.

But when we find ourselves in a situation where we are producing cement for cement’s sake, what to do?

I am reminded of a story about Catherine The Great when she ruled Russia in the 18th Century. Early in her reign, Catherine had strongly and publicly supported the banning of Jews from being allowed to immigrate into Russia and confining them to what was then known as the ‘Pale of Settlement‘. Given how Jews have always been discriminated against, this was undoubtedly a popular policy position at the time. Not only were they considered as weirdos (on account of their religion which non-Jews didn’t understand), they were also middlemen minorities with a habit of rising above any discrimination to gain a stronghold on the local economy.

Alas, as time went on, the cost of this policy became evident because Jews played an important commercial role in the places they had been banned from. Even people who hated them had been happy to do business with them. At a time when technology was not this available, people were the most important asset in an economy.

Catherine was then faced with the dilemma of having to reverse a counter productive policy while continuing to appear as a strong, decisive and popular leader. So she came up with a plan communicated in a famous letter she sent by courier to George Browne, the Governor General of the Province of Riga at the time:

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That was not all. Being bilingual, she added the following words, in German, at the end of her letter:

If you don’t understand me, it will not be my fault. The President of the Guardianship Chancellery wrote this letter himself, keep this all secret.

In summary – Catherine The Great banned Jews from Russia. Catherine The Great also created a loophole that allowed her to break the very law she had passed and continued to ‘support’ in public, going as far as writing in German just in case the letter somehow leaked to the public.

Just as she cleverly avoided mentioning the word ‘Jew’ in her letter (she used ‘some merchant people’ instead) so did her immigration officials ‘scrupulously avoid any reference to Jewishness or Judaism’ when handing out passports.

Long before Bill Clinton came up with Don’t Ask Don’t Tell (another policy workaround) as a way of allowing gays to serve in the American military, Catherine The Great had done it.

I share this story to illustrate a simple point – policy makers are never short of options no matter how difficult the situation is and no matter how ‘publicly’ committed they are to the status quo. Indeed Deng Xiaoping famously moved China away from Communism to a market economy by cleverly declaring that – “it doesnt matter whether a cat is black or white, as long as it catches mice“.

Whatever you do, this policy of restricting imports while handing Nigerians over to Dangote Cement (and Lafarge) to be stripped of their little wealth cannot be allowed to continue. Yes, it is a key part of our Industrial Revolution Plan and the government is clearly proud of what Dangote Cement has achieved. But enough is enough.

A Simple Recommendation

So how can the government eat this policy cake and continue to have it? You will undoubtedly have your own ideas if you wish to change course or ‘adjust’ the policy.

But my concern here is for the average Nigerian to ensure that our cement prices trend towards the global average. Even halving prices will do wonders for construction and create the jobs we desperately need. Here they are in a few simple steps:

1. Resist the temptation to award licences for anyone to import cement. This will merely transfer wealth from one set of people to another at the expense of Nigerians. Given that cement is an input, the goal is to get the commodity into the hands of Nigerians as directly as possible. Whatever is built with the cement will remain in Nigeria, it cannot be taken out of the country.

2. You set some rules or standards on the exact type of cement we want in the country to boost housebuilding. For example, we can say we want only 32.5 and 42.5 grade given that these are the ones used to build residential homes. Thus the policy change will allow Portland Type xxx Cement in Grades 32.5 and 42.5 into the country. You can also restrict the brands allowed to, say, the top 15 – 20 manufacturers in the world.

3. You do not have to set a volume of imports. Instead have a target price in mind. Given that prices are currently $640/tonne, we should realistically be aiming for at least $200/tonne (N640 per 50kg bag). This will still be very expensive compared to other parts of the world but it will be major boost to our economy in terms of jobs. The NBS has shown itself to be capable of price monitoring in the last few years. You can enlist them to do this job.

