National Cement is set to invest Sh18.5 billion in a new factory in Uganda, marking its first plant outside Kenya. Construction of the plant, located in Mbale, will start next month.
It will have a capacity of one million tonnes per year and is expected to be operational by the end of next year.
The project is the first of the Athi River-based cement manufacturer’s regional expansion plan. The firm also intends to venture into South Sudan in the next three years.
“The first phase of the project is expected to commence in May after which we will continue expanding the plant over a three-year period,” said Narendra Raval, the chairman of Devki Group, the parent company of National Cement.
“Once the main factory is operational we will expand it to include a clinker factory which will ensure that we are self-sufficient.”
The Uganda project is being funded by loans from the International Finance Corporation (IFC) and two local banks.
The plant signals increased competition in the regional cement market which is grappling with price wars brought about by the entry of new players and expansion of established firms.
Indian conglomerate Cemtech and ARM Cement, for instance, plan to set up new plants in Pokot and Kitui areas respectively.
Nigeria’s Dangote Cement has also announced plans to build a plant in Kitui with a capacity of three million tonnes per year, adding to its upcoming factory in Tanzania which will have a similar output.
Cement production capacity in the East African region more than doubled in the decade ended 2013 to 13.7 million tonnes per annum, pushing down the utilisation rate to 69.6 per cent, according to Standard Investment Bank (SIB).
The increased investment is set to worsen the glut and force further price cuts, placing more emphasis on volume growth and efficiency as the major profit drivers for individual firms.
“With forecast average excess capacity expected to remain above 20 per cent through to 2016, cement companies will have to continue absorbing increasing production costs,” SIB said in a research note.
“We expect producers in Kenya and Tanzania to continue facing the lowest pricing power,” the investment bank said, noting that cement prices in Kenya fell by five per cent last year alone.
Increase in output
The massive increase in output is set to offset the projected 12 per cent increase in consumption in the region over the next three years.
National Cement, founded in 2008, is one of the companies riding on relatively low pricing to gain market share from established rivals like Bamburi Cement.
The company, which trades as Simba, is currently building a cement factory in Lukenya near Machakos, a venture also partially funded by IFC comprising debt (Sh5 billion) and equity (Sh1.4 billion).
The Lukenya plant will raise National Cement’s capacity to 1.7 million tonnes per year from the current 600,000 tonnes.
The company’s entry in Uganda will put it in direct competition with Lafarge’s Hima Cement and Tororo Cement, the leading cement producers in the country with a combined capacity of 3.6 million tonnes per annum.
Uganda currently imports extra cement from Egypt, Pakistan and Kenya with the latter also acting as a supplementary source of clinker — the main raw material in cement production.