Displaying items by tag: Ethiopia

Nigeria: Dangote Cement’s sale revenue fell by 3% year-on-year to US$1.30bn in the first half of 2019 from US$1.34bn in the same period in 2018. Its earnings before interest, taxation, depreciation and amortisation (EBITDA) dropped by 11.4% to US$605m from US$683m. Cement sales volumes decreased slightly to 12.3Mt. Revenue, earnings and sales volumes all fell in Nigeria but only earnings fell for its operations outside of the country.

“Group sales volumes were only slightly down on last year and this was a solid performance against the impact of delayed elections and increased competition from new capacity in Nigeria, as well as operational and economic challenges in key territories such as Ethiopia and South Africa. However, we saw a stronger performance from Tanzania, which is now running on gas turbines, and also from Senegal, where our sales volumes are more than 100% of our rated capacity,” said Joe Makoju, the group chief executive officer of Dangote Cement.

Ethiopia: The Endowment Fund for the Rehabilitation of Tigray (EFFORT) plans to sell its shares in Messebo Cement. The shares will go on sale at the International Tigray Diaspora festival later in July 2019, according to Fana Broadcasting. EFFORT is also selling its shares in SUR Construction and Trans Ethiopia.

Ethiopia: A new bag-packing unit at Dangote Cement Ethiopia’s Mugher plant in Oromia is unable to start operation due to a lack of raw materials. The US$20m polypropylene bag plant was completed in April 2018 but it is restricted by government controls on foreign currency that are limiting its import of input materials, according to the Reporter newspaper. The unit can produce up to 120 million bags per year.

The cement producer has also suspended plans to build a second 2.5Mt/yr production line at the plant. An agreement was signed with China’s Sinoma International for the project but it has since been abandoned due to a shortage of foreign currency, a lack of electrical power and general security issues. Deep Kamara, the country manager of Dangote Cement Ethiopia, was killed in an gun attack in mid-2018. No one has been arrested in relation to the murder.

Ethiopia: Electricity rationing has been restricting the production of cement companies since it started in April 2019. Under a program implemented by Ethiopian Electric and the Ministry of Water and Energy, cement producers are only allowed to operate for 15 days per month, according to the Reporter newspaper. They say this has increased their production costs because cement production is a continuous process that requires start up and stoppage time. The Ministry of Trade has asked that cement producers do raise the price of cement despite the increase in production cost. Input and transport costs have also risen.

“There is a huge waste of resources when we start up and stop running our plant. Continuous production has cost benefits. We spend 24 hours warming up the plant. There is wastage of coal and electric power,” said Mesfine Abi, the chief executive officer (CEO) of Habesha Cement. He added that the company is facing growing maintenance costs as its machines fail to cope with repeated power cuts.

The national electricity power restrictions have been caused by water shortages at hydroelectric dams. Rainwater has started flowing back in the dam reservoirs but power rationing is not expected to be rescinded until early July 2019.

Nigeria: Domestic sales growth drove Dangote Cement’s financial results in 2018. Its local cement sales volumes grew by 11.4% year-on-year to 14.2Mt in 2019 from 12.7Mt in 2018. Sales in the rest of Africa remained stable at 9.4Mt. Sales revenue grew by 11.9% to US$1.71bn in Nigeria and by 9.6% to US$784m in the rest of Africa. Overall revenue grew by 11.9% to US$2.49bn from US$2.23bn. Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 12.1% to US$1.20bn from US$1.07bn.

“This is a record financial performance by Dangote Cement, driven by a strong increase in our home market, Nigeria, despite heavy rains and uncertainties about the election,” said Joe Makoju, group chief executive officer. He added that, although Pan-African volumes were unchanged in 2018, he was confident that the group would see an increase in 2019, driven by higher volumes in Tanzania, Ethiopia, Congo and Sierra Leone. Elsewhere in Africa the cement producer said that plant shutdowns in Tanzania due to delays to a gas turbine installation, civil unrest in Ethiopia and a reduction of imports from Nigeria to Ghana had reduced its sales.

South Africa: PPC’s sales volume of cement fell by 2 – 3% year-on-year in the nine months to December 2018. The cement producer said that, although prices had risen, the market had shrunk by up to 5%. Imports grew by 80% year-on-year for the January to November 2018 period. It added that its Sure Range product line had continued to gain market share against Portland Pozzolana Cement (PPC) and blended products. Outside of South Africa the company said that growth had been low in Zimbabwe and Democratic Republic of Congo due to local market conditions. Better performance was noted in Rwanda and Ethiopia.

Ethiopia: Abay Industrial Development has ordered a new 5000t/day cement plant worth Euro100m from Denmark’s FLSmidth. The plant will be built near Dejen. FLSmidth has received a down payment for the project but it will not be added to its order intake until further conditions have been met.

