Determinants of Growth in Cement Production in Nigeria

Rapid industrialisation through sector-led industrial policies, prohibitive tariffs and aggressive subsidies has become commonplace in many African countries. In Africa's largest economy, Nigeria, one of the flagship industries cited as a success story of successful industrialisation is the cement industry. However, the Nigerian cement industry manifests certain industry peculiarities such as oligopoly and bulky mass, that is not easily replicable across sectors. The aim of this paper is to isolate the key market characteristics and industry incentives granted to the cement sector so as to identify the most important determinants of the recorded phenomenal growth. Based on previous studies, four industry variables: concentration ratio, capital intensity, installed capacity and demand-supply gap were identified. In addition, four other macroeconomic variables that impacted production costs: financing costs, tax rate, real exchange rate and effective rate of protection; were also tested in the model. Data was obtained for the cement industry from 1980 to 2015 for the cointegration model. The results indicate that tariff protection was the most significant determinant of the growth in cement production. Subsidies, in form of tax holidays and cheaper financing, were only minimally important. The findings of this study underscore the huge cost of supporting the growth of industrialisation in African countries through various instruments.