Introduction
Unlike all other African lands, Ethiopia was not colonised by European powers, except by Italy for a short period during the Second World War. Its indigenous monarchy survived throughout the colonial era, only to be toppled by a 1974 military junta.
After taking over, the military set up a socialist state, which, through further coups, uprisings, drought and infighting, wrestled to control itself and the country throughout the 1970s and 1980s. During this time inaction and neglect of its own people by the regime amplified the speed and severity of the 1983-1985 famine that claimed 400,000 lives.
In 1991 a diverse opposition group, the Ethiopian People's Revolutionary Democratic Front (EPRDF) overthrew the socialist system. It drew up a constitution in 1994 and held free elections in 1995 for the first time. At the same time as the Ethiopian revolution, the land that forms modern Eritrea was re-taken by rebel forces that had fought for independence for 30 years.
Economy
Throughout its long history, the economy of Ethiopia was very small, comprising extensive subsistence farming and market-based trade. Today, its agricultural sector is still the largest sector of its economy, employing 85% of workers and creating 41% of GDP.1
Many areas of the service sector, including finance and insurance, are currently off-limits to foreign investors, although industrial and manufacturing firms can be owned by those abroad. However, in practice there remains a predominance of native firms in industry.1
Other barriers to foreign investment in the country include the fact that all land is owned by the government, with industrial groups having to hold long-term lease agreements to set-up facilities. Another is that, although Ethiopia's GDP growth has averaged 9.3%/yr since 2004,2 GDP itself remains in the bottom 20% of African countries, at US$374/capita in 2011. This limits the market for consumer goods at present. Infrastructure also remains relatively undeveloped, although investment is on the rise.
Despite these poor economic statistics, Ethiopia is well positioned for development compared to its neighbours. It has the second highest population, and thus workforce, on the continent1 after Nigeria and ranks higher in the World Bank's 'Ease of Doing Business' survey than all of its neighbours except for Kenya.4
Cement industry
| GDP1 | US$94.85bn |
| GDP/capita2 | US$374 |
| Population1 | 91.2m |
| Integrated plants3 | 4 (2 projects) |
| Integrated capacity3 | 7.2Mt/yr |
Above - Figure 1: Map of Ethiopia showing major settlements and cement plants.3
The Ethiopian cement industry consists of four integrated cement plants.3 Three of these are located in the central area of Oromia, close to the capital Addis Ababa, with one in the north of the country close to the disputed border with Eritrea. With the country's economy relatively closed to outside companies, there are no major multinationals with a stake in the Ethiopian market, although one plant is part owned by South Africa's Pretoria Portland Cement (PPC).5
Ethiopia is well set up geologically for cement production and has large limestone reserves. Poor infrastructure has previously prevented this from being exploited more efficiently.
Ethiopia has historically had low cement consumption, as low as 35kg/capita/yr in recent years. However, it is expected that this will rise by a factor of nine or 10 to 300kg/capita/yr in the coming years.6 However, such a level would still be behind the global average of 390kg/capita/yr.
There has been a significant increase in cement capacity since the early 2000s, reflected in Figure 2. This has been due to a number of upgrade projects that continue to come onstream. In 2011 Ethiopia imported around 1Mt of cement.6 The government eliminated this on 27 March 2012 when it banned imports as a measure to protect new and forthcoming domestic cement capacity.7
In the short to medium term, the country's economic growth is expected to remain strong, with cement playing an increasing role in new roads, dams, low-cost housing and public buildings. One such project is the US$4.2bn, Millennium Renaissance Dam hydroelectric project. The project began construction in 2011 and should be completed by 2015.8 Ethiopia has grand plans for the project and expects to be able to use it to export power to its neighbours.