The order includes design and engineering, full equipment supply, automation systems, installation and commissioning as well as training and extended supervision. Completion of the order is expected during the second quarter of 2022.

The old saying goes that nothing is certain except for death and taxes. But maybe that should be cement and taxes. Paying your taxes is something most people and companies just get on with, perhaps with some grumbling or perhaps not, but certainly with little press. So two news stories popping up in the same week about cement plants with tax issues is out of the ordinary.

The first concerned Lucky Cement’s battle in Pakistan to keep one of its plants open following accusations of underpaying its taxes. The local tax office tried to shut the Pezu plant down for not paying its property tax. The cement producer hit back with a restraining order from the provincial high court. The second detailed efforts by the Ethiopian authorities efforts to claw back US$10m from a local cement producer accused of deliberately understating its profits. In both cases it’s hard to tell if there is an obvious right or wrong party. Yet if these kinds of stories are hitting the local press headlines then either something has gone wrong or both parties are digging in for a fight.

Looking over a longer time frame two major stories about tax have been doing the rounds over the last year in the industry news. India’s Goods and Services Tax (GST) is a classic example of how cement producers sometimes have to deal with changes to existing regulations. It received another outing this week in the form of the credit agency ICRA’s latest forecast. It explained how the introduction of the new tax, a consolidation of other existing indirect taxes, had slowed production in the second quarter of the Indian financial year in 2017 - 2018.

The other example from a large cement producing country was US President Donald Trump’s cut to federal corporate tax in December 2017. The tax cut was expected to particularly benefit companies that produce materials, like building materials manufacturers. It prompted HeidelbergCement to say in early January 2018 that it expected to see a boost to its profits in 2019. Warren Buffet, the chairman of Berkshire Hathaway and owner of insulation producer Johns Manville amongst other companies, put it bluntly when he said in his 2017 annual report that nearly half the gain of his company’s net worth came from the changes to the US tax system.

Multinational companies, including some cement producers, face issues when dealing with different rules and regulations between the various countries that they operate in. However, sometimes unfairly, sometimes not, large companies also hold a reputation for trying to avoid paying tax.

In this context it’s interesting to look at how LafargeHolcim says it approaches the issue. The company published its tax principles in 2016 where it talks about being responsible and that it, “…accepts tax as a necessary and required contribution to society.” It then talks about the necessity of transparency and good relationships with tax authorities. The same year it declared a total tax bill of Euro726m versus total sales revenue of Euro23bn. By contrast Cemex UK in its tax strategy talks about how it follows the US Sarbanes Oxley Act 2002, which applies a more stringent international accounting and auditing standard. It feels far more honest when it says that it aims to minimise the tax burden upon its shareholders by using methods outlined by the UK government. Taxes may be a certainty but nobody wants to pay a penny more in taxes than they have to.

The small cement industry of Mozambique, in south west Africa must be an interesting place to make cement. On one side the country's producers, like their more vocal South African counterparts, have been fighting off cheap imports from Iran, Pakistan, China et al. On the other side of the coin though, Mozambique has growing domestic demand and is within striking distance of growing markets further into Africa, like Malawi and the Democratic Republic of Congo (DRC).

With the announcement this week that there will be not one but two new integrated cement plants in the country, bringing over 2Mt/yr of new capacity, everything should be set fair for the coming years then, shouldn't it? Domestic production will rise, the price of local cement will fall as a result, competition from imports will drop off and money will be made from new exports.

Except that might not happen. Before the announcement of these two plants, (one of which does not state a capacity), there was around 5.5Mt/yr of grinding and integrated capacity either currently active in Mozambique or due to come onstream in 2015. With the new projects this rises to over 7.5Mt/yr.

The desirable chain of events described above starts to break down due to the fact that domestic demand in Mozambique, while rising, is not currently anywhere near as high as domestic supply. The United States Geological Survey estimated that the country produced just 1.2Mt/yr in 2012. Data for 2013 and 2014, though unavailable, is highly unlikely to show a three-fold increase. Indeed Insitec, a minority shareholder in Cimentos de Moçambique, predicted in 2014 that demand for that year would rise to just 1.5Mt, before hitting the dizzying heights of 1.8Mt in 2018 – And that's still three years away!

So what are the options? Option 1: Some or all of the planned and mooted cement plants will fail to come to fruition. Option 2: Some or all of the plants will be built but will operate at reduced capacity and/or on a campaign basis. Option 3: The Mozambican cement industry becomes a regional powerhouse and starts to export to its neighbours.

Option 1 is certainly possible. Limak Group, one of the parties linked to the new projects, is a Turkish cement producer that is inexperienced outside of Turkey. There has also been a lack of information on the progress of projects by Austral Cimentos ('coming on stream in 2015'), Star Cement and Consolidated Building Materials, although a lack of progress reports does not necessarily imply 'no progress.'

