HIGH DEMAND FOR CEMENT CHALLENGES LOCAL CEMENT PRODUCTION

UNCLAS COTONOU 000161

SIPDIS

SIPDIS

STATE PLEASE PASS USTR/AFRICA
DEPT FOR AF/EPS, AF/W: BANKS

E.O.12958 DECL:N/A
TAGS: ECON EIND EINV BN
SUBJECT: HIGH DEMAND FOR CEMENT CHALLENGES LOCAL CEMENT PRODUCTION
CAPACITY IN BENIN



1. SUMMARY: Benin's cement plants are struggling to meet
unprecedented high demands for cement from estate developers, road
construction firms, and individuals. This situation exacerbated by
the smuggling of cement to Nigeria has triggered a cement shortage
in Benin. The GOB's tax exemption measures to encourage cement and
clinker imports to offset the gap are not yielding the expected
results. END OF SUMMARY


2. There are currently three cement plants in Benin including two
private plants and one Nigeria-Benin joint parastatal given as a
concession by the governments of the two countries to a private
company, SCB-Lafarge. The monthly production of all three totals
110,000 tons, however well below the market demand, which is
estimated to be over 200,000 tons. The Director of Internal Trade
announced publicly that 60 percent of SCB-Lafarge's monthly
production (45,000 tons) had been shipped to Nigeria under an output
sharing agreement the two countries signed. However, the Director of
Internal Trade underscored that the GOB succeeded in negotiating
with its Nigerian counterparts to bring the Nigerian allotment down
to 15,000 tons to ease the cement crisis in Benin. In addition, one
of the two private cement plants imports 5,000 tons each month from
its Togolese branch to improve the situation.


3. The primary reason for the cement crisis is the high use of
cement in road and housing construction initiated by the GOB.
Presently, the construction of two hundred houses is underway in
Cotonou within the framework of the government's policy to equip the
country with a certain number of luxury houses. On completion, these
houses when completed will be sold to individuals. The GOB, in
conjunction with estate developers and the Libyan government has
initiated the construction of 69 presidential size villas to
accommodate visiting heads of state participating in the Community
of Sahel-Saharan States or CEN-SAD summit to be hosted by Benin in
June 2008 (Septel). These projects alone consume about 30,000 tons
of cement per month.


4. The second trigger for the cement shortage is the smuggling of
cement to Nigeria. A ton of cement costs about 160 USD in Benin and
almost 300 USD in Nigeria. All three cement plants are located at
about a 30 minute drive from the Nigerian border. Therefore,
individuals and cement retailers illegally direct part of the
estimated 50,000 tons of cement, destined for individual consumption
in Benin, to the Nigerian border where they make almost a hundred
percent profit. However, the Director of Internal Trade affirmed
that the smuggling alone could not explain the scarcity of cement in
the country. He accused retailers of creating artificial shortages
in the field. For example, some consumers are buying a ton of cement
at prices ranging between USD 198 and 209. The Director regretted
the GOB's failure to combat the cement smuggling to Nigeria, because
consumers in dire need of cement are reluctant to denounce
speculators.


5. To encourage the cement plants to reduce production costs, the
GOB exempts customs duty on clinker, the raw material used to
produce cement. It also has exempted them from paying taxes on
profit over renewable periods of three months starting from
November, 2007. The GOB also authorized about 150 businesses to
import cement duty-free from overseas and Togo. Only a few traders
have taken advantage of this measure, however, and the imported
quantity does not meet the demand. As a result, the majority of
private building construction projects are on hold until cement
becomes available.


6. The GOB has authorized the construction of two additional private
cement plants, including one owned by the Senegalese Fauzie Layouse
Group. These two plants are expected to start operating in 2009 and
produce 600,000 and 1,200,000 tons respectively per year. As a
result the national production of cement should increase by almost
136 percent.

COMMENTS: The current cement shortage is unprecedented in Benin. The
road and housing infrastructure underway in the country is the main
cause of the crisis, which has revealed the production limit of the
existing cement plants. Their output currently amounts to only half
of the demand. The addition of two new plants should bring supply in
line with the demand, allow Benin to export legally to the Nigerian
market, and prevent a recurrence of this kind of crisis as the GOB
extends the housing policy to other major cities. Economic observers
expect the GOB's real estate and road infrastructure policies to
boost the country's economy.

BROWN