4. There are several ways to do this next step but here’s my idea. A shipping container carries roughly 3 tonnes of cargo. Set this as the minimum or ‘unit’. Now, anybody who wants to buy cement will simply go on a website (you will set this up pretty easily) and apply for a minimum of 1 unit and a maximum of 2 units i.e. 3 to 6 tonnes. The ‘anybody’ in this case is very important because you have to ensure the benefits, as much as possible, accrue to those who want to use the cement to build houses as opposed to middlemen. In fact, you can exclude extant manufacturers from this explicitly, with the threat of sanctions if they try to game the system.

5. You can either review each application individually or simply use a lottery system to determine who gets the ‘permit’ (I truly hate this word but I don’t have any other one to use). One application per person in a year, multiple applications not allowed etc. People can be encouraged to club their orders together to make up the minimum amount.

6.  Once an application has been approved, the person can then be issued a ‘permit’ allowing them to import their allocation within a 3 month time period after which it will lapse if not used. You can ask for information on what brand they are planning to import as well as what country they are importing from beforehand. When prices hit the level you desire, you simply stop handing out the ‘permits’. If they start to rise again, you hand out some more. Ultimately, you will have the whip hand in the market.


It isn’t more complicated than what I have written above, at least to my mind. The whole point is to force down prices so we can create jobs and disperse the benefits as widely as possible. I stress the point – forcing down prices in this manner does NOT mean that Dangote Cement will lose its investments in the Nigerian market. The huge profits it is currently making suggest there is plenty of room for price cutting. It will simply make fewer profits not none at all.

You say you want inclusive growth? You say you want to reduce poverty? You say you want to reduce the cost of building a 3 bed house in Nigeria from $50,000 to the $26,000 it costs in India?

Well, this cement policy is directly standing in the way of these things that you want to achieve. There are many other self-inflicted policy wounds throttling the economy. But beat this one – the Big Kahuna as the Americans say – and the rest looks easy.

Your move, Honourable Ministers.


Unrelated Matters

You guys heard about Anhui Conch (AC) or nah? No? I thought so. Anyway you’ve come to the right place. The picture below should give you an understanding.

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That’s right, they are the world’s largest cement manufacturers by volume. They operate mainly in China though so that might be part of the reason they are not a household name across the world.

Anyway, they recently released their annual financial reports for the year ended 31st December 2013. You can find it here. To make things even better, the accounts were prepared under IFRS meaning that it’s a lot easier to compare them to any other IFRS account anywhere, basically. Even more coincidentally, Dangote Cement (DC) released their own annual financial reports a few weeks ago and you wont believe it but it’s for the same year ended 31st December 2013. And amazingly, their accounts are also IFRS. You can find it here.

So given that we have all this information, we might as well compare them no? Exactly. But accounting can be really boring so I’ve extracted the main numbers and converted them to US dollars using exchange rates from

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AC has almost 11 times the capacity of DC from the earlier chart above but it sold $8.9bn worth of cement while DC sold $2.4bn. One way to look at the numbers above is to say that for every dollar of cement that AC sold, it cost 67 cents in raw materials to produce. For our own DC, every dollar of cement sold cost 38 cents in raw materials.

Now you can say that perhaps this means limestone and all the other things that go into making cement is much more expensive in China. Best way to check this is to fool around for Portland cement prices. You will find that prices go as high as $80 per metric tonne. This is not an exact science by any means but we can at least imagine that AC’s prices wont be too far off that range given they are the largest manufacturer. Based on reports in today’s papers, an equivalent metric tonne in Nigeria now goes as high as $640, nine times the price in China. I stress that this is a very rough calculation but I think we can make the point that cement in Nigeria is much much more expensive than in China which is the explanation for DC selling 1/10th of the cement that AC sold but made 1/4 of AC’s revenues.

I didn’t bother with all the other admin expenses and salaries etc. but you can see that by the time we get to the Profit before Tax, the gap between them has closed to roughly $800m due to AC having higher costs like bigger salaries ($433m, pg 33) compared to DC’s ($47m, pg 26). Anyway you look at it, AC must be employing a lot more people than DC, obviously.

