ARM’s expansion bid to intensify war for cement market

Athi River Mining, a quoted cement manufacturer, is carrying out a multi-billion shilling expansion programme that promises to energise the local and regional cement market and tilt its investment portfolio in favour of Tanzania.

The Sh12.6 billion expansion strategy involves setting up a second processing plant at Athi River and expansion of the Kaloleni plant in coast region at a combined cost of Sh2.5 billion, as well as building a new Tanzania plant at Sh12 billion.

The Kenyan plants will produce 3,000 metric tonnes per day, while the Tanzania one will produce 4,500.

Besides the shift, driven by better prospects and less competition in Tanzania, ARM is set to become the second largest cement producer in Kenya after Bamburi Cement and in the process upstaging current second placed East Africa Portland Cement.

The move comes barely after the announcement by Lafarge of its exit from ARM through offloading its stake at the Nairobi Stock Exchange (NSE).

Lafarge, a multinational cement company which has a controlling stake in Bamburi Cement, had a 14.1 per cent stake in ARM. It was reported to have resisted ARM’s expansion plans.

Lafarge has also a stake in East Africa Portland Cement.

“Despite the prevailing economic downturn, we are investing in these new ventures as we expect the market for cement to grow not only in Kenya but also in Eastern and Central Africa,” said Mr Pradeep Paurana, the managing director.

Mr Paurana indicated that ARM plans to generate over 70 per cent of its turnover and revenue from outside Kenya.

The Tanzania plant is expected to generate 58 per cent of the firm’s output, with Kenya plants contributing 29 per cent.

The huge investment in Maweni Cement in Tanzania is informed by the stiff competition ARM has had to contend with locally.

By putting up a plant of such scale, ARM will effectively make any potential entrant in the market to either set up a more expensive plant if he intends to upstage it, or simply enter the market and fight for a stake.

Largest capacity

The Maweni Cement plant, which will have the largest grinding capacity in Sub Saharan Africa, will position ARM to capture the larger Southern Africa Development Community (SADC) market as Tanzania is a member of the block.

The firm also intends to enjoy economies of scale hence provide cement at favourable prices.

“Our investment in Tanzania is driven by the expected exponential growth of cement use to be driven by infrastructural projects in roads, power and mining”, said Mr Paurana.

Currently, Tanga Cement controls less than 10 per cent of the Tanzanian market with the bulk being imported from Egypt, South Africa and Zambia.

ARM’s expansion will see its market share grow to 19 per cent from the current 13 per cent.

Bamburi Cement controls 58 per cent of the local cement market and Portland has a 30 per cent stake.

According to East African Cement Producers Association (EACPA), the industry lobby group, demand for cement locally has grown steadily from one million tonnes in 1994 to 2.7 million tonnes to date and is expected to hit four million tonnes in three years.

Even as ARM carries out its expansion plans, the other players are also engaged in either plant expansion or product diversification and value addition to grow their bottom lines.

East African Portland Cement is adding a new milling, plant besides plans to engage in value addition through preparation of ready made concrete mix used for construction.

Similarly, Bamburi Cement is adding a new grinding plant.

Beside cement production, ARM is also involved in fertiliser manufacturing and sodium silicate used in making of detergents.

Other products include industrial minerals and lime.