Africa’s richest man is pushing to dominate its market for cement, the material at the heart of the continent’s infrastructure boom.
All that stands in his way is the world’s biggest cement-maker, a flood of low-priced imports, the threat of slowing growth in contracts for dams, ports and roads, and a slump in the most-traded emerging-market currencies to a record low.
It’s not stopping Aliko Dangote.
“Africa’s future growth is intrinsically linked to cement,” Dangote (58), told assembled dignitaries, including Zambian President Edgar Lungu, earlier this month as he opened a new factory on the outskirts of Ndola, Zambia’s third-largest city. The material is “the most basic input into building infrastructure”.
The plant will help bring Dangote Cement’s total production capacity to 43-million tonnes by the end of 2015, in striking distance of the African capacity of market leader LafargeHolcim, which runs its own Zambia factory about 30km from the plant Dangote was opening.
Dangote Cement, which has expanded capacity five-fold in the past four years, plans to roughly double potential output to 80-million tonnes, Dangote says. The Ndola plant is one of five new factories he’s opening this year across sub-Saharan Africa, including two in the LafargeHolcim strongholds of Cameroon and Zambia.
Africa has become one of the world’s fastest-growing regions for the building material as rapid urbanisation and spending on transport, power and shipping boost demand. Significant projects under construction include Ethiopia’s $4-billion hydropower dam on the Blue Nile River and a $13-billion railway that will link the Kenyan port of Mombasa to the Rwandan capital of Kigali through Uganda.
With 50-million tonnes a year of cement capacity, LafargeHolcim is the largest producer in continental Africa. Domestic producers must also compete with cheap imports from countries including Pakistan, according to Bloomberg Intelligence analyst Sonia Baldeira.
“Dangote is rapidly expanding its footprint across sub-Saharan Africa,” said Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management.
“Many of the cement plants in the region are old and ageing. Their efficiency has fallen. With its new plants it will be able to compete strongly.”
LafargeHolcim shares rose 3.7% at 2.10pm in Zurich, but Dangote Cement was unchanged at 164.50 naira (about R11.50).
The additional production from Dangote’s new factories is already having an effect on local cement markets. In Senegal, the company says it provides more than 30% of all cement sold in the country, where it opened its first plant in January.
In Zambia, cement prices fell about 20%, a result of Dangote’s push against LafargeHolcim, according to Sipho Phiri, who chairs a company planning to build a $180-million hydropower project in West Zambia.
The project will need about 20?000 tonnes of the material, so the price drop makes a significant reduction to his capital investment, he said by phone. And none of it will come from Lafarge Zambia.
“They were taking advantage of their monopoly,” said Phiri. “People including myself, as a matter of principle, will only buy Dangote cement. I’m emotional about it.”
Lafarge Zambia chief executive Emmanuel Rigaux rejected Phiri’s claims that the company had taken advantage of its position.
“We’ve been growing with Zambia,” he said. “We were the first really big construction company to go ahead with a very large investment. We were the first to see the potential that Zambia had.”
Lafarge Zambia is doubling capacity at its Lusaka plant in a €200-million project as it seeks to capitalise on growing demand in Zambia and the Democratic Republic of Congo (DRC) to the north. Increased competition and lower prices won’t change its plans, he said.
Lafarge, which last month completed a merger with Switzerland’s Holcim to form the world’s biggest cement-maker, said in February 2014 it planned to increase sub-Saharan Africa capacity to more than 30-million tonnes by 2017, from 20-million tonnes. The combined company had about 50-million tonnes of capacity in Africa at the end of last year.
“Africa is a fast-growing region with huge construction needs supported by demographic trends and growing urbanisation,” LafargeHolcim said. It is “well positioned to serve [Africa’s] construction needs from its existing strong supply network in cement with facilities in 15 [African] countries”.
The speed and scale of new investments in Africa’s natural resource-based economies may falter as commodity prices fall and growth slows in China, the biggest consumer of materials such as copper and iron ore. A gauge tracking 20 of the most-traded emerging-market currencies depreciated 0.7% on Monday to a record low, making it harder for those countries to pay for imported materials.
The market slump hasn’t changed Dangote Cement’s expansion plans, Carl Franklin, the company’s head of investor relations, said. “We don’t think that short term. Africa will be building for decades.”
In countries such as Tanzania, cheap imports from China and elsewhere are weighing on prices and threatening margins for local producers. In May, South Africa imposed anti-dumping duties on material coming from Pakistan. The issue continues to challenge African producers, Baldeira said from London.
Even so, the two biggest cement producers in Africa aren’t the only ones expanding. Johannesburg’s PPC is building new plants in the DRC, Zimbabwe and Ethiopia; it has started production in Rwanda. Germany’s HeidelbergCement added 2.9-million tonnes of capacity in Africa, its biggest growth region, in 2014. Its pending takeover of Italcementi may double its market share in the Middle East and Africa, according to data compiled by Bloomberg Intelligence. HeidelbergCement predicts cement demand will expand 50% by 2020 in the sub-Saharan region.
“Capacity is not enough to meet demand in these countries,” Baldeira said. “When we think about the future of the world’s demand for cement in the next 10 years, Africa will be a big driver.” – © Bloomberg