East African cement makers face a significant drop in revenues due to
cheap imports and rival foreign firms looking to pump millions of
dollars into the regional industry. PHOTO | FILE
By JAMES ANYANZWA
In Summary
- East African cement makers face a significant drop in revenues due to cheap imports and rival foreign firms looking to pump millions of dollars into the regional industry.
- The decision by the East African Council of Ministers to reduce duty on cement imports from non-EAC countries from 35 per cent to 25 per cent has also heightened competition, amid high power costs in the region, which account for 40 per cent of production costs.
- Cement consumption has been growing faster than production on average in the region.
- According to analysts, the game is, however, changing with international players setting up operations to close the supply gap in these markets.
East African cement makers face a significant drop in
revenues due to cheap imports and rival foreign firms looking to pump
millions of dollars into the regional industry.
A market study by AIB Capital shows that as foreign companies
eye the region, local companies are expanding their capacity to sustain
their market share and profitability amid declining margins.
The decision by the East African Council of Ministers to reduce
duty on cement imports from non-EAC countries from 35 per cent to 25 per
cent has also heightened competition, amid high power costs in the
region, which account for 40 per cent of production costs.
For example, cement prices in Kenya dropped to $100 per tonne
last year, from an average of $140 per tonne in 2011, while the
industry’s net profit margin contracted to 10 per cent from 15 per cent
in the same period.
Nigeria’s Dangote Cement, with a market capitalisation of $30.96
billion, is plotting a dramatic entry into Kenya by setting up a 1.5
million tonne plant. The company has already set up a three million
tonne capacity plant in Tanzania, with production initially scheduled to
start in August.
Dangote Cement leads in investment in the sector, expanding its
footprint to fill the supply gap on new cement frontiers as well as to
counter slowed growth in its home country. It is Africa’s leading cement
producer with 40 million tonnes of operational, capacity and has three
plants in Nigeria, an import terminal in Ghana and recently opened
factories in Ethiopia, Zambia, South Africa, Senegal and Cameroon.
According to the AIB Capital report, the entry of new players in
the sector and the expansion of the existing firms has created a
fertile ground for price wars.
“We are bullish on the industry growth in the mid-term. However,
only those companies that have enough capacity to supply the region
will be able to defend their market share as competition increases,” an
analyst at AIB Capital said.
The report notes that the East African region is one of the
cement frontiers in sub-Saharan Africa, attracting international cement
companies looking to offset the slowed growth in other countries. The
region remains an attractive investment hub due to its high economic
growth rates compared with sub-Saharan Africa averages.
East Africa’s growth is mainly being driven by infrastructure
development, increased output in agriculture and an expanding services
sector.
Oil and gas discoveries are also expected to significantly boost
growth in the region as countries reduce dependence on agriculture.
Kenya is estimated to have about 1 billion barrels of oil with
production expected to begin in 2019, while Uganda has discovered an
estimated 1.7 billion barrels of oil.
The Dubai-based conglomerate Dodsal Group discovered 2.7
trillion cubic feet of gas with a potential upside of up to 3.8 trillion
cubic feet in Tanzania.
Lafarge-owned Bamburi Cement is the biggest cement supplier in
the region, with a strong presence in Kenya and Uganda, while its
subsidiary, Hima, mainly serves the Rwandan market due to its location.
Cement consumption has been growing faster than production on
average in the region. For instance, cement consumption in Kenya grew at
an average of 13.4 per cent per annum between 2009 and 2015.
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