So how much tax did each of them pay to the relevant authorities? Normally we would have to investigate the tax rates in each country before making a comparison but in this case it doesn’t matter. DC didn’t pay any tax at all on its profits due to the fact that it still has plenty of tax credits – ‘losses’ from previous years and govt incentives that it carried forward – left to use (it didn’t pay any taxes in 2012 either). AC on its part paid $459m in taxes to the People’s Republic.

Now that the government in Nigeria has ordered the Federal Inland Revenue Service (FIRS) to look for an extra N6.4trn in taxes on account of our newly rebased GDP, it might want to start by looking at all the tax breaks and waivers it hands out. Just a suggestion.

By the time we get to Profits after Tax, the difference between both firms is just over $300m – the 27th largest cement maker in the world makes almost the same amount of profit as the world’s largest which operates in a market of 1 billion plus people. This is good business I am sure you will agree.

One more thing I found interesting in the accounts (pg 11):

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Regular readers of this blog, would have been following the ongoing Konkere Wars. Recall that the war broke out on account of the presence of ‘inferior’ 32.5 grade cement in Nigeria. Rumours that this grade of cement will soon be banned in Nigeria have been all over the papers. But from the above, not only did AC sell $2.5bn worth of this particular grade of cement, the product was slightly more profitable than the 42.5 grade.

32.5 grade cement is used mainly for residential construction so I reckon one can hazard a guess as to the kind of infrastructure development going on in China right now (my note on Chinese infrastructure is here).

Consumption is the sole end and purpose of all consumption‘ as Adam Smith once said. The Chinese seem to be making cement so it can be consumed by those who need to build stuff.

Anyway I thought the numbers were interesting enough to share. No need to thank me please.


Most people are familiar with Jim Crow laws in America and how they were passed to enforce racial segregation in public places in the US south starting in the late 19th century. Buses were of course public places and the state of Georgia was one of the first to pass such streetcar laws in 1891 while from 1900, various cities in Alabama started to pass such laws as well. It’s useful to note that before these laws came into being, blacks and whites had been sitting side by side on the buses and no one died.

Around about the same time Jim Crow laws were being passed in America, ‘Colour Bar‘ statutes were also being rolled out in South Africa (funny how bad ideas spread eh?). The whole point of these laws was to prevent blacks and Indians from competing with white labour in the market. These laws covered not just mining but also textile and construction.

One can leave these two stories here as we know how they ended. On December 1, 1955, Rosa Parks famously refused to give up her seat in the black section of the bus to a white passenger in Montgomery, Alabama (others before her had also shown defiance in various towns) and Jim Crow laws were eventually overruled by the Civil Rights Act in 1964 and the Voting Rights Act in 1965. In South Africa, apartheid, as state policy, came to an official conclusion in 1991 and of course Mandela became president.

But I like to discuss things from an economic perspective on this blog and the wise man I learnt much of my economics from once said ‘economics is concerned with what actually happened and not what anyone intended‘. So what happened after these discriminatory laws were passed?

Let’s go to Jennifer Roback’s ‘The Political Economy of Segregation: The Case of Segregated Streetcars‘:

The resistance of southern streetcar companies to ordinances requiring them to segregate black passengers vividly illustrates how the market motivates businesses to avoid unfair discrimination. Before the segregation laws were enacted, most streetcar companies voluntarily segregated tobacco users, not black people. Nonsmokers of either race were free to ride where they wished, but smokers were relegated to the rear of the car or to the outside platform. The revenue gains from pleased nonsmokers apparently outweighed any losses from disgruntled smokers.

Streetcar companies refused, however, to discriminate against black people because separate cars would have reduced their profits. They resisted even after the passage of turn-of-the-century laws requiring the segregation of black people. One railroad manager complained that racial discrimination increased costs because it required the company to “haul around a good deal of empty space that is assigned to the colored people and not available to both races.” Racial discrimination also upset some paying customers. Black customers boycotted the streetcar lines and formed competing hack (horsedrawn carriage) companies, and many white customers refused to move to the white section.

