Displaying items by tag: Ethiopia

In the January 2013 issue of Global Cement Magazine, we featured a review of the Ethiopian cement industry. At the time we were hopeful with respect to the country's future cement demand, buoyed along by Ethiopia's own bold targets for development of the sector. It seemed only a matter of time before international and regional producers went to Ethiopia and cashed in on a cement plant-building bonanza.

Ethiopia's government is keen to further develop Ethiopia's cities and infrastructure and wants to increase its per-capita cement consumption from 35kg/yr at present to ~300kg/yr in the period to 2017. To do this, it is encouraging the cement sector to swell from its current capacity (7.4Mt/yr integrated capacity with additional grinding capability) to over 27Mt/yr by the same year. At the same time, the country has banned cement imports, a bold statement of intent designed to protect its own growing industry.

This week, we have learned that the country is hitting its bold production targets, largely without assistance from outside players. However, it seems that Ethiopia is incapable of consuming the volumes of cement that have been produced. As of 12 August 2013, the Ministry of Industry announced that Ethiopia made 12Mt of cement in the year to 7 July 2013, more than double the 5.4Mt/yr that it demanded over the same period. This revelation casts the government's future predictions for rapid cement demand growth in serious doubt.

While it takes effort to picture Ethiopia producing 27Mt/yr of cement by 2017, such rapid development is happening in west Africa, where Nigeria's Dangote Cement is achieving 'regional-giant' status.

However, it would take a very great leap of imagination to believe that Ethiopia could consume 27Mt/yr in 2017, five times what it does today, even with the development of major projects like the Millennium Renaissance Dam (a US$4.2bn hydroelectric project), major city and road-building projects and a rapidly growing population. Its cement capacity would have to grow by 4.9Mt/yr, representing average year-on-year cement demand growth of 52.5%/yr. Even with a cement industry the size of Ethiopia's, this represents almost impossible growth. To support this increase in demand, GDP/capita, which is often closely correlated to cement demand, would probably also have to raise fivefold, from US$374 to US$1870. This difference would take it from the bottom 20% of African nations well into the top third by this measure.

If this over-production trend continues, it does not bode well for Ethiopia's domestic cement industry. While exports may appear attractive, options are limited. Kenya to the south has a larger and more well-established cement industry, Somalia has major economic and security drawbacks and Ethiopia's relationships with Eritrea and Djibouti, both of which declared independence from Ethiopia, are tense. With no coast of its own, maritime exports will be difficult, especially with low-cost cement flowing from India, Pakistan and Iran. South Sudan, with its lack of cement production facilities, plentiful oil and major trade/border dispute with Sudan, could offer a small market for Ethiopian exports, but not enough to satisfy a ~20Mt/yr overcapacity.

Read Global Cement's January 2013 review of the Ethiopian cement industry here.

Ethiopia: Tamiru Wondimagegn has been appointed as board chairman of Habesha Cement. He is a prominent lawyer and board member of Habesha Cement. He succeeds Gizaw Teklemariam, who previously worked in the oldest state owned cement factory, Mugher.

Habesha held elections for its board in late January 2013, following a reduction in board places from 12 to nine. The Ethiopian cement producer has also given three board of directors seats to two South African companies, International Development Corporation and Pretoria Portland Cement, which are credited for bringing in 49% equity to Habesha.

The outgoing chief executive of PPC (Portland Pretoria Cement) officer, Paul Stuiver, summed up the dilemma facing cement producers on the east coast of Africa. Building near the coast leaves you vulnerable to imports.

In a recent interview with the South African business weekly, 'Financial Mail', Stuiver said that imports are not a threat to African expansion, provided that a facility is not built within 200km of a port. Exactly the same issue was raised by Yves De Moor in his column in the November 2012 issue of Global Cement Magazine.

Countries along Africa's east coast receive imports, but Stuiver said that Africa's high logistics costs mean the prices increase steeply as the cement is transported inland. He commented that the markets in Mozambique and KwaZulu Natal in South Africa were especially vulnerable and that most imports to South Africa come through Durban. Unsurprisingly both of PPC's big recent investments have been in landlocked countries, Zimbabwe and Ethiopia respectively. In July 2012 it also tried to invest in CINAT, the Democratic Republic of Congo's state-owned cement producer.