Cement plants
The city of Dire Dawa is the historical centre of the Ethiopian cement industry and remains very important for the sector. Dire Dawa Cement plant, the first cement plant in Ethiopia was opened in 1936 with a capacity of 60,000t/yr by occupying Italian forces.9 The Dire Dawa plant was acquired by the National Cement project in 2005, which changed the plant's name and upgraded the plant to 0.2Mt/yr. National Cement is due to bring a new 1.2Mt/yr project online 3km from Dire Dawa in 2013.9-10
"We will start clinker trial production in October 2012 and cement trial production in November 2012," said Busa Assefa, chief executive of National Cement in September 2012. He added that the trial production phase at the company's new plant near Bajatu, Kebele, would begin at 60% (clinker) and 70% (cement) of installed capacity, before full operation in 2013. The company expects to rely on the eastern Ethiopian market and will also export to Djibouti and Somalia.10
Also in Dire Dawa, the Tura Dire Dawa Cement Plant will enter production in 2013. The 0.5Mt/yr grinding plant will produce OPC and pozzolana Portland cement. The plant is owned by six members of the Haji Mohammed Ture family, who named the plant after its late founder Haji Mohammed Ture. It lies completed 8km from Dire Dawa and was awaiting approval from the Ethiopian Conformity Assessment Enterprise in late 2012.11
Elsewhere in the country, Derba Midroc Cement, operated by Midroc Ethiopia plc and 70km from Addis Ababa, was commissioned in January 2012.12 It is currently the largest cement plant in Ethiopia.
The opening of such a large capacity plant had a dramatic effect on cement prices, with the new plant offering the lowest cost cement on the local market. By February 2012 it was reported that the plant was selling cement at US$9.36/bag (for bulk orders) in a market that had seen prices close to US$28.00/bag at the start of 2011. The company imported around 1000 Volvo trucks in order to assist with its distribution requirements, helping to stabilise the price of cement in the local market.13
As well as its main cement plant, Derba Midroc Cement operates two mini vertical-shaft kiln cement plants. The two plants each have a capacity of 300t/day (0.1Mt/yr). They were designed by the Indian company SABOO and are located at Derba (next to the main plant) and at Dejen, 230km from Addis Ababa.14
Messabo Cement is located in Mekelle in the north of Ethiopia. The FLSmidth-built plant was comissioned in 2001 with a capacity of 2.2Mt/yr. The company produces cement to European standards due to its European design and claims a domestic market share of around 30%. The plant is fuelled by fuel oil and a 16MW captive power plant.15
Messabo routinely produces OPC and Portland pozzolana cement and also has the ability to make sulphate-resistant cement and low heat of hydration cement (suitable for dams and other large concrete forms) to order. It exports to Sudan and Djibouti, the latter of which does not have its own cement plants. The plant underwent expansion to 2.2Mt/yr in June 2011 following a 1.3Mt/yr, US$126.6m upgrade by China's Hefei Cement Research and Design Institute.16
Mugher Cement, a state-owned venture, is located in central Ethiopia. It began production in 2007 with a capacity of 0.7Mt/yr. Having earlier reported a sales slump at the tail end of 2011,17 the company commissioned a new US$94m Chinese-built cement production line in April 2012, increasing the capacity to 2.3Mt/yr.18 The company says that it is targeting the state sector and real-estate projects to absorb its new capacity.
Mugher is currently in the process of tendering a new US$32.2m burner system upgrade, for which it has identified two potential Chinese suppliers. The contract is to convert the heavy furnace oil system to a coal fired one.19
This is not the first time that the contract has been tendered. Mugher originally awarded a US$28m contract for the job but to Chinese firm Hefei Cement Research Design Institute (HCRDI) but, "The company increased the bid by around US$11m after we had already awarded it," said Mekonnen Zergaw, CEO of Mugher, by way of explanation.
