Cement Sector Growth Rate Continues to Reflect Failing Macroeconomic Realities

Image Credit: Sokoto Cement

June 4, 2024/CSL Research

The y/y growth rate for the cement sector rose by 30.24%, from 1.58% in Q1 2023 to 2.05% in Q1 2024. However, on a q/q basis, the sector’s growth rate declined by 37.03%, dropping from 3.26% in Q4 2023. The y/y increase can be attributed to the favourable low base effect during the quarter.

In Q1 2023, the country faced a cash shortage due to the naira redesign program, which severely disrupted commerce. This disruption, coupled with uncertainty surrounding the general elections, led to a pause in essential corporate and government infrastructure projects.

Despite the y/y increase in growth rate, we note that the cement growth rate still falls below Q1 2022 levels (9.57%), as the sector continues to be impacted by the country’s failing macroeconomic realities, notably the depreciation of the Naira. This resulted in considerable foreign exchange losses for the industry’s key players—BUA Cement, Dangote Cement, and WAPCO (Lafarge)—amounting to approximately N95.62 billion, marking a significant 1133.13% y/y increase. These FX losses had a notable impact on the financial performance of the companies, with two out of the three experiencing a decline in pre-tax profits.

WAPCO saw a significant decrease of 61.3% to N8.71 billion, while BUA Cement recorded a 40% y/y drop to N21.29 billion. In contrast, Dangote Cement managed to report a pre-tax profit of N166.40 billion, marking a 13.3% increase from the previous year. Dangote Cement’s robust performance can be attributed to its triple-digit revenue growth during the period, which bolstered its bottom-line figures.

We maintain our expectation that the cement sector will perform better in 2024 compared with 2023. Beyond a favourable base effect, we expect output from the cement sector to be driven by increased cement demand. Additionally, cement prices are expected to continue reflecting current macroeconomic conditions, further boosting the productivity of the sector.

We also believe we will see an improvement in government spending on infrastructural projects in 2024. While historical patterns suggest a potential CAPEX implementation rate of between 20% to 50%, we are optimistic there will be an improvement this year. That said, challenges such as the high cost of raw materials, persistent inflationary pressures, and rising energy costs are downside risks to our expectations.

Click here to read full PDF copy of report

Leave a Comment

Your email address will not be published. Required fields are marked *