Wednesday, 31st May 2023

Banking on infrastructure to check rising costs of commodities

By Femi Adekoya
08 June 2022   |   4:00 am
The impact of inflation on supply chain and logistics operations has remained evident for several months going back to the middle of 2021 and recently this year, escalated by the war in Ukraine. In a state of reduced supply, companies had to raise their prices, creating the inflationary predicament we are in now.

Rail haulage

Nigeria hitherto, pays more for moving goods within the country. The war in Ukraine has however exacerbated the rise in energy prices and disruptions to supply chains that have emerged during the pandemic. Coupled with poor infrastructure, the cost of moving goods has remained high, impacting inflation and household incomes. The Federal Government is hoping its infrastructure drive, especially for railway will help to bring down the costs of essential commodities. FEMI ADEKOYA writes.

The impact of inflation on supply chain and logistics operations has remained evident for several months going back to the middle of 2021 and recently this year, escalated by the war in Ukraine. In a state of reduced supply, companies had to raise their prices, creating the inflationary predicament we are in now.

Similarly, fuel prices are a huge factor in logistics as well, driving up transportation and freight costs that were already on the rise because of the rising price of crude globally.

Specifically, the price of diesel has affected the cost of long-distance food and commodities transportation, especially from the northern to the south part. At a rate of N600/700 per litre, diesel has significantly contributed to the country’s inflation level.

Also, unregulated transport and haulage fares indiscriminately fixed by transporters have become a major challenge for businesses dependent on transportation for heavy items. The deplorable state of the roads often leads to frequent breakdowns of trucks conveying such goods, leading to losses in transit and the consequence of higher prices.

To aid market access and reduce transportation costs, the Federal Government is hoping to leverage the Kano-Jibia Maradi railway line for major commodities.

The Kano-Maradi standard gauge railway line spans about 387 km from Kano to Maradi and a branch line from Kano to Dutse. A breakdown shows first a 287km stretch of track will connect three federal states in Northern Nigeria; namely Kano, Jigawa and Katsina- significant trade hubs- and the Republic of Niger (Maradi). Another 93 km branch line will connect the capital of Jigawa’s State (Dutse) to Kano.

The rail line will cover 12 stations: Dutse, Gaya, Wudil Kano, Dambatta, Kazaure, Daura, Shargale, Marshi, Katsina, Jibia, Maradi in the Southern Niger republic.

However, market accessibility has hampered the effectiveness of Dawanau and similar ventures over the years due to poor transport infrastructure and thus, hindered the potential of the market and its impact on the economy. Even so, the improvement of transport infrastructure through the construction of the Kano-Maradi Rail Line will open the market to the rest of the world.

A rail-line from Kano to Maradi means traders from Katsina who come to Kano and those who go to Katsina from Kano will have an easy route. The same goes for traders from Katsina Maradi and Maradi to Katsina. The rail-line also tends to expand the market to other Niger states and North African Countries.

Indeed, the Kano-Maradi rail line, rather than being political, could be a significant piece required to turn Nigeria into an import and export hub for Sahel-Saharan nations like Mauritania, Mali, Niger, Chad, and Sudan.

The Minister of Information and Culture of Nigeria, Lai Mohammed, explained that the railway line will help reduce the cost of transportation and energy incurred by cement manufacturers since bulk of Liquefied Natural Gas (LNG) would be transported using railway transportation.

One of the cement producers averred that the price of cement currently being sold in the open market at N4000 is about 25 to 30 per cent higher than the ex-factory price.

He stated this during a facility tour of BUA’s Kalambaina cement plant in Sokoto State.

In his words: “By the time that section of the rail is completed, it will be cheaper to transport cement from Sokoto to all parts of Nigeria by rail. It will also help in bringing the cost of energy deployed in producing cement because it will bring bulk LNG to the plant. We are very confident that in a few years time, with the challenges in logistics addressed, we can be looking forward to a crash in the cost of cement.”
Meanwhile, the Managing Director and Chief Executive Officer, BUA Cement Plc, Yusuf Binji, stated that cement producers are still under producing with a demand of 30 million tonnes far below Ghana, Egypt, Senegal and Ivory Coast in terms of per capita consumption.

“We should be doing like 70 million tonnes instead of 30 million tonnes. Nigeria still has a low per capita consumption of cement when compared to Ghana. Our per capita consumption is about 123kg representing less than two and a half pounds while Ghana is about five pounds per person,” he said.

The Minister however stated that the conditions that have made BUA cement to flourish, especially since 2015 when the present administration assumed office, include the fact that BUA was granted pioneer status, the ban on importation of cement, government’s divestment from the cement industry and backward integration policy.

“Thanks to these conditions, BUA Cement has recorded a 300 per cent increase in production between 2015 and now. That is from 3.5 million tonnes per annum in 2015 to 11 million tonnes per annum now. For its part, the Sokoto plant is operating at over 90 per cent of installed capacity,” he said.

He added: “Because of its location, which is just 100 kilometers to Niger Republic, the plant exports to Niger and Burkina Faso, earning Nigeria much needed forex. Please note that only excess is exported, especially during the rainy season. Other facts include that the company produces all year round, loading between 250 and 270 trailers per day. The plant has 700 trucks for cement distribution.”

He noted that the three million tonnes per annum line (IV) of the BUA Cement facility takes the combined installed capacity of the factory’s lines 2,3 and 4 to 5 million tonnes per annum, stressing that this is one of the most modern cement plants anywhere in the world.

“It has gas analyzers used in regulating carbon emissions released into the atmosphere; air purifying mechanisms set up to enhance the quality of air released from the cement manufacturing process. In fact, the plant has filters capable of capturing 99.9 per cent of dust in order to make the environment healthy and conducive for the workers and customers alike,” he added.

He stated that the plant is the first cement plant in Nigeria to use LNG to generate 50MW of power, thereby replacing coal in its kiln, pointing out that this has made the plant environmentally friendly in line with the climate change agenda.

“I am sure when the AKK gas pipeline project is completed, it will drastically reduce the time and cost of transporting gas, which is currently being trucked from Port Harcourt to the plant. At least 20 trucks of LNG are brought here daily from Port Harcourt. Imagine the costs and the logistic challenges involved in this.

“Of course, this plant is also a job creator. As the Managing Director said, there are 443 permanent staff and, together with all other ancillary jobs, the total is about 10,000 jobs,” he averred.

He commended the Chairman of BUA Cement, Alhaji Abdul Samad Rabiu and his entire team for his undying belief in Nigeria, saying that there is no better indication of BUA’s support for the government’s economic diversification and job creation agenda than the company’s massive investments in Nigeria.

“In the last five years, BUA has completed four new cement plants of similar capacity in different parts of the country and is set to complete two more plants soon. It is expected that total production for BUA Cement will amount to 17 million tonnes per annum by 2023,” he added.

Earlier, Binji stated that that investing in the future, its strategic priorities would be to drive revenue and cost synergies across revenue and margin lines, harmonise sale and marketing strategy across its two plants, increase customer portfolio and capture new market areas including export, construct lines 3&5 at Obu and Sokoto plants respectively and deploy solutions that enhance customer experience.