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Dangote entry to stir up East African cement market

The entry of Dangote Cement—owned by Africa’s richest man Aliko Dangote— is set to further raise competition and cut margins in the local and regional cement market. Photo/FILE
The entry of Dangote Cement—owned by Africa’s richest man Aliko Dangote— is set to further raise competition and cut margins in the local and regional cement market. Photo/FILE  AFP

The government has issued an operating licence to Nigeria’s Dangote Cement, paving the way for the conglomerate to establish a $400 million (Sh34.4 billion) plant and crank up the pressure on existing producers.

Mining secretary Najib Balala announced this Tuesday at a press briefing where ministers gave accounts of their operations.

The entry of Dangote Cement—owned by Africa’s richest man Aliko Dangote— is set to further raise competition and cut margins in the local and regional cement market.

Industry sources said two plants are coming up in Rwanda, three in Dar es Salaam and Arusha, one in Burundi and another in Jinja, Uganda.

Industry statistics show that cement prices have shrunk to a 12-year low due to the glut caused by new players. Analysts have linked the sharp drop to a price war that has intensified with the entry of new players such as National, Savannah and Mombasa.

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Dangote is widely tipped to either invest in Kitui or the Coast where vast amounts of limestone and other relevant minerals are plenty.

“The investment is fine if they follow the same process as others: there are a lot of community issues but if they play on a level playing ground without getting special status that is alright,” said Pradeep Paunrana, the Kenya Association of Manufacturers incoming chairman.

Mr Paunrana is the CEO of ARM Cement that plans investing in Kitui. He also hoped the firm would not operate as an offshore investor and tilt the balance in terms of tax payments against others.

ARM hopes to invest billions to start construction of a plant in Kitui to produce 8,000 tonnes of cement daily. Other established Kenyan cement firms are also expanding their production.

“While new entrants have succeeded in using discount pricing as a tool to segment the market, it is only a matter of time before intense rivalry cuts across the entire market,” Standard Investment Bank (SIB) said in a research covering the cement industry.

SIB said the outlook for cement firms’ margins was disappointing, noting that the industry’s margins hit an all-time low of 22.1 per cent in 2012.

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