The import issue to South Africa reignited last week when the South African National Regulator for Compulsory Specifications (NRCS) confirmed that it had confiscated 'sub-standard' cement imported from Vietnam. As we covered in August 2012 in this column this follows a row in July 2012 about whether cement from Pakistan's Lucky Cement was complying with South African standards.

Although standards still lead the argument, more honesty has emerged with the use of the word 'dumping' in the complaints. Stuiver explained that "...the price of cement from Pakistan, India and Vietnam is low because electricity, fuel and transport rates are subsidised." Whilst PPC can report that its revenue has risen by 9% to US$837m for the first nine months of 2012, complaints against foreign imports seem overly protective. In 2009 PPC confirmed the existence of a cartel in the country. PPC has even gone to the Advertising Standards Authority to stop imports with elephants on their bags!

With reports that Nigerian producer Dangote is building a new US$389m plant in South Africa, thoughts turn to what will happen once South Africa becomes 'self-sufficient' in cement, like Nigeria which has proudly announced this recently. Giant infrastructure projects are one way to use all that excess cement and this is what Lafarge WAPCO has been asking the Nigerian government to do recently, in a road building drive. Better transport links in South Africa would wreck Stuiver's maxim about not building near a port.

Two solutions from this week's news might appeal to the industry on the south and east coasts of Africa. The first is to use inventive export barriers just like the Bureau of Indian Standards have imposed to slow down exports from Pakistan. The second is to persuade importers to do what a North Korean ship reportedly did with its consignment of cement this week off the coast of Somalia: dump it in the sea.

However bad the multinational cement financial reports get as they tighten their operations remember that it could be worse. For example, they could face the challenges the East African Portland Cement Company (EAPCC) has confronted over the last year. Reuters broke the news this week that EAPCC had widened its loss to US$9.96m due to poor sales, a major plant breakdown and labour unrest. All of this occurred in a construction economy demanding ever more cement.

EAPCC has seemed surrounded by controversy over the last year starting with a conflict of interest issue raised over a change in clinker supply in December 2011. This then led to the removal of the company's directors by the Kenyan government, which in turn led to a strike. In the chaos a worker was shot and wounded. On top of that the report reveals that there was a 'major' breakdown in one of the plant's kilns. It's a wonder that EAPCC didn't make a greater loss in the 2011-2012 year.

Demand for cement in Kenya and in the other countries in the east African region is growing. Data from the Kenya National Bureau of Statistics in December 2011 showed that cement consumption in Kenya rose by 12% in the nine months to September 2011. As reported last week in GCW72, ARM Cement (formerly known as Athi River Mining Ltd) reported a net profit of US$9.71m for the first nine months of 2012. This marks a 328% growth in profit compared to the same period in 2011 when it made US$2.26m. Meanwhile this week it was announced that Ethiopia is about to open its second cement plant in the town of Dire Dawa. More plants are on the way. Over in Tanzania, the Tanzania Investment Centre (TIC) announced that the country's cement deficit surpassed 1Mt since 2011.

As has happened elsewhere in Africa, notably in Nigeria and South Africa, local producers are pushing hard to restrict foreign imports as they grow their own capacity. In September 2012 the East Africa Cement Producers Association (EACPA) made warnings on the issue. The chairman of EACPA at the time was none other than the managing director of the EAPCC. In addition potential investors should take note that Kenya will hold its next general election in March 2013. Over 1000 people died in the protests following the 2007 election as well as the displacement of over 500,000 people.

Given this growth in protectionism, international producers who want to expand are being forced to seek riskier territories. Pakistan's Lucky Cement, a major importer of cement to Africa, is doing exactly this. It announced this week that it is entering into joint ventures in plants in DR Congo and Iraq. However these projects perform, Lucky Cement must be praying that they don't end up looking like the last year that EAPCC has endured.