CEMENT SALES: PROXY FOR ECONOMIC GROWTH IN NIGERIA

Cement sales are a good proxy for growth since demand for the building material cuts across both the formal and informal sectors. We take a look at the recently released nine month results for Nigeria’s four listed cement manufacturers to try and decipher the economic activities that lie behind the numbers.
• Between January and September 2013, Nigeria’s four cement manufacturers (Dangote Cement, Lafarge, Ashaka Cement and CCNN), collectively sold N392.1 billion ($2.4 billion) worth of cement in the country, equivalent to 0.9 percent of Nigeria’s year end (YE) 2012 Gross Domestic Product (GDP) of $262 billion.

• Cement sales are rising faster than nominal GDP growth rates. Nigeria’s real GDP grew at 6.18 per cent in the second quarter of 2013 while inflation averaged 8.83 percent between April and June, meaning nominal GDP (real GDP + Inflation) rose by 14.98 percent in the second quarter. The four companies collectively grew sales by 21.7 percent for the period.

• When cement sales are broken down to individual companies however it shows that only Dangote Cement is taking advantage of the huge opportunities in the sector. Dangote Cement grew sales by 28.7 percent, 1,372 basis points higher than the nominal GDP growth rate.

• All other companies grew sales below the second quarter real and nominal GDP growth rates. Lafarge grew sales by 6 percent, CCNN by 5.83 percent and Ashaka cement by 2.28 percent.

• The Nigerian economy is clearly growing using cement sales as a proxy in the absence of any noticeable bubble in the home building or construction sector. Dangote Cement is the market leader with 74 percent market share of total cement sales; Lafarge has 19 percent, Ashaka 4 percent and CCNN 3 percent.

• Investors are seeing the potential in the cement sector – amid rising disposable income and increased government spending on infrastructure – even as the companies struggle to boost production capacity to meet rising demand.

Lafarge stock is up 88.43 percent in one year, CCNN +70 percent, Dangote Cement +57.49 percent and Ashaka +29.80 percent. The NSE All Share Index has risen 46.85 percent in one year by comparison.