Unfinished Business in Nigeria’s Cement Sector

Postscript by Waziri Adio

The three dominant cement manufacturers in Nigeria—Dangote Cement, Lafarge Africa and BUA Cement—are having a serious ball at the expense of the larger society. They sell their cement, largely produced from locally-sourced limestone, at consistently high prices, significantly higher in dollar terms than the prices in comparable markets, and this is despite the fact that their installed capacity is far in excess of local demand. Needless to add: these companies record profit margins way above the global average.

This development appears counterintuitive, but it is not. All the assumptions about competitive pricing in a market with adequate supply collapse when the market is dominated by a few producers. Between them, Nigeria’s cement trio boasts of more than 95% of the local market, and they keep expanding capacity not necessarily to increase supply and reduce prices but to further cement their advantage. Without smart policy intervention, there can only be one outcome: enhanced market power for the trio and diminished welfare for the consumers, which interestingly also include the government itself and, by extension, the country.

Aided in no small measure by government’s incentives, the Nigerian cement industry is a classic oligopolistic market, a form of market failure that policymakers should always pay special attention to. The failure here can be attributed to three related causes: the nature of cement itself and the way the cement industry is structured in Nigeria; the additional structural advantage handed to the trio via industrial policy; and the clever industry practices that seem to escape regulatory scrutiny. In a sense, what is happening in the Nigerian cement space is a combination of market failure and government failure. We shall return to this. But suffice to say that the failures are consequential and need to be addressed urgently and deftly, and in a way that aims for an equilibrium between producers’ welfare and consumers’ welfare and in a manner that aligns private interest and public interest.

A paper released within the week by Agora Policy (which I founded) puts, in concrete relief, the structural anomaly of Nigeria’s cement industry and the high cost this anomaly imposes on the country. Titled “Market Power and Failure of Competition Policy in Nigeria’s Cement Industry”, the paper offers some stark data: between 2015 and 2025, the average price of a tonne of cement in Nigeria, in dollar terms, was higher than the average price in other African countries by between 25% and 63% (except in 2023 and 2024 when the average price in Nigeria was slightly lower than in other African countries, due to massive depreciation of the Naira); the average price of cement in Naira increased by over 400% between 2015 and 2025; and the average core operating margin of Nigerian cement manufacturers was almost 50%.

In plain language, Nigeria is one of the worst places to be a consumer of cement while it is one of the best places to be a cement producer. This is despite the obvious fact that the major raw material for producing cement, limestone, is sourced locally and is in abundant supply in the country. This contrast is a very costly paradox. The massive gains for the producers, who are few, translate directly to massive losses for the consumers, who are far more numerous, and as stated earlier include even the government. Cement sold consistently at a price higher than it should be is effectively a tax on consumers and a drag on development. It should be borne in mind that cement is not just central to modern construction, it also has ramifications beyond private and public structures and infrastructure.

The paper by Agora Policy, (which can be accessed here https://agorapolicy.org/research/policy-memo/246-market-power-and-failure-of-competition-policy-in-nigerias-cement-industry.html), puts this strategic dimension more poignantly. It states: “Cement is not an ordinary product. It is a key input into housing, infrastructure, and construction—sectors that drive employment, productivity, and long-term growth. Every road, school, hospital, factory, and housing estate depends on affordable cement. When cement prices are high, the costs ripple through the economy: fewer homes are built, infrastructure projects become more expensive, private investment is delayed, and governments are forced to do less with limited budgets.”

Nigerian cement manufacturers usually cite high operating costs as the reason for their high prices. This is a legitimate argument, as Nigeria is a high-cost environment. But the defence is not a solid as it appears. When companies consistently corner higher margins than obtainable elsewhere, it is evident that something else is at play, High cost, clearly, cannot be the sole reason.

The paper rebuts the familiar industry argument this way: “Cement producers blame high cement prices on taxes, energy costs, transport bottlenecks, and financing constraints, noting that exported cement is cheaper because it is exempt from many domestic levies. But this explanation leaves an uncomfortable question unanswered: if costs are the binding constraint, why can Nigerian producers sell cement profitably abroad at lower prices than Nigerian households and builders pay at home? The gap suggests that market structure—and the pricing power it confers—may matter at least as much as cost pressures.”