In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway “contested bitterly,” and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that his group “was in cahoots with the railroad lines in Jacksonville.” As pressure from the government grew, however, the cost of defiance began to outweigh the market penalty on profits. One by one, the streetcar companies succumbed, and the United States stumbled further into the infamous morass of racial segregation.

For South Africa, we go to the book ‘Capitalism and Apartheid‘ by Merle Lipton (sorry no online copy or e-version anywhere) which tells us that even though only whites and ‘coloreds’ were officially allowed to work in the Transvaal clothing industry, by 1969, sixty percent of the workers in the industry were black (pg 42). In the 1970s, even though the South African government had thousands of civil servants devoted to enforcing color bar laws, businesses were regularly flouting their quota by hiring black workers such that the government had to launch crackdowns on businesses by fining and even shutting some down.

Then there was the famous Rand Rebellion of 1922. When the price of gold in the international market started to drop in 1921, the mining companies (who were already breaking the color bar laws) started sacking white workers (nearly 30% of whites were sacked) and hiring more blacks and promoting others.

Of course the white unions didn’t take this lightly and they went on rampage killing blacks which in turn forced the government to send out troops to quell the uprising, killing 200 people. Alas, that government was defeated at the next election and a more racist and extremist Afrikaner Nationalist Party was elected in 1924. This government tightened and expanded color bar laws and then introduced ‘waivers’ and zero tariffs for companies who employed whites only or kept black workers to a minimum.


It’s worth pausing to consider these stories. In both cases, racist governments were passing racist laws and yet businesses that were owned by whites (who were probably racists themselves) refused to obey the laws. Why was this the case? A simple answer is that  – racism is not discrimination.

Imagine that I hold racist views towards, say, Chinese people. Say I am sitting in my living room and on the news I see a Chinese guy paraded on TV for something like theft. I then start ranting at the TV that ‘bloody Chinamen come to this country and all they do is steal!‘ or something like that. That’s undoubtedly a racist thing to say. But in the time I am ranting the Wok U Like Chinese restaurant down the road from me has probably sold £50 worth of food. My racism does not affect their business in any way. Even if I stop patronising them, my racism is simply not enough to run them out of business and I will be depriving myself of Chinese food.

Now imagine that I am the HR Manager for a large bank. I now have the opportunity to ‘upgrade’ my racism towards Chinese people to actual discrimination by ensuring that the bank does not hire Chinese workers. I can get away with it (maybe for a while) but the problem is that the country does not have any laws that allow discrimination against Chinese people meaning that my competitors will continue to hire them. I have thus imposed a cost on my business because if there is a super talented Chinese worker who can add value to the banking business, he/she will automatically go to my competitor.

But what if I am friends with the Prime Minister or many MPs and somehow I get them to pass a law discriminating against Chinese people in the entire banking industry? Automatically, in theory at least, I have eliminated the cost of discrimination because no matter how good a Chinese worker is, nobody in the banking industry will be able to hire him – we are all level.

It is not that the streetcar owners or the mine owners were nice guys who loved black people (I’m pretty sure the British and Jewish mine owners in South Africa were racist). They were operating in a market where even if racism was free, discrimination was expensive. This is the inbuilt morality of a market system – it is difficult, if not impossible, for anyone to carry out their discrimination free of charge. Even where a cartel is formed, there will always be one nuisance who will break the agreement and try his luck on his own.


And here’s the moral of the story. The only way to get rid of the cost of discrimination or impose your will on the people is to get the government to back you. In a market system, you make money by doing what other people want, not what you want. But if you can get the government on your side, you can make money by doing what you want and not caring about what other people want.

In America, the government began to crackdown on streetcars who didn’t enforce segregation by arresting conductors i.e. using force. In South Africa as we just saw, not only was force used, the market was completely turned on its head when the government began rewarding discrimination via tariffs.

