Ethiopia: Concrete Demand at Record Levels, Exponential growth

ADDIS ABABA (HAN) May 5, 2015 – Public Diplomacy, Regional Investment News.  BY LUCY KASSA The stock of the cement traders at Megenagna was almost non-existent up Fortune stepped over to the place to investigate the cement paradox.

Exclusive and limited cement brands have dominated the market and some brands that are normally less popular are now rising in the market. It was the same scenario with other retailers at Gotera and Merkato cement retailing markets whichhave all faced a significant supply shortage. The price hike that followed might be considered the most significant since the launch of Derba Cement factory on February 5, 2012, with the highest production capacity and its own delivery service.

The price of cement reached around 400 Br three weeks ago, according to retailers at Megenagna, gradually falling back to 300 Br and 320 Br depending on their brand. In greatest demand are Derba, Mugher, National and Mesobo. However, none except Mesobo could be seen in stock.

The retailers point their fingers at Derba Cement for the current shortage. Derba, which had emerged as a great market stabilizer, says that it has not cut production but has been unable to get cement to the market because 50 of its trucks are on forced government service, transporting Ethiopian goods from the Port of Djibouti, according to Haile Asegede, chief executive officer of Derba cement factory said.

Established with a capital outlay of 2.8 billion Br by Sheik Mohammed Ali-Amoudi, including a 200 million-dollar loan from the European Investment Bank, African Development Bank (ADB), International Finance Corporation (IFC), and the Development Bank of Ethiopia (DBE), Derba Cement has a designed production capacity of 2.3 million tonnes annually; it owns 1,000 Volvo trucks for delivery. Derba, however, produces only at 81pc of its capacity.

Compounding this problem is Mugher Cement’s largest clinker producing machine (used for the production of cement), which stopped working because of power fluctuations, according to one the managers of Mugher cement factory. He added that the delivery of spare parts ordered by the company was delayed because of the holiday.

Mugher Cement factory has an annual production capacity of 2.3 million tonnes of cement after its expansion project at Tatek added 876,000tn to the previous capacity of 1.4 million tonnes. Its actual production also stands at 83pc, the same as Messobo and National, whose full capacities stand at 2.24 million tonnes and 1.35 million tonnes, respectively.

An expert, however, says that the shortage in the market was intentionally created as the companies were concerned about the impending launch of the Dangote Cement factory. They speculated that the new factory could use price to penetrate the market, according to this expert, who added that they wanted to offset the loss they expect from inflated prices now.

Currently, there are 20 cement factories in operation, with a total capacity of 12.6 million tonnes. Another three factories will be joining them soon.

The power supply shortage and spare part problem are the core reasons behind the factories’ incapability of producing cement at their full production capacity, said Dawit Alemu expert at the Ministry of Industry, Cement and Related Industry Development Directorate. The factories are faced with challenges in obtaining the megawatts required for consistent production, he added.

The demand for cement in the country has increased through the years. It was 4.44 million tonnes in 2012, 5.28 million in 2013, and 6.28 million tonnes in 2014 and 7.47 million tonnes in 2015. It is forecasted to reach 8.88 million tonnes and 10.56 million tonnes by 2016 and 2017, respectively.

The actual production of cement has also been increasing in response to the demand. In 2014, the amount of cement actually produced was 5.4 million tonnes, an increase from the previous year’s 4.7 million tonnes. The actual production of cement in 2012 and 2011 was 3.7 million tonnes and 2.7 million tonnes respectively.

There are three cement factories which are expected to increase the current actual production of cement in the country, namely Dangote cement, Habesha cement and Ethio Cement, holding 2.5 million tonnes,1.3 million tonnes and 850,000 tonnes designed production capacity, respectively.

Coming up with the largest production capacity and the hope of raising the country’s production capacity, Dangote Cement factory, the biggest company in West Africa, having projects in 14 African countries, is expected to launch production in Ethiopian this month.

Owned by the world’s 67th richest businessman, Aliko Dangote, the factory which is fully foreign direct investment, established its plant in Ethiopia with capital of 600 million dollars.

The factory is located on 134ha of land in a place called Adebern, in Mugher, Oromia Region, and has a robotic laboratory and loading machine. Dangote will also have its own fleet of 600 trucks.

“Three hundred have already arrived, with the rest to come later,” Albert Corcos, regional chief executive officer (CEO), East and South Africa Dangote Cement, told Fortune,adding that the company has a plan to control 60pc of the market share in Ethiopia. In addition to that the factory also has a plan to open six warehouses from which retailers will buy cement. Warehouses will be built in Adama,Shashemene,Dessie,Jimma,Nekemet and Addis Abeba, according to Mesfin Abera, sales and marketing manager of Dangote Cement in Ethiopia.

Dangote’s factorieshave transformed some African nations,such as Nigeria, Mali, South Africa and Cameroon, from imports importers to exporters and exporters. Its entry into the cement sector of Ethiopia is expected to stabilize the market if the factory produces at its full capacity, Dawit said, adding that it could also create competition in the industry.

However, the challenges in the cement sector in terms of less production compared to their designed capacity and power supply shortage problems may also be encountered by Dangote as there will not be any special privilege given to the company, he added. AddisFortune