The last sentence is right on the money. Nigeria’s leading cement producers are behaving the way any rational human will act if blessed with unchecked market power. To maximise profit, they will further raise the barriers to entry, constrain supply, and charge whatever price they fancy (as alternatives are limited). An excellent article by Feyi Fawehinmi lays bare the dark genius at play in the industry (the article can be accessed here: https://www.1914reader.com/p/food-in-plain-sight-defensive-capacity?r=dfulb&utm_medium=ios&shareImageVariant=overlay&triedRedirect=true.)

As Fawehinmi shows, the trio tripled their installed capacity in 15 years. That is impressive. But curiously, they consistently produce at an average of half of their capacity. That 50% capacity under-utilisation is not cluelessness. It is deliberate. Fawehinmi rightly calls it defensive strategy. Massive but deliberately under-utilised capacity helps both to constrain supply (a deadweight loss) and to ward off new entrants. It guarantees that prices and profitability will remain unusually high.

It is interesting to note that another deliberate act contributed to laying the foundation for this anomaly. By deploying a suite of incentives, Nigeria moved from a net importer of cement a little over two decades ago to a self-sufficient country. The country remarkably bumped up installed capacity from about 2 million metric tonnes to almost 65 million metric tonnes. This is no mean feat. But this great achievement also underscores the need to keep an eye on unintended consequences and to have a balanced metric for measuring success. Industrial policy has succeeded in delivering massively expanded production capacity and enormous producer surplus. But this has, strangely, also been accompanied by punitively high prices and reduced consumer welfare.

The Agora Policy paper captures this seeming paradox well. It states that: “Policymakers offered investors import protection, preferential FX access, tax holidays, and exclusive limestone concessions, in return for large-scale investment, self-sufficiency, and affordable cement to support housing and infrastructure. These protections were intended as temporary instruments to nurture domestic production, with self-sufficiency, not enduring market power, as the explicit objective. By 2012, the production side of this bargain had largely been fulfilled. Nigeria achieved cement self-sufficiency, installed capacity exceeded domestic demand, and the country shifted from net importer to occasional exporter.

“However, the consumption side of the bargain—affordable prices disciplined by competition—has not materialised… The empirical evidence is unambiguous: Nigeria’s cement prices are high not because costs are uniquely burdensome, but because the industry operates as a spatially fragmented oligopoly where price leadership, regional dominance, and control of critical inputs have neutralised the competitive discipline expected from surplus capacity.”

The paper explores the evolution and the supply dynamics of Nigeria’s cement industry, draws on academic literature on the cement industry and market power to properly situate the issue, dissects the various policy options (including the frequent call for import liberalisation and why it would fall short), and makes actionable recommendations. It sensibly calls for a recalibration, not a cannibalisation, of the industry and argues that more effort should be invested in removing the constraints to competition in the cement sector.

“The current outcome represents a fundamental divergence from the original policy bargain,” the paper submits. “Protection, incentives, and resource concessions were granted to achieve self-sufficiency and, ultimately, affordable cement for national development. The first objective has been spectacularly achieved; the second has demonstrably failed. The industry’s evolution from protected infant to entrenched oligopoly highlights a classic pitfall of industrial policy: without concurrent and assertive competition safeguards, scale can cement into dominance, and policy support can transform into structural barriers to entry.”

This is the unfinished business in Nigeria’s cement sector. Local self-sufficiency cannot be merely for the sake of it or largely for the benefits of the few cement oligarchs. For sure, entrepreneurs should have good returns on their investments but not at the expense of the larger society. Now that self-sufficiency in cement production has been achieved, the next and urgent phase of reform is how to prevent the few producers from abusing their enormous pricing power. This is not a challenge that a structurally-defective market will address by itself. This is where smart, sensible and evidence-led regulation comes in. When the market fails, as it is evident in this instance, the government cannot afford to fail (but it has up till the moment as some of these challenges could have been anticipated and addressed through sunsets, regular reviews, scenario planning, and effective monitoring). Now that we are here, there is a pressing need for nuanced policy interventions that tackle the structural constraints to competition in the cement industry and balance profitability with affordability.