Why Cement Price Is High Despite Surplus Capacity—Report

High cement prices in Nigeria are acting as a “hidden tax” on housing and infrastructure development, driven largely by weak competition and market concentration rather than production costs, according to a new report by Nigerian policy think tank, Agora Policy.

The findings are contained in the organisation’s latest policy insight titled “Market Power and Failure of Competition Policy in Nigeria’s Cement Industry”, which argues that Nigeria’s cement market structure has allowed dominant producers to sustain high prices despite the country having surplus production capacity.

According to the report, Nigeria achieved self-sufficiency in cement production as early as 2012 and has since expanded installed capacity to levels well above domestic demand.

However, prices have remained persistently high, with little evidence that increased capacity has translated into affordability for households, builders or government-funded projects.

Agora Policy said this disconnect has resulted in unusually strong profitability for the three dominant players in the industry — Dangote Cement, Lafarge Africa and BUA Cement. The report estimated that average operating profit margins in Nigeria’s cement sector stood at about 49 per cent as of September 2025, compared with roughly 30 per cent in 2024.

These margins, the think tank noted, are significantly higher than those recorded in North America, Europe, Asia and most of sub-Saharan Africa, suggesting that pricing outcomes in Nigeria are shaped more by market power than by underlying costs.

“The contrast between excess capacity, high prices and strong profitability suggests that market structure — not costs — is shaping pricing outcomes,” the report stated.

“Nigeria has built the capacity it set out to build, but the benefits of that achievement have yet to show up fully in prices paid by households, builders and government.”

Cement producers have often attributed high domestic prices to taxes, energy costs, transport bottlenecks and financing constraints, while pointing out that exported cement is cheaper because it is exempt from many local levies.

However, Agora Policy questioned this explanation, noting that it fails to address why Nigerian producers can sell cement profitably abroad at lower prices than those charged in the domestic market.

“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 report asked, adding that the price gap highlights the role of market structure and pricing power.

The think tank traced the roots of the current market concentration to Nigeria’s import-substitution policies of the late 1990s and early 2000s. During that period, the government offered tariff protection, tax incentives, foreign exchange support and exclusive limestone concessions to encourage domestic cement production.

While these policies succeeded in eliminating imports and building capacity, Agora Policy said they also produced a highly concentrated market dominated by three firms, with limited competitive pressure.

“The consumption side of the original policy bargain — affordable prices driven by competition — has failed to materialise,” the report said.

It added that in industries characterised by high fixed costs and barriers to entry, excess capacity can serve a defensive purpose by deterring new entrants. In such contexts, capacity expansion is not accidental but a strategic tool used by incumbents to reinforce dominance.

Despite surplus capacity, the report said dominant producers continue to exercise pricing power through scale advantages, control of limestone deposits, excess capacity that discourages entry, and regional market segmentation driven by high transport costs.

Agora Policy noted that Nigeria’s cement market operates largely on a regional basis, allowing producers to charge higher prices in areas where logistics constraints limit consumer choice. International studies cited in the report show that high transport costs, exclusive access to raw materials and concentrated market structures can sustain high prices even without explicit collusion.

Beyond industry dynamics, the think tank warned that high cement prices have far-reaching economic consequences, describing them as a hidden tax on housing and infrastructure.

“Cement is a critical input into housing, roads, schools, hospitals and factories. When prices are high, fewer homes are built, infrastructure projects cost more, and governments do less with limited budgets,” the report said.

Agora Policy argued that reopening cement imports would not provide a lasting solution, noting that cement is bulky, expensive to transport and poorly suited to sustained import competition, particularly in inland markets.

Instead, it called for competition-focused reforms, including opening access to limestone deposits, treating logistics as a competition issue, addressing regional dominance and strengthening oversight by the Federal Competition and Consumer Protection Commission (FCCPC).

“Nigeria’s cement challenge is no longer about building capacity but about restoring competition,” the organisation said, adding that the gains from industrial policy have largely been captured in profits rather than passed on to consumers through lower prices.

The report warned that without stronger competition safeguards, policies designed to support domestic industry risk entrenching market dominance at the expense of affordable housing, efficient infrastructure delivery and inclusive economic growth.