Cement plant projects
Habesha Cement is in the process of constructing a 1.4Mt/yr cement plant at Holeta in Oromia State.20 The company building the plant was incorporated in 2008 and secured the first 30% of the necessary funds by selling shares in 2008 and 2009. In October 2010 it signed a deal with Northern Heavy Machinery Group of China.21
At the same time it was anticipated that the plant would receive the remaining 70% financing required to move ahead with the project from the Development Bank of Ethiopia, but devaluation of the Birr meant that the funds were no longer sufficient. This loan was eventually secured in September 2011.21
Originally set to be in production by the close of 2012, the plant's 'foundation stone' was laid in May 2011.20 Construction was in early stages in the summer of 2012, with production likely to be in 2014 barring any further delays. These are now less likely since the acquisition of Habesha shares by South Africa's PPC and the South African International Development Corporation (IDC) in July 2012.22
"We have been discussing with PPC and IDC for the past year about the possibility of them investing in our company," said Gizaw Mariam, chairman of the board of directors at Habesha, at the time. "We are happy now that they have decided to secure a 47% stake and become our valued shareholders."
Eventually Habesha plans to develop the plant into the largest cement facility in Ethiopia, with a capacity of 2.8Mt/yr.20
Cement plant rumours
In 2010 India's Birla Cement Corp. attempted to enter the Ethiopian cement plant construction scene when it submitted a bid to the Habesha Cement company for construction of the plant at Holeta. It was outbid by a Chinese firm in that instance but retained its interest in the rapidly-growing Ethiopian market.23
In June 2012, Birla again stated its intention to expand overseas, recently forming a wholly-owned Ethiopian subsidiary, Birla Corp Cement Manufacturing plc, to establish a plant. "We plan to go (to Ethiopia)for exploration of limestone and to set up a cement plant," said a Birla Corp official. "We would also explore opportunities to set up power plants there."23
Elsewhere, CH Clinker was established in June 2009 and anticipated commissioning of a 0.9Mt/yr plant by the end of 2012, with others reporting that the company had a plan for a 3.2Mt/yr plant. This project has apparently not been pursued since this announcement or may be running significantly behind schedule.
The Ethio-cement project was also launched in 2009 with the aim of constructing a 1.2Mt/yr plant to fill the expected cement deficit in the country. This also appears to have made little progress since.
Future prospects
Ethiopia, while still poor, is experiencing rapid real-terms economic growth at a time when much of the global economy is struggling with issues relating to ongoing recessions and debt crises. Indeed, in June 2012 the IMF raised its economic growth forecast for Ethiopia for 2012-2013 from 5.5% to 7.0%.24 With inflation in the region on the decline, the heady GDP growth figures of the past decade are unlikely to be matched in the future, but growth is expected to remain strong.
Another economic ace that Ethiopia has up its sleeve is one of the largest populations in Africa, currently around 91m.1 This is forecast by the UN to increase drastically to 120m in 2020 and to 178m in 2050.25 With a workforce of this size and strong growth, the country has the potential to become a major regional economy in east Africa.
In cement terms, the government is certainly not holding back. It has stated that it wants Ethiopia, a net importer of cement in 2011 and now with an import ban, to increase its production by a factor of 10 in just three or four years, an increase to 27Mt/yr.26
The current expansions and projects go some of the way to this target, but the case for multinational companies entering the market at this time is very clear. Although barriers to investment and a historical bias towards domestic companies exist, the recent PPC acquisition should make the country inviting for more foreign firms.
The potential is certainly large. Assuming that the country hits the UN population forecast in 2020 with cement consumption of 300kg/capita/yr, domestic demand will hit ~36Mt/yr. The same assumptions in 2050 reveal the potential for ~53Mt/yr of cement consumption in Ethiopia!
With figures like these and considering the constant jitters in the European cement markets and overcapacity in some Asian hubs, the country is attractive to multinational cement companies. PPC, Birla and the Chinese firms are among the first movers into the Ethiopian cement market but they will not be the last.
References
1. CIA World Factbook website, 'Ethiopia,' https://www.cia.gov/library/publications/the-world-factbook/geos/et.html.
2. World Bank Indicators website, 'GDP per capita (current US$),' http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
3. 'Global Cement Directory 2013,' PRo Publications Intl. Ltd., Epsom UK, November 2012; and work towards publication of 'Global Cement Directory 2014,' PRo Publications Intl. Ltd., Epsom, UK.
