Wanted: LafargeHolcim’s balance sheet for Nigeria

THE world’s two biggest building materials companies – Lafarge, the French giant and Holcim, its Swiss rival – completed a $40 billion merger on July 15, 2015, creating LafargeHolcim. The new company has positioned itself as the world’s most advanced building materials company. One of the reasons the world would believe this claim is its vast Research and Development capability, comprising 13 product development laboratories employing over 1,000 experts. LafargeHolcim is a major player in the Nigerian market with significant or complete ownership of Ashaka Cement, Atlas Cement, Lafarge Readymix, UniCem and WAPCO. The new giant in global construction is listed on the stock exchanges in Paris and Zurich. While the merger has been covered in the Nigerian media, its implications for our construction and housing sectors have not received adequate attention.

It has been three years now since Nigeria attained ‘self-sufficiency’ in cement production. What this has always been taken to mean is that Nigeria is now able to produce all the cement demanded in the country. What we have never had is a proper reckoning with what exactly is the cement demand in Nigeria. A good question to start with is – if Nigeria has a 17 million housing deficit, how long will it take to close that gap based on the supposed current demand? Nigeria is currently building less than 100,000 homes a year. This is to say nothing of the almost crippling lack of infrastructure in many parts of the country, which requires products made by LafargeHolcim to turn around. Surely, one cannot be both self-sufficient in cement production and have a yawning infrastructure and housing gap at the same time. Indeed, given how high Nigeria’s cement prices are, it is not inconceivable that a significant drop in cement prices will boost demand and open up a gap between (existing) capacity to supply and demand.

Declaring ‘self-sufficiency’ in cement production is clearly premature, as Nigeria has not even begun to scratch the surface of the severe lack of housing and infrastructure. In other words, economic growth for which cement-consuming infrastructure and housing could be both catalysts and consequences of and lower cost construction products would create the need for far greater investment. Comparing our built environment to a country like South Korea’s makes it clear that “self-sufficiency” is a moving target and that Nigeria is still very far from it! Our cement consumption per capita is only 130 kg (not up to three cement bags) while the global average is 300 kg; we are still in the bottom 10 in the world (of the least cement consumers per capita). The LafargeHolcim balance sheet and the depth of its expertise are uniquely suited to deepening and extending the Nigerian cement market in ways that may not be immediately obvious today.

Much of Nigerian construction remains rudimentary and wholly inefficient. When this inefficiency is added to the high cost of building materials and poor workmanship, the housing shortage is greatly exacerbated. The entire construction space is calling for new ideas, global best practices and standards which enhance safety, boost efficiency and bring down costs at the same time.

The global reach of the LafargeHolcim brand makes it a crucible for construction knowledge and developments from around the world; the best ideas from LafargeHolcim operations across the world can be deployed in Nigeria to transform building practices and create the new demand that is required to close the housing and infrastructure deficit. The French Lafarge, through its Nigerian operations, has already pioneered changes in the sector. The influential London newspaper, The Economist, recognised in a June 2015 Special Report on Nigeria that Lafarge’s investment in Nigeria has driven down costs by 40%. A good example of innovation is the Lafarge ReadyMix product offering which eliminates the practice of mixing cement by hand in head-pans, which comes with the guaranteed problem of varying consistency. Apart from the obvious contribution to the stability and safety of structures, Lafarge Readymix delivers increased productivity and thus cost-savings. LafargeHolcim has the opportunity to upend the current standards in the industry and make its ReadyMix the industry standard by investing in its distribution and logistics.

A concerted effort is needed to identify costs in the Nigerian construction sector that can be eliminated from the building process while enhancing quality. High construction costs, closely associated with building techniques, materials and practices, have been resistant to change. They have taken on the form of “received wisdom”; few questions are asked about them. This makes eliminating them much harder. Most of the attempts at bringing down costs in Nigeria have been the work of random people in the industry who do not have the heft to drive their ideas across the country. Where there is knowledge, it remains fragmented and undispersed across the country. LafargeHolcim operates in 90 countries, including 73 emerging markets. There must be a lot it can diffuse from its experience, especially regarding the collaboration between national and local government agencies and the construction industry in improving training and the adoption of techniques and materials which save costs and enhance safety. Standardisation in the industry will greatly improve quality and safety and deliver cost-savings.

Ultimately, the best way for LafargeHolcim and Nigeria to maximise the profit from its investment in Africa’s largest economy may be to invest directly in constructing buildings and infrastructure. I mean here estates with thousands of housing units. It would be directly diffusing construction best practices and techniques itself and capturing the cost savings they create. Yes, LafargeHolcim is a manufacturer of cement and building materials and not a house builder. But why not? Some Korean car manufacturers got into the business of shipping when they encountered problems with exporting their cars from South Korea in the early days of that country’s industrialisation. To make the Nigerian market bigger, ‘unconventional’ methods may have to be used. The new LarfargeHolcim – which also describes itself as “a new leader for a new world – has the financial heft and technological base for this. What is required is the boldness to take the key and directly unlock growth in a large but mainly low-income market with massive housing and infrastructure needs.

• Dr. Nwani is an economist and a leading policy analyst and advocate.