Many people in Nigeria will actively reject a market system and even go as far as supporting government policies that reward ‘businessmen’ who are doing what they like and making money from it instead of what consumers want. In a functioning market system, where the government doesn’t rig the game, until you introduce guns and force into the equation, people will always do whats best for them and even do business with people they totally hate:

Screen Shot 2014-04-07 at 23.19.48

Governments do not bear or even understand costs. So they are able to impose costs on others without understanding or caring about the implication of their actions. If you are angry that someone is ‘just making money off you’, the first thing you should do is ask yourself if you have a choice. If you don’t have a choice, the next question to ask is who is limiting your choice and how are they able to do it?

When we begin to ask these hard questions of our society, our economy and those who claim to be leading us by forcing us to buy things from those they have favoured, we will be on our way to dismantling all the frustrating structures that serve the few at the expense of the many. There are so many ‘markets’ that have been created by governments in Nigeria that do nothing to help the majority of people to participate in them.

By demanding for properly functioning markets in Nigeria, devoid of government interference (as much as possible), we will be protecting ourselves. It is the ultimate self-interest move.

A few weeks ago after the government slapped 63% tariffs on imported books, a group of publishers, who were completely blindsided by the move, took to twitter to tackle a special assistant to the finance minister. Bear in mind that Nigerians have lately been reading more books, including those by Nigerian authors. The market is working even in the face of piracy and other harsh conditions.

Anyway he then responded via a series of tweets out of which I have selected this gem:

Screen Shot 2014-04-07 at 23.58.00

Let me translate that into English – some producers who want to make money by doing what they (the producers) want, came to us and asked us to help them eliminate the thing that consumers actually want from the market. So we tariffed the life out of it. By the way, the use of the word ‘adjustments’ is almost poetic in this context.


Are all these things – Apartheid South Africa, Jim Crow America, book tariffs and Dangote Cement – related?

Who knows? This blog itself exists in a marketplace of blogs so it is hard for me to make you believe anything you don’t want to.



Protecting Nigerians From The Purveyors of Poverty

Thomas Sowell likes to say that you cannot know whether a policy is a success or failure without knowing what the person behind the policy set out to do in the first place. So a policy ‘merely’ being a failure might be a success from the point of view of a devious person who designed it to be so.

Today’s papers are full of stories about how Nigeria is refusing to sign the Economic Partnership Agreement [EPA] between the European Union and the 15 ECOWAS countries. According to our friend, the most popular government minister on this blog, Olusegun Aganga, Nigeria raised ’10 Questions’ which have not been answered. These questions, according to him, centre around the protection of the Nigerian economy from the marauding Europeans, hell bent on a second colonisation [Ok he didn’t say that, I made it up].

Take it away The Guardian:

The Federal Government has declined to sign the trade liberalisation agreement being pushed forward by the European Union, under the  Economic Partnership Agreement (EPA) with Economic Community Of West African States(ECOWAS),after due consideration of its impact on the economy.

The government had earlier expressed reservations over the pact,due to vital clauses in it that could be harmful to the nation’s economy.

Aganga, defender of the Nigerian economy, went on:

The EPA agreement was not even ready for endorsement by the Heads of State and Government. During the meeting last week, Nigeria raised 10 objections to what was presented to us and the Summit of Heads of State ratified it.

Consequently, a committee from Nigeria, Cote D’Ivoire , Ghana and Senegal looked at the issues raised by member states, particularly Nigeria, and came up with a proposal. When we went into the meeting, the whole idea was to endorse it, but of course, we had various reservations concerning the agreement based on our model and the feedback we got from our private sector.”

He added: “One major reservation was that the way the agreement was done, which of course they expected us to sign, would not be in the overall interest of the Nigerian economy over the long term. For instance, in the area of market access, the EU wants us to open our market by 75 per cent over a 20-year period.

This appears harmless because over the first five years, there will be no major impact because they will open all their doors for us to export to Europe. However, the problem here is that currently, we are not exporting much to Europe and so the benefit will not be significant.

