• Solid work

    In line with an increase in public infrastructure, the growing demand for cement in sub-Saharan Africa is prompting greater investment by local and international producers.

    Solid work

    Africa’s richest man has not built his empire on diamonds, gold or platinum but on a nondescript grey powder. The Nigerian business magnate Aliko Dangote, ranked by Forbes magazine as the continent’s wealthiest individual, with a fortune estimated at US$17.8 billion, is the man behind Dangote Cement – the largest listed company in his country, accounting for about 30% of the Nigerian Stock Exchange by market capital-isation. It is also Africa’s biggest producer of the most used building material in the world: cement.

    The superlatives go on. In June 2015, Dangote officially opened East Africa’s largest cement plant about 85 km from the Ethiopian capital, Addis Ababa. The US$480 million factory has a production capacity of 2.5 million tons (mt) of cement per annum. It is reported to be the single largest investment by an African corporate in Ethiopia.

    The company’s Obajana cement plant, one of its three Nigerian cement factories, is the largest in sub-Saharan Africa with a current capacity of 10.25 mt and an another 3 mt planned. Dangote already has six bulk cement import terminals in Nigeria and one in Ghana, as well as cement-manufacturing operations in several African countries (including Benin, Ghana, Congo, Tanzania, Senegal, South Africa and Zambia). The Dangote group has stated that its ‘aggressive growth plans target a strong pan-African presence’.

    Worldwide, Portland is the most popular type of cement – reflected also in the name of the largest South African producer, whose acronym PPC stands for ‘Pretoria Portland Cement’. As a basic ingredient in the production of concrete, cement essential in the construction sector.

    An investment analyst at Kagiso Asset Management explains in his abstract on the South African cement industry: ‘Residential building is the most cement-intensive type of construction and, for the cost of building, uses a disproportionately large amount of cement. The government’s social housing projects should therefore support cement demand as about seven tons of cement is required to build a small 80 m2 RDP house.’

    Limestone, the key ingredient in Portland cement is so common across Africa that the sub-Saharan cement sector is highly fragmented, states the pan-African Ecobank in its report, Middle Africa’s Cement Sector: Explosive Growth, published in July 2014. ‘Countries lacking deposits must import clinker [semi-processed cement] and grind it locally into cement in order to reduce costs. Given cement’s bulkiness and weight, it is costly to transport, particularly across Africa’s poorly developed road networks. As a result, most cement plants sell their output within a 300 km radius and have an operational capacity of no more than 1 million tons per year.’

    The production plants are generally situated near the big economic centres in West, East and Southern Africa. The continent’s hunger for cement is based on economic growth coupled with a fast-growing population, a rise in urbanisation and increasing invest-ment in infrastructure and housing.

    Overall, southern African cement producers have been feeling some pricing pressure after a highly profitable phase

    A 2013 forecast by research firm Frost & Sullivan on the Southern African cement industry estimated that investment in the cement industries of South Africa, Zambia and Zimbabwe would amount to a combined US$940 million between 2013 and 2018.

    ‘Higher government spending on public infrastructure, such as the construction of new energy and power facilities, as well as the expansion of transportation infrastructure, will boost the need for cement in Southern Africa,’ says Yeukayi Kadzere, the firm’s industrial automation and process control research analyst.

    The South African government has yet to roll out its ZAR844.5 billion infrastructure-investment package, eagerly awaited by local construction firms and cement manufacturers.

    According to Ecobank, two countries account for half of sub-Saharan Africa’s cement consumption. In 2013, Nigeria was estimated to have consumed 18.3 mt of cement per annum, which translates to 126 kg per capita (compared to the world average of 500 kg). The next largest consumer in the region is South Africa with 12.2 mt, down from its peak of 14 mt in 2007.

    Analysts expect the South African market to produce excess capacity (about 19 mt per annum) over the next few years. This is because PPC, as the region’s leading supplier of cement and related products, is stepping up its production (currently around 8 mt per annum). In addition to this, Sephaku, the first new entrant to the domestic cement industry since 1934, is adding capacity.

