Dangote Cement Runs Into Political Headwinds In East Africa. Will It Survive?

Dangote Cement Runs Into Political Headwinds In East Africa. Will It Survive?

Dangote Cement temporary shut down operations in its Mtwara plant in Tanzania last week, raising fears that the firm may be forced to exit the market, its only operational plant in the East African region after it closed its Ethiopian plant in October and it’s Kenyan foray failed to take off.

The company attributed the Tanzanian plant closure to technical issues, even as sources privy to the government said Dangote Cement was caught up in political infighting.

“The Dangote Cement has found itself in the middle of fierce political crosswinds. You have key members of the administration on one hand and those from the immediate past administration on the other engaged in a political battle that is difficult to understand. It could turn out to be worse,” the unnamed source told The Citizen.

In response to the media report, Harpreet Duggal, chief executive officer for Dangote Cement in Tanzania, clarified that the temporary production shutdown was only due to technical problems and said production will resume in a few days, Global Cement reported.

Duggal described operating costs in the country as ‘high’ due to the producer’s dependence on diesel generators. He also cited high transport costs due to the plant’s distance from its key markets.

Dangote Cement ran out of stock following the shut-down, leading to an increase in the retail and wholesale prices of the Simba, Twiga and Mtwara brands. They shot up from $ 4.79 (Sh 10,500) to $6.85 (Sh 15,000) per the 50-kologramme bag.

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Dangote Cement, owned by Africa’s richest man, Aliko Dangote, has endured high operational costs since setting up the plant.

Tanzania’s ban on coal imports from South Africa, failure to agree on gas prices between the cement maker and the Tanzania Petroleum Development Cooperation (TPDC) and low-voltage electricity supply from the 33 Kv-Mtwara electricity line, compared to the 132 Kv that Dangote Cement plant needs, pushed the firm’s operating cost higher, The Citizen reported.

The plant, which cost $500 million to construct, opened in October last year and offers employment to about 10,500 people, both directly and indirectly.

It controls about 22 percent of the local cement market and has greatly upset the market prices since its entry last year in efforts to penetrate into other regional markets.

The shutdown is likely to fuel fears that the company may close operations in the country, which came after protesters attacked its Ethiopian plant in October.

Dangote Cement also cancelled plans to build a $341.6 million plant in Kenya, a move attributed to fierce opposition from the local government.

The decision to suspend operations is likely to hit Tanzania’s attractiveness amid threats by several firms to scale down their operations, or completely close them in the wake of a higher tax regime from the government, which many say will hurt their profitability.

Three firms are considering a reduction in their operations, one is opting to expand into Mali or Kenya, while another is finalizing its shut-down from the East African nation, Reuters reported.