I will come back to the section highlighted above but one more thing he said:

The minister explained that, given Nigeria’s current condition as an import-dependent economy, it would be counter-productive to completely open its doors [Me: You can see the clever code switch here – opening your doors gradually up to 75% over 20 years has been ‘transformed’ by Aganga into ‘completely’for imports without first of all developing its industrial sector to compete globally, especially in those sectors where the country has comparative and competitive advantage as provided in the Nigeria Industrial Revolution Plan recently launched by President Goodluck Jonathan.

Another major point we raised was that those items that were in Category D, and excluded in the 25 per cent, should include those areas and sectors that we want to develop in line with the Nigerian Industrial Revolution Plan. Some of those areas are already under Category C and D, meaning that they are the sectors that the EU wants us to liberalise imports. If we do that, it will have a very negative impact on the NIRP.

Nigeria is the biggest country in the ECOWAS and we are already producing some of those goods that they want us to liberalise their importation. Also, what this means is that, not now, but from 2025 to 2026, based on the items that have been included and excluded, there will be significant loss of revenue to the government. There will be loss of jobs, investment and loss of even the ECOWAS market,”he said.

Aganga, however, stressed that it was important to remain as one unit in the ECOWAS region, saying that “even if they import those items into our neighbouring countries, they will end up in Nigeria and this will have negative impact on the Nigerian economy. So, it is important for us to work together as ECOWAS members and not to allow EPA to divide us.


It’s important to quote him at length for context and also because these are the people in charge of the Nigerian economy, presumably working hard to deliver a better life for Nigerians.

Here are some points about the EPA in question:

1. Negotiations on this agreement have been going on for 14 years starting with the Cotonou Agreement. If people have been arguing over this matter for 14 years, then it’s not unreasonable to conclude that the negotiations have been tough. Nevertheless, on 24th January 2014, both sides announced that a ‘major breakthrough’ had been reached and they were now ready to sign the agreement.

2. In terms of value and rules and regulations, the EU is the largest single market in the world – there are 500 million people in it. In 2010, the EU imported €2trn worth of goods and services from across the world and exported €1.8trn worth of stuff.

3. When negotiations on the EPA started, the EU wanted ECOWAS to open up 80% of their market over a period of 15 years. After plenty of back and forth, this was compromised to 75% of the market (the most sensitive 25% of the economy can be excluded) over a period of 20 years. Normally, based on WTO rules, there shouldn’t be any sectors exempted from a free trade agreement but special consideration was given to the economic development of West Africa thus allowing the exemption of some sectors.

4. The EU, under a programme called EPA Development Programme, will also provide around €6.5bn from 2015 – 2019 to help boost the capacity of African countries to take advantage of the EPA.

5. In January, before the agreement was reached, the EU also agreed to stop all export subsidies to companies exporting goods to West Africa. This is especially in the area of agriculture.

6. On the other side of point 3 above – ECOWAS countries get full and immediate access to the EU market i.e. no quotas, no tariffs, no duties for goods produced in West Africa to enter any of the EU countries. I am almost certain that rather than provide support for companies that want to export to the EU, the Nigerian government levies export tariffs on them instead.

7. Finally, the EU has EPAs in place with practically every region in the world. It is not just an ECOWAS thing. There is also a huge one called the Transatlantic Trade and Investment Partnership being negotiated between the EU and the USA.


Now it’s fine to disagree with the terms above but surely no reasonable person can say steps have not been taken to protect the weaker party in this agreement. Also, one should not focus on the potential dangers to the detriment of the positive aspects of the agreement – the EU is a rich market and getting free access to it should undoubtedly create opportunities. Other parts of Africa that already have EPAs in place can point to real results that have been achieved. Based on the SADC-EU EPA for example, all export quotas on Botswanan beef have removed meaning that local cattle rearers can export as much beef as they want to the EU. The real issue should be government policies that boost the capacity of African companies to take advantage of these opportunities.

From Aganga’s comments above, he claims Nigeria is refusing to sign the agreement to protect the Nigerian economy and its people. Nigerians should no longer take these statements at face value. They ought to be examined whether they are genuine or no more than a pile of hot piffle. On my part, I can tell you who needs to be protected from who. Oh yes, I can.