4. World Bank Doing Business website, 'Economy Rankings,' http://www.doingbusiness.org/rankings.
5. 'Global Cement Magazine - September 2012,' PRo Publications Intl. Ltd., Epsom, UK, September 2012.
6. Bloomberg website, 'Ethiopian cement plants to double capacity amid construction industry boom,' http://www.bloomberg.com/news/2011-05-20/ethiopian-cement-plants-to-double-capacity-amid-construction-industry-boom.html.
7. 2Merkato website, 'Ethiopia bans cement imports,' http://www.2merkato.com/201203271050/ethiopia-bans-cement-imports.
8. 2Merkato website, 'Ethiopia on track to complete mega dam projects,' http://www.2merkato.com/201211201809/ethiopia-on-track-to-complete-mega-dam-projects.
9. National Cement website, 'Company profile,' http://www.nationalcementsc.com/index.php/companyprofile.
10. 'Global Cement Magazine - October 2012,' PRo Publications Intl. Ltd., Epsom, UK, October 2012.
11. All Africa website, 'Ethiopia: Dire Dawa to open its second cement factory,' http://allafrica.com/stories/201210300039.html, 28 October 2012.
12. Nazret website, 'Ethiopia: Derba Cement goes to market at 170 Br a bag,' http://nazret.com/blog/index.php/2012/02/07/ethiopia-derba-cement-cement-goes-to-market-at-170-br-a-bag, 7 February 2012.
13. Nazret website, 'Ethiopia - Derba Cement to buy 1000 Volvo trucks,' http://nazret.com/blog/index.php/2010/01/15/ethiopia_s_derba_midroc_cement_to_buy_10, 15 January 2010.
14. Midroc Ethiopia website, 'Derba MIDROC cement,' http://www.midroc-ethiopia.com.et/md_32midroc_derba.html.
15. Messebo Cement website, Various pages, http://www.effortgroup.org/messebo/messebo_background.htm.
16. Ethiopia Rewind website, 'Ethiopia Messebo Cement Factory expansion project inaugurated,' http://amirabdulla.blogspot.co.uk/2011/06/ethiopia-messebo-cement-factory.html,
17. The Reporter Ethiopia website, 'Muger Cement sales slump,' http://www.thereporterethiopia.com/News/muger-cement-sales-slump.html, 26 December 2011.
18. ERTA News website, 'Muger cement inaugurates 1.7 billion birr expansion project,' http://www.ertagov.com/erta/erta-news-archive/38-erta-tv-hot-news-addis-ababa-ethiopia/1629-muger-cement-inaugurates-17-billion-birr-expansion-project.html, 21 April 2012.
19. 'Global Cement Magazine - November 2012,' PRo Publications Intl. Ltd., Epsom, UK, November 2012.
20. Habesha Cement website, Various pages, http://www.habeshacement.com.et.
21. Global Cement website, 'Habesha Cement has USD90m loan approved,' http://www.globalcement.com/news/item/545-habesha-cement-has-usd90m-loan-approved, 30 September 2012.
22. Habesha Cement website, 'PPC & IDC investment,' http://www.habeshacement.com.et/news/52-ppc-a-idc-investment.html, 25 July 2012.
23. 'Global Cement Magazine - July-August 2012,' PRo Publications Intl. Ltd., Epsom, UK, August 2012.
24. Nazret website, 'IMF raises Ethiopia growth forecast,' http://nazret.com/blog/index.php/2012/06/15/imf-raises-ethiopia-growth-forecast, 15 June 2012.
25. United Nations Department of Economic and Social Affairs/Population Division, 'Ethiopia - World Population Prospects: The 2010, Volume II: Demographic Profiles,' http://esa.un.org/unpd/wpp/country-profiles/pdf/231.pdf, 2010.
26. Nazret website, 'Ethiopia's biggest cement plant inaugurated,' http://nazret.com/blog/index.php/2012/02/06/ethiopia-s-biggest-cement-factory-inaugurated, 2 June 2012.
