The proposed infrastructure spending by the Federal Government aimed at propelling economic growth will spur demand for cement and other building materials, Kabiru Rabiu, group executive director of BUA Group, said on Monday.
Rabiu, in an interview lauded President Muhammadu Buhari for giving incentives such as tax credit to construction companies building highway roads, and he is optimistic that operators will take advantage of the current investment landscape.
“Nigeria’s cement consumption is one of the lowest in sub-Saharan Africa and we are seeing trajectory in concrete roads. Road tax is giving local operators an opportunity to key into infrastructure,” said Rabiu.
Lawmakers in Nigeria had approved a 2020 budget of N10.59 trillion. Works and housing sector got the highest capital expenditure vote of N315.56 billion in addition to its N27.98 billion recurrent expenditure.
Last year, President Buhari signed the Executive Order 007, which is also known as Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme.
The code allows private companies to construct federal roads across the country and be repaid in the form of tax credits.
With the arrangement, companies who agree to share the cost of infrastructural projects with the government will not have to worry about paying half of the cost incurred on road construction and related public goods.
Rabiu said the company has the financial strength to take advantage of the country’s huge infrastructure deficit and government’s strong infrastructure drive.
“BUA has the highest capacity utilisation in Nigeria. It is also spread across the country, meeting the needs of its customers. There is room to expand capacity,” he said.
As stated in the 2018-2020 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP), Nigeria’s total infrastructure stock is currently c.35 percent of GDP, which is well below 70 percent average of peer emerging economies. It is further estimated that at least $3 trillion must be invested in infrastructure over the next 30 years to bridge the said gap.
On January 10, BUA displaced Airtel Nigeria as the third most capitalised company in Africa’s largest economy after listing 33.86 billion shares at N35 on the floor of the bourse, valuing it at N1.18 trillion.
The cement maker’s share price traded at N37 as of 2:00 pm on Monday in Lagos, valuing it at N1.25 trillion.
Last year, BUA had merged two of its subsidiaries, Obu Cement and Cement Company of Northern Nigeria, to become the second largest producer of the building material with a total installed capacity of 10 million metric tonnes.
Rabiu said that the company has an excellent energy mix that curbs cost and magnifies margins so that shareholders get value for their money in terms to share appreciation and dividend payment.
“We are migrating to coal because it is cheaper,” said Rabiu.
Analysts at Cordros Capital expect Nigeria to contribute about 18.1 percent to total sub-Saharan Africa (SSA) cement consumption over 2019E.
“We see significant legroom for Nigeria’s share of cement consumption in SSA to improve by 85 bps to 18.1 percent, and thus result in a 7.7 percent year on year (y/y) expansion in Nigeria’s cement demand to 22.3MT in 2019,” said analysts at Cordros.
Source: Business Day
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