Manufacturing: A giants’ playground

By Richard Synge and Kaye Whiteman
Posted on Monday, 21 September 2009 16:08

Size is everything for those

industrial players that seek to survive Nigeria’s infrastructural

weaknesses and high operating costs

The background of seemingly perpetual blockages in the system – in power and fuel supplies, at the ports and on the roads – presents a major challenge to the day-to-day operations of Nigerian manufacturers. And yet the rewards of persistence are substantial for those with the stamina and necessary resources.

The enormous size of the country’s domestic market creates an ongoing battle for market share. Nowhere is this more so than in two areas of manufacturing activity that have not ceased to grow – brewing and cement production – even while other industries, like textiles, have tended to decline or disappear.

MANUFACTURING: Companies to watch

DANGOTE GROUP
An industrial conglomerate dominant in the
cement

sector.Has developed links with Chinese
company Sinoma for expansion

activities?

NIGERIAN DISTILLERIES
Based in Ota, outside Lagos, with

ambitious plans
to federate local cassava growers for
production of

ethanol??

NIGERIAN BREWERIES
A consistent performer on the NSE, with

five
active breweries around the country. Had profits
of N36.8bn

($250m) in 2008

For the brewers, a stagnation of sales at the beginning of the decade – when mobile phones first arrived in Nigeria – was attributed to the pressure on consumers from the need to buy phones, chargers and top-ups, but this has passed. There has since been no let up in the flow of new investments into the brewing sector, notably by Heineken (in Nigerian Breweries) and Diageo (in Guinness Nigeria) and new investors, like SABMiller, hoping to introduce new brands. Guinness Nigeria has been doing better than ever, against recession-affected trends in other markets. Nigeria could soon overtake the United Kingdom to become the world’s number one market for the brown drink to which West African imbibers are particularly susceptible, and the local subsidiary saw its pre-tax profit rise by 51% between 2007 and 2008; in the first quarter of 2009 turnover grew by 30%.

Bar-room brawls?

Competition is fierce and growing. Guinness has 25% of the market, while Heineken, through Nigerian Breweries and Consolidated Breweries, has 65%. After a 34% rise in operating profits last year, Nigeria Breweries continued to see a healthy 22% rise in turnover in the first half of 2009.

Against this virtual duopoly, SABMiller is just beginning to obtain a foothold, with the purchase this year of the Pabod brewery in Port Harcourt and Standard Breweries in Ibadan. The plan is for an eightfold increase in production next year. With its substantial international resources, the company could prove a serious contender.

keep its place in the equally competitive cement market, Lafarge Cement WAPCO recently announced a major expansion of capacity, with a new production line to more than double output by 2.2m tonnes a year. Equally bullish is Lafarge’s main rival, the Dangote Group, with a 50% share of the market through its subsidiaries Obajana Cement and Benue Cement, which together produce some 7m tonnes a year.

The Nigerian cement industry has seen massive growth since 2003, with domestic production growing from a mere 2.25m tonnes a year to around 10m tonnes currently. Although this still falls short of demand, presently estimated at 13.5m tonnes, the future of the industry seems assured – as long as the construction industry remains buoyant. The main caveat is the high cost of local production because of the need to install self-sufficient power generation at all plants. In planning for the future, the cement industry will need the government to maintain its ban on imports of bagged cement.

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