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Ibeto Cement, a major cement importer, has signed a contract with a Chinese firm, Sinoma International Engineering, to build a $386 million cement plant in Enugu State.

The cement plant will have an installed capacity of 2.2 million metric tonnes of cement per year and would be completed in 30 months, according to a statement posted on the website of the Chinese firm today.

In June, the Central Bank of Nigeria announced the restriction of foreign exchange for the importation of certain goods, including cement. This measure, perhaps, forced Ibeto Cement to ramp up its local production.

In 2012, Ibeto Cement acquired majority shares in Nigeria Cement Company, a comatose cement-manufacturing firm located in Ebonyi State. But the state government shut down the plant, claiming that Ibeto Cement used the plant to acquire import licenses instead of resuscitating the plant.

With Ibeto’s new plant, Nigeria’s installed capacity is expected to rise above 40 million metric tonnes per year, far beyond the local annual consumption of over 20 million metric tonnes. Many cement plants in Nigeria operate below their installed capacities as a result of the rampant importation of cheap cement mainly from China, inadequate gas supplies to power cement plants and high haulage costs.

In September, Dangote Cement slashed its cement prices in an attempt to boost local consumption and compete with cheap imports. This move led to an industry-wide lowering of cement prices by cement companies to maintain market share. The cement industry in Nigeria is dominated by four companies: Dangote Cement, the market leader, Lafarge Africa, BUA Cement and Flour Mills of Nigeria.

Nigeria’s cement industry has benefited from the federal government’s backward integration policy, which was initiated in 2002 to encourage local production of cement. Since that time, more than $6 billion in capital projects have been launched.

With the Ibeto Cement deal, Sinoma Engineering has become a Chinese contractor of choice for most Nigerian cement companies. In August, Dangote Cement signed a $4.34 billion deal with the Chinese firm to build cement plants in 10 African countries and Nepal. In September, BUA Cement signed a $600 million deal to double the capacity of its cement plant in Obu, Edo State.

Chibuike Oguh is Financial Nigeria's Frontier Market Analyst.