The Nigerian people need to be protected from the Enemies of Enterprise, nominally known as the Nigerian government. Just yesterday the Communications Minister. Mobola Johnson revealed the following:

Speaking on claims by data service providers on the deployment of 4G LTE, she said the claims by Smile Communications Nigeria Limited and others are accurate.

She urged Nigerians not to be sceptical about their promises to deliver true 4G LTE technology services, adding that a worrisome trend in the industry currently is the fact that out of every kobo spent on the rollout of infrastructure by the operators, 70 per cent goes to taxes and levies

You can slice or dice it however you want, but the reason why internet penetration and quality phone access remains a headache today in Nigeria, is because the Nigerian government has willed it to be so. The same people who conspired to destroy education are now standing in the way of internet and mobile phone access that can change people’s daily lives for the better.

The Nigerian people need to be protected from the Purveyors of Poverty who have conspired to give us a cement ‘policy’ that cannot be described as anything other than picking the pockets of Nigerians at gunpoint. This cement policy has given us Dangote whose founder is now the richest black man in the world worth $25bn via a policy that aggressively transfers wealth from Nigerians to a handful of people by restricting choice in the market. Nigerians buy cement at 3 times what it can be obtained for elsewhere while Dangote has the biggest profit margins of any cement producer in the world – double the margins of Chinese producers who are the most efficient on the planet. All of this has produced an earth shattering 20,000 jobs which you will agree with me is what is stopping the Nigerian economy from totally imploding. Oh, this same company is still enjoying ‘pioneer status’ and has billions of Naira in tax credits yet to claim.

These are the people who Aganga is protecting not the Nigerian people. This is the ‘feedback from the private sector’ that he is referring to because free trade will expose who has been scamming who in the Nigerian economy.

I ask you to carry out a simple experiment when next you leave your houses for work or you are moving around anywhere in Nigeria. Take a note of all uncompleted buildings you see. Count how many you see in a day be they uncompleted houses or offices. Ignore the ones where work is going on and just focus on the ones that have obviously been abandoned for a long time. Report your findings in the comments below.

We have a deficit of 17 million homes in Nigeria today. Let us even forget the homes that need to be built from scratch – just consider the jobs and boost to the economy if some of those uncompleted buildings can be finished. Yet we celebrate ‘Made in Nigeria’ cement that is directly contributing to this mess we find ourselves in. How many buildings will suddenly become viable for completion if Nigerians are able to buy cement at the same price that people in Asia can buy it? You tell me.

The Nigerian people also need to be protected from the Traducers of Trade who speak from both sides of their mouth. Just last night I saw this tweet from the Finance Minister, Ngozi Okonjo-Iweala:

In January, everyone in the Nigerian government from the President to his ministers and aides gathered together to launch the Nigeria Mortgage Refinance Company [NMRC] scheme. Plenty of noise was made about this programme as a flagship policy that will, wait for it, ‘transform’ Nigeria. I wrote an explainer about it at the time. It’s a useful policy that can do good for us, ceteris paribus.

But have a look at this World Bank document. From design to funding, the World Bank almost singlehandedly produced that policy for the Nigerian government. The government barely put any funding into it (they are too busy making money disappear). So when the Finance Minister makes such a statement above, who exactly is she talking to and what is she saying?

This is not some benign thing – it is how capitalism and trade have become a slur in Africa over the decades. Leaders have systematically drawn up a false equivalent that trade and capitalism is something people (usually white) do to Africans to take over their wealth and resources. A minister who is happy to take the credit for World Bank work on one hand and then deliver an ‘ominous warning’ about the same people in the next breath is but a variant of the Champagne Socialist – champagne for me, socialism for you.

It is very important to protect Nigerians from the Injurer of Industry who send out one policy that is doomed to fail in the morning and are shocked, shocked I tell you, when it fails in the evening. They ban things in the morning and are full of righteous indignation when smuggling increases in the evening. They slap punitive tariffs on rice which cost the government at least N300bn in lost revenues – money that is then borrowed via bonds and left for the next generation to worry about. This policy, according to the Nigerian Customs, has also cost 19 lives of customs officers.