Option 2 is more likely, as some producers already operate on a campaign basis. InterCement's plant at Nacala, formerly an integrated plant, currently operates only as a grinding station. Option 3 is also possible, with Malawi particularly lacking in cement production facilities.
In reality a combination of all three 'Options' is the most likely outcome. However, this will lead to Mozambique becoming yet another player in an increasingly busy African cement market. The desire for self-sufficiency in cement production, a common goal for the region's governments, can easily lead to over-estimates of local demand growth, with resultant over-capacity. Of course the expectation that all African countries can get rid of this extra cement capacity via exports will ultimately backfire.

In southern Africa we already have South Africa exporting. Angola declared 'cement self-sufficiency' in October 2014 and banned imports at the start of 2015. Zambia, Botswana, Zimbabwe and DRC all have large-scale Dangote and/or PCC projects near completion or in production that will greatly reduce their need for imports. Meanwhile, further north, Nigeria is already a gigantic producer and significant cement exporter. Cameroon has recently banned imports and Ghana is thinking of doing the same. Over in the east of Africa, Ethiopia's (and the rest of that region's) rapidly-developing situation was covered in this column just two weeks ago.

Finally, in the north of Africa, Algeria has declared its intention to be self-sufficient in cement by 2016. This news must have 'gone down like a lead balloon' in Italy, Spain and Greece, which have been reliant on north African markets after the bottoms fell out of their own economies. In the north east, Egypt has different problems at present, also described previously. It needs fuel not cement!

So where does this all lead for regional cement dynamics in Africa? Well perhaps the situation in India points the way. There, as in Africa, local and regional producers with the desire to expand grew from their local bases and eventually overlapped. Against a backdrop of lower-than-expected demand, the country now has overcapacity. This has resulted in smaller producers being acquired and leaving the market.

Could this eventually happen in Africa? Only time will tell. However one thing is certain: It's just not possible for every country to export to every other country!

Just one week after Dangote started trial production at its new Mugher cement plant in Ethiopia it announced that it would be doubling capacity at the site. Upgrade work is slated to begin before the end of 2015, according to Nigerian media.

The move shows how much potential Ethiopia is seen to have for the cement industry. With a population of around 90m, it had a cement production capacity of 9.7Mt/yr before the new 2.5Mt/yr Dangote plant comes on line, according to Global Cement Directory 2015 figures. Including the new Dangote plant and even at 100% capacity utilisation this would place cement consumption in the country at 135kg/capita. This is a low figure internationally and hence the continued interest in new capacity. Subsequently, a large number of projects have been rumoured and mooted in Ethiopia over the years. However, many of these publicised projects then fail to make it to construction.

Mebrahtu Meles, the Minister of Industry, said that there were 18 companies engaged in cement production at the 7th Africa Cement Trade Summit that took place in Addis Ababa in April 2015. Meles placed the installed production capacity at 11.2Mt/yr (including the Dangote plant) with the expectation that this will increase to 17.15Mt. However, these cement plants are only producing 5.47Mt/yr, giving the country a capacity utilisation rate of below 50%. This too is low by international standards (60% or more). Cement consumption was placed at just 62kg/capita in 2014.

At the same event, the Ministry of Industry revealed that it was working on a national Cement Industry Development Strategy from 2015 to 2025. The strategy will tackle local industry issues such as unavailability of locally-produced packaging materials, poor transport links, high costs of production and a limited market. Key targets include stimulating cement demand to 12.22Mt/yr by 2020 by moving to concrete road construction and raising capacity utilisation rate to 75% by 2017 and to 80% to 2025.

Despite the publicity Dangote isn't the only player creating new capacity in Ethiopia. Habesha Cement is set to open its 1.4Mt/yr cement plant near to Addis Ababa in 2016. Habesha also has an international angle, given that South African cement producer PPC purchased the majority stake in Habesha Cement in the autumn of 2014 following the project's difficult financial history.

The new Dangote plant predates the country's new cement industry strategy but the upgrade plans demonstrate confidence in both the market and the government's plans. To meet its targets though the country is going to need to increase both its capacity utilisation and build more production capacity. Although muted from previous pronouncements the current target relies on Habesha Cement building its plant and the capacity utilisation rate rising from 50% to at least 75%.

South African weekly newspaper, M&G Africa, has described how Africa faces an infrastructure 'apartheid' whereby 44 of the continent's 58 countries share just 25% of the continent's infrastructure. Building things in Africa costs more because of this infrastructure deficit and it hits cement capacity utilisation rates as well. Ethiopia is one of the region's richer countries in terms of gross domestic product (GDP) but the same issues apply. Hitting its targets for the cement industry may be hard.