Pan-African company Dangote Cement has announced plans for a $400-mil-lion, two-million-ton-a-year cement plant in Kenya.
The company is part of the Dangote group, owned by one of Africa’s richest men, Aliko Dangote, who says of the planned investment: “We have realised that, if we really want to do something big in East Africa, we must operate in Kenya. We believe that, in the next two-and-a-half years, we will be the dominant player in cement in Kenya.”
However, the deal has sent shockwaves throughout Kenya’s crowded cement industry, where profit margins have been dwindling.
In recent years, listed cement makers Bamburi Cement, East Africa Portland Cement and Athi River Cement have recorded losses or marginal growth in profitability, a reflection of the stiff competition in the industry, where six manufacturers operate.
Apart from new entrant Dangote Cement, India’s Sanghi Cement is also putting up a $250-million plant with a capacity of 1.2-million tons a year.
Analysts at fund manager Old Mutual say the entry of new players and ongoing capacity expansion by existing producers will lead to a cement supply surplus by 2015.
The antici- pated glut, coupled with the fact that the build- ing and construction industry is nearing a stag-nation phase, could plunge manufacturers into a deeper quagmire, the analysts warn.
“Oversupply of cement is expected to result in downward pricing pressures more likely to benefit consumers. This raises concerns about the long-term profitability of the industry.”
The situation is bound to worsen owing to an influx of cheap imports from countries like Pakistan and Egypt, which have taken advan-tage of the absence of a punitive import tax regime in Kenya and East Africa, in general.
The East Africa Cement Producers Asso-ciation has been calling for an increase in the common external tariff on cement from the current 25% to 40% to protect the industry from imports.
The Dangote Cement plant in Kenya will be built in the coastal city of Mombasa and will rely on coal as the source of energy.
With the Kenyan plant, Dangote Cement will tighten its grip on the wider East African market. The company is also building plants in Tanzania and Ethiopia.
According to the Kenya Economic Survey 2013, the building and manufacturing sector recorded growth of 4.8% in 2012, compared with 4.3% 2011, while cement consumption rose by 1.7% from 3.8-million tons in 2011 to 3.9-million tons in 2012.