The Strength Of African Cement

One area of building materials manufacturing, which has indisputably been experiencing impressive expansion recently, is the cement manufacturing sector. Nigeria can be taken as a case in point. At the beginning of this year, Dangote announced its intentions to open a new cement manufacturing plant in Nigeria. The deal is significant: it is believed that, if the project is successful, it will increase production in the country by no less than 6bn tons per year. This would ultimately constitute an intensification of the solid growth the sector has experienced in Nigeria over the past couple of years – production jumped from 8.5m metric tons in 2009 to more than 11m in 2010. Cement import levels have also dropped markedly in recent years, from 74% in 2005 to 30% in 2010.

It is also important to highlight the huge potential for expansion within the Nigerian cement industry; apart from those owned by Dangote Group and Lafarge, the majority of Nigeria’s cement plants are operating below their full capacity levels. Additional new plants are also in the pipeline, and are estimated to have the potential to boost production by around 13.2m tonnes per year. Such an encouraging picture has prompted some commentators to predict that Nigeria could quite quickly become self-sufficient in cement production and then a net exporter by next year. However, others attest that, as the construction industry is growing at a rapid pace, this may not be enough to meet demand. The cement industry is flourishing in Southern Africa as well. Angola aims to double output between 2011 and 2013 (bringing production to 7.5m metric tonnes) as it aims for self-sufficiency. It has also been projected that output could reach 12m tonnes by 2017.

In order to achieve this, the country is currently engaged in projects to update old plants and build new ones. This includes a plant with a price tag of $365m being built in Cacuaco district, just north of Luanda, by Nova Cimangola SARL. Two new cement plants have also recently been set up in Mozambique, which will ramp up production to 4m tons per annum by 2013 (around three times more than present production levels).

The East African cement industry is experiencing a similarly positive growth spurt. Consumption of cement in the region has been growing at approximately 13.5% over the last decade. It has been projected that the industry will continue to mushroom at a rate of 7.9%, expanding from 8.2m tonnes per year in 2010 to roughly 14.4m tonnes by 2017. Cement production capacity is also expected to rise by no less than 60% to around 17m by 2017. Moreover, industry experts assert that potential for further expansion of the sector is high: “The East Africa average of 60 kg per capita cement consumption is still low and the process of catching up is expected to drive future growth,” said Charles Shonayi, a research analyst at the consultancy firm Frost & Sullivan, at a recent analyst briefing on the region’s cement industry.

Infrastructure and housing projects have also accelerated the demand for cement in less-developed areas of the continent, particularly Sudan and Central Africa, a trend which seems to be particularly lucrative for East African manufacturers. According to analysts, Kenyan companies in particular have been reaping the benefits of healthy demand for cement in Burundi and Rwanda.

The forecast for the future in this regard is upbeat: “Export markets in the high-growth segment of countries such as Sudan and DRC, which are characterised by very low cement consumption per capita, are expected to continue to grow. Most countries from this group have or have had political instability, which has curtailed the development of the infrastructure and construction sectors,” said Shonayi.
 
The case for rail

Nonetheless, the industry is not immune to problems. High fuel prices and treacherous road and railway facilities pose a serious difficulty when it comes to the transport of cement, which is pushing up costs. “Cement is a heavy product to transport, and therefore there is a need for further rail infrastructural development within the South African environment,” says a representative from Lafarge.

Rising electricity and raw material costs are also adding to production costs: “The manufacture of cement is electricity intensive, and accordingly, the rising cost of electricity negatively impacts the manufacturing cost of cement,” adds the Lafarge representative. Moreover, the financial crisis has exacerbated issues: “The lack of funding aggravated by the global financial crisis led to delays or cancellation of certain projects, which will negatively affect demand for cement. The remittances from nationals living in the diaspora is affected due to job losses leading to a slowdown in the residential housing construction sector,” said Shonayi, commenting on the situation in East Africa.

The oversupply of cement is also a headache for the industry in East Africa, especially in Kenya, driving down prices and potentially endangering the industry’s profit levels in the long term. Nonetheless, experts have proffered various potential strategies, which could be implemented to address some of these quandaries. One is ramping up investment in renewables: “Cement manufacturers can consider investing in new and more energy-efficient manufacturing technologies, which include using alternative fuels and achieving a saving of between 1 and 4% on fossil fuels,” said Shonayi. Some commentators have also suggested that larger companies could try to move into new non-traditional markets and increase their exports. The revamping of cement plants and improving plant processes when it comes to manufacturing have also been flagged as important developments, which the sector needs to undergo to retain long-term profitability.