Does it matter that the rice tariff policy has failed? Does it matter that they have now abandoned the Cassava policy? Does this stop them from doing the same damn thing elsewhere? Of course not – that is why they want to replicate the foolishness on cars.

Most of all, the Nigerian people need to be protected from the First Born Sons of Satan who have no qualms about profiting from the mess of unemployment they have created. In other countries with high unemployment, the governments are frightened of any kind of gathering of jobless young people. Not so in Nigeria – our government is bold enough to gather thousands of unemployed youths in stadiums around the country to try their luck for jobs that have probably been distributed among Very Important People already.

It has the gall to kill 16 of these young people while the President adds insult to injury by chastising the minister responsible with no more than a finger wag.


What is the worst that will happen if the Nigerian government signs the EPA? Nigerians will have access to cheaper and better quality goods from Europe. No doubt this – voluntary exchange – is a terrible thing indeed.

But this piece is not about calling on the government to sign the agreement – they will have to as some ECOWAS countries are already breaking ranks to sign it. If the goods get to Ghana, then all bets are off as they will surely find their way into our ‘protected economy’.

It is about asking questions about the judgement of the people who claim to be making decisions on our behalf. Nigerians need to ask how exactly it is that these people claim to be acting in our best interests. Aganga claims that the EPA is not compatible with his National Industrial Revolution Plan [NIRP]. Where is the NIRP? It is in the same place that the automobile policy is – on his laptop. Only one copy. This is why no one has seen it. But as Dr Nonso Obikili showed recently, the only thing revolutionary about this NIRP is that it has ‘revolution’ in its name.

The government should tell us who exactly they are protecting us from, what the risks of exposure to these persons are and what alternative plans they have in place to ensure we are not being given Made in Nigeria cement in place of bread.

If a 20 year period is not enough to gradually open 75% of your market and you are already worried about the government losing revenues in 2026 on account of trade, then the Nigerian people need to be protected from the poverty you are planning for them. The only danger ahead is the utter lack of vision with which you are boldly marching into the future. Is the future so zero sum to them that they are already resigned to the idea Nigerian companies will not be able to take advantage of opportunities presented to them by untrammelled access to the European market? We cannot afford to be led by people who think this way.

During the auto debate, I made the point several times that the Mexican car industry manufactures 3 million cars a year while employing 500,000 people. None of those cars are ‘Mexican cars’. They are the Toyotas and VWs and so on. Today Mexico is also the world’s largest exporter of flat screen televisions. These things have been made possible by the North American Free Trade Agreement [NAFTA] that was signed in 1994, when Bill Clinton was President. At the time it was signed, Mexican officials were dreaming and hoping that they could reach $10bn in exports per month. Today, Mexico exports goods worth on average $1bn per day made possible by a trade agreement with its richer neighbours.

Enough of policies that trap us in poverty in the name of protecting us from marauding traders. It was trade that made the Magnificent Tang Dynasty. It was trade that made the 8th Century Arabs. It is trade that continues to make America – including the trade in culture. If the Nigerian government has stumbled on a new model of broad-based wealth creation, it should tell us so we know where we are going.


My current obsession these days is trying to find out what happened to Africa and Nigeria in the late 70s in terms of economic direction. I am trying to understand how, when Britain under Thatcher, America under Reagan and even China under Deng started to move towards market economies, Nigeria and other African countries were fooling around with nationalisation of oil and other companies. We are now at a stage where the Nigerian Labour Congress, in 2014, is threatening fire and brimstone if the government privatises a company that provides catering services to airlines. It is important to ask how the government came to own such a company in the first place.

We need to understand how it all happened because here we are again – nationalisation being replaced by insularity. Things are being banned, tariffs are being raised, free trade is being warded off, the economy is being ‘protected’. Self sufficiency – the surest path to poverty – is what is on the lips of every government official.

Who wants to wait another 30 years to look back ruefully and wonder why we didn’t do things differently? Not me.