    The new company – a 64%-owned subsidiary of Dangote Cement – said its cement and clinker plants in Mpumalanga and North West province, as well as the ash production facility at Eskom’s Kendal power station are ‘the most high-tech plants in the South African cement industry’ and featured ‘best-in-class power, coal and water consumption’.

    Overall, Southern African cement producers have been feeling some pricing pressure after a highly profitable phase. Frost & Sullivan explains that while the production capacity is rising, the production costs are escalating as a result of increasing electricity and fuel prices. The producers are struggling to keep costs to a minimum in order to maximise their profit margins. At the same time they are trying to keep cement prices down in order to remain competitive.

    Cheap imports from Asia have resulted in a 30% to 40% underutilisation of cement-production capacity in Angola, according to Ecobank. In South Africa, cement producers lodged a complaint about alleged cement ‘dumping’ by Pakistan. The International Trade Administration of Commission of South Africa has now imposed provisional anti-dumping duties of 14.3% to 77.2% on Pakistani cement imports.

    The Ecobank report states that in Nigeria, fuel and electricity typically account for 70% of cement-production costs – more than double the global average of 30%. Africa’s high production costs are a result of years of underinvestment and underutilisation. But the report adds that the situation on the continent is changing: ‘The cement sector is undergoing a transformation that will dramatically expand its capacity over the next decade.’

    Nigeria’s Dangote is about to be pushed from the spot as Africa’s largest cement producer by an imminent company merger. French multinational Lafarge (which dominates the cement market in East and Southern Africa) is consolidating with Swiss firm Holcim to create Lafarge-Holcim. The group will employ some 115 000 people in 90 countries with net sales of around EUR27 billion.

    In West Africa, HeidelbergCement (which is a German group) owns 12 cement production facilities, which are spread over eight countries with a combined capacity of about 10 mt per annum. In March 2015, the firm inaugurated a US$250-million clinker plant in Togo and a US$50-million cement-grinding plant in neighbouring Burkina Faso.

    ‘The cement sector is undergoing a transformation that will dramatically expand its capacity over the next decade’

    HeidelbergCement chairman Bernd Scheifele says: ‘The new greenfield facilities are part of our strategy of expanding our cement capacities in growth markets. The new clinker plant in Togo will greatly improve our competitiveness by enabling us to replace expensive clinker imports by local sourcing. The clinker from Togo will also be used in our new grinding plant close to Ouagadougou to produce cement for the local construction industry in Burkina Faso.’

    In South Africa, a proposed merger between PPC and the second-largest local producer, AfriSam, collapsed earlier this year when the parties couldn’t reach an agreement. The deal would have likely attracted the attention of the Competition Commission of South Africa, as the merged entity would have dominated the market with a 60% share.

    In its 2014 annual report, PPC announced two key strategies to achieve its aim to grow into a leading emerging-market business: ‘While expanding into the rest of Africa, we must maintain the focus on our performance in our historical markets. Internally we refer to this as “keep the home fires burning”.’

    This includes, for instance, the renewal or upgrade of equipment, especially regarding the environment or efficiency, as well as the acquisition of businesses that have a good strategic fit, such as Pronto Readymix and Safika Cement.

    PPC stated further: ‘With our “rest of Africa” strategy, we are on track to achieve our initial target to grow revenue earned outside South Africa from 20% to over 40% by 2017. The key driver will be to target countries with high potential for infrastructure development, low per-capita cement consumption and current cement shortages.’

    So far, the company has increased its stake in Habesha Cement in Ethiopia to 51% and is constructing a 1.4 mt plant. Further plants in Rwanda, the DRC and Zimbabwe are in the pipeline. There are also plans for a 2 mt plant in Algeria.

    While competition in the sub-Saharan Africa cement market is expected to heat up as supply outstrips demand, analysts foresee that the demand will grow in the long term. Southern African cement producers are set to enter yet another profitable phase.

    By Silke Colquhoun
    Image: Gallo/Getty