DESPITE challenges of overcapacity and cheap imports in the local market, cement makers are optimistic about the future prospects of the sector which have been brightened by continuing construction boom.
The industry which is experiencing
supply excess despite strong domestic consumption with installed
production capacity at 8.3 million tonnes per annum against current
demand of 4.3 million tonnes per annum, is buoyed by major
infrastructure projects and revitalized shift of government seat to the
designated capital of Dodoma which are expected to drive business and
boost growth.
The local market continues to attract
new investors as the local producers are struggling to retain their
market share with strategies to cut on costs and improve efficiency.
Two producers, Tanzania Portland Cement
and Tanga Cement managed to make profit last year though challenges in
the market lowered their sales volumes. TPCC recorded an increase in
sales volumes of 22 per cent versus 2014.Total revenue increased by
44.6bn/- and profit for 2015 was 56.2bn/- which is three per cent above
2014.
According to their financial results the
increased sales volumes and profit was a result of increased capacity,
production efficiency and consolidation of Twiga Extra as main product
of its portfolio.
Tanga Cement recorded a declined profit
in 2015 compared to that of the previous year due to stiff competition
due to new entrants that lowered their volumes.
It experienced a decline in sales
revenue of 9.9 per cent compared to the previous year and a net profit
of 8.24bn/- down from 28.40bn/- made in 2014.
However with the commissioning of the
second kiln at its plant in Tanga in December last year and a number of
initiatives to boost operational efficiency and overall business
effectiveness, the company recorded a 55 per cent increase in net
operating profit for the first six months of 2016.
Tanzania’s cement industry has been
dominated for years by three major producers, Tanzania Portland Cement,
owned by a subsidiary of Germany’s Heidelberg Cement AG, Tanga Cement,
majority owned by Afrisam Mauritius Investment Holdings Limited and
Mbeya Cement, owned by France’s Lafarge SA.
A team of new players include Arthi Rhino Cement, Camel Cement, Lake Cement, Lee Building Materials and Dangote Cement.
However it is the coming of Dangote
Cement that changed the landscape significantly after it slashed cement
prices up 10,000/- per 50kg bag last year being only months after it
started operations. Other players had to follow suit by lowering prices
of their products and begin sales promotion campaigns so as to survive
in the market.
The coming up of the new players has
intensified competition which put downward pressure on sales volumes and
profitability of cement producers hence shrinking their growth.
However, despite the sluggish growth to
one of the major producer, the future outlook remain bright with the
planned key infrastructure projects expected to begin this financial
year that include construction of a 6.7bn US dollar standard gauge
railway that will link Rwanda and Burundi with the Indian ocean, a mega
port and economic zone at Bagamoyo in Coast Region that is expected to
cost at least 10 billion US dollars and the proposed 4.0bn US dollar oil
pipeline this year which is expected to transport Ugandan crude oil to
the Tanga for export.
Other key infrastructure projects
include rehabilitation of the Central railway line and improvements in
Dar es Salaam and Mtwara ports. The government has raised spending by 31
percent in the current fiscal year with a focus on infrastructure and
industrial projects.
However, despite the promising future,
local cement makers complain cheap imports of cement products were
subjecting them to unfair competition threatening their survival which
will have significant impact on the number of people directly and
indirectly employed in the industries, government revenue in terms of
taxes and the image of the country as an investment destination.
The Managing Director for Tanga Cement,
Reinhardt Swart said recently that some of the cheap products were
clinkers on transit that are diverted in local market and sold cheap
because they are not taxed.
“We ask the government to either stop
the imports or at least impose higher tariffs on imported clinkers. We
are also pleading with the government to ensure clinkers on transit
reach their destinations.
This will remove unfair competition in
the market,” said Reinhardt Swart, during the inauguration of the second
kiln at the Tanga plant last week.
Mr Swart said they were also asking the
government to reconsider decision to ban coal imports as it has raised
the company’s energy costs. He said government decision to ban coal
imports had made them incur extra cost for using thermal power as the
local one was not suitable for their second kiln.
Mr Swart said they were also concerned
that they had outstanding concessions agreed with the Tanzania
Investment Centre (TIC) in 2012 but were not yet put in government
gazette.
The failure to publish the concessions
they had agreed with TIC raises questions on government sincerity in
upholding investment agreements, he said. The Minister for Industry,
Trade and Investment, Charles Mwijage who was the Guest of Honour during
the inauguration of the kiln, advised local cement producers they need
build a compelling case that will convince the government to act on
their complaints.
The minister said that they should file
their complaints at special desks on ease of doing business that have
been established in the ministry in efforts of the government to improve
business environment in the country.
“Let’s reason together so that we can
build our case that I can defend to the government,” he said noting they
need to reason together and build a compelling case on their complaints
before the government.
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