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:

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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:

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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.