Kenya’s cement industry, the largest in the region, is eyeing various large scale projects across East Africa to drive its expansion and turn in a windfall.
Housing development in Kenya and Tanzania has been driving industry demand considerably, but this matrix is expected to change with increased government capital expenditure in the transport sector. Such infrastructural development projects include building a standard gauge-railway running from Mombasa to the western border town of Malaba, expanding Kenya’s main airport, and constructing a new port at Lamu.
“We are experiencing strong demand in the housing sector in the region but this is because most of the [government] infrastructure projects are yet to pick up,” Prandeep Paunranha, Managing Director of Athi River Mining (ARM) told AFK Insider in a phone interview.
He disclosed that at present, demand for cement by contractors in the urban housing sector comprises 60 percent of what ARM delivers to the market. Rural housing accounts for 25 percent while infrastructure projects cover the remaining 15 percent. This pattern of consumption is replicated across markets in East Africa including Uganda and Tanzania.
ARM estimates that while the annual demand for cement in East Africa is nine million metric tons, only four million are produced in the region; making up for the deficit by importing from Asia and other African states such as Egypt.
“We are in the process of putting up a two million ton cement plant in Kenya, around 2014 to meet growing demand,” Paunranha said.
Officials at ARM said construction and expansion works at Tanzania’s seaports of Tanga and Dar es Salaam in addition to Rwanda’s booming housing sector and hydro plants will drive the firm’s growth this year.
ARM is considered a key player in the East Africa cement manufacture business. In the six months ended June 30, 2013, ARM made a 28 percent increase in pre-tax profit from $9.3 million to $12 million. Its turnover increased from $60 million to $76.5 million during the same period.
Statistics from the Kenya National Bureau of Statistics (KNBS) show that in January 2013, 375, 720 metric tons of cement were produced in Kenya against a consumption of 324,095 tons. In February, this figure dropped to 375,237 metric tons against consumption of 331,961 metric tons. In 2012, cement production reached 4.6 million metric tons against consumption of 3.9 million.
The East Africa region has a severe cement deficit but the opportunity isn’t fully seized by investors and local manufacturers.
“We still do not have readily available limestone deposits while putting up more capacity is an expensive venture,” Paunranha said.
ARM plans to increase clinker capacity over the next five years from the current position where it imports about 40 percent of what the plants need.
“Although we had initial bottlenecks when the housing industry recorded a boom, new players have since entered the cement industry while those already in the sector have boosted their capacity. One can now order for 1,000 bags of cement and obtain prompt delivery,” Daniel Ojijo, Chief Executive Officer, Villa Care Limited, a Nairobi-based real estate company told AFK Insider.
The industry has seen the entry of several new players into the Kenyan market including National Cement and Savannah Cement.
But it is Savannah Cement, a state of the art cement grinding plant with a capacity of 1.5 million tons a year, which is getting all of the attention. It is located in Athi-River, 19 miles from Nairobi. Savannah Cement is the 6th and newest entrant into Kenya’s cement market.
Savannah Cement targets regional markets in Rwanda, Burundi, Tanzania, Uganda, Democratic Republic of Congo and South Sudan.
“We [Kenya] have an installed capacity of 7.5 million metric tons against an annual consumption of just under 4 million metric tons. This means there is excess capacity [in Kenya] and any new entrant is likely to have a challenge in securing market share,” said Kepha Tande, Managing Director of East Africa Portland Cement Company and also chairman of East Africa Cement Producers Association.
“However, opportunities still exist in clinker manufacturing where more than half of the 4 million tons used locally is made from imported clinker.”
While production of clinker is dependent on availability of limestone deposits, which are spread out into remote parts of the country, players such as Cemtech have taken up the challenge.
Cemtech, a subsidiary of India’s Sanghi Industries, plans to construct a $120 million, 1.2 million ton-a-year plant in Kenya’s remote West Pokot area. Sanghi Group is the world’s largest cement manufacturer with capacity of over 20 million tons.
The factory was commissioned in July 2010 by then-Prime Minister Raila Odinga but since then construction has not commenced.
Cemtech has contracted a Chinese consortium, made up of several engineering firms, to build the cement plant at a cost of about $141.2 million. The first phase of the West Pokot Cement project will provide 600,000 tons of cement annually and is set for completion in 2015. The second phase, which will bring capacity to 1.2 million tons per year, will be completed two years later.
Cement sales for local and regional markets are dispatched mainly as bagged cement, although specialized customers (contractors) may order delivery of bulk cement. When speaking of opportunities, industry players seem to be reading off of the same script.
“There are opportunities in infrastructure, especially within Nairobi as well as projects within the devolved units of county governments. There is also the Konza City project which provides enormous opportunities for us. Growth in the cement industry is robust and this is what is attracting new entries as well as expansion in capacity of already existing players,” Tande said.