The plight
of South Africa’s embattled cement producers is a tale of two fortunes: better
prospects in the rest of Africa and an uphill battle at home.
The cement industry is operating below capacity, grappling with a tough
operating environment and cheap imports from China and Vietnam as
financially-squeezed consumers are driving up demand for cheap blended
alternatives to regular cement.
The Concrete Institute (TCI) has petitioned the International Trade
Commission of South Africa to impose anti-dumping tariffs to fend off the cheap
imports.
The industry has also approached the department of trade and industry
(DTI) to apply for special designation status, without which, it says, it will
not be able to benefit from the government’s ambitious infrastructure plan.
Numbers game
- TCI members include PPC, AfriSam, Lafarge and Sephaku Cement.
- PPC is the largest cement producer in South Africa. It has operations in
the rest of the continent from Botswana and Zimbabwe to Rwanda, the Democratic
Republic of the Congo (DRC) and Ethiopia. - The South African cement industry has capacity to produce 20 million
tons a year but it is currently producing 13 million tons and has become a net
importer of cement.
The industry contends producers are fighting for a shrinking pie, with
cheap imports and blended products further complicating matters. In Gauteng alone, there are an estimated 60
variants of blended cement.
Rest of Africa
Mokate Ramafoko, PPC MD for the rest of Africa, says markets outside of
South Africa present unique challenges and opportunities.
He says markets are landlocked, making transport of cement there from
Asia a challenge and an expensive undertaking:
- In landlocked Rwanda the logistics of the port are costly and
prohibitive. - Although the Democratic Republic of the Congo (DRC) has a port, it is
one of the most expensive ports in the world. “Unless you are dumping, it is
[im]
possible to use it.”
Remaining competitive in Rwanda
“Rwanda operates in the context of the East African Community, where
there is free trade. The only way to survive is to remain competitive,” says
Ramafoko.
Bottom of Form
PPC has been the sole producer in Rwanda but is now bracing for a
competitor.
- “There is a new player coming. We are focusing on our operating costs
and building strong relationships with customers,” said Ramafoko.
But unlike South Africa, Rwanda is not saturated.
Challenges and potential in Africa
However, the market in the DRC is similar to South Africa in saturation
terms though not actual production: cement consumption is 1.2 million tons and
capacity is 3.4 million tons.
“It is a challenge. We rely on retail, which is price sensitive,”
explained Ramafoko.
In Ethiopia, there is some level of saturation
but this is offset by substantial investments in infrastructure projects. Ethiopia’s
market has huge potential for growth because of the country’s population of 105
million.
In the rest of Africa, the regulatory burden is more relaxed compared to
South Africa.
South Africa’s domestic consumption is about 280kg per person, with the rest of Africa’s domestic
consumption being comparatively lower:
- In the DRC, it is around 20kg per person.
- In Rwanda, it is 30kg per person.
- In Ethiopia, it is close to 100kg per person.
Africa’s low consumption rates “signal an opportunity for an upside”.
Where the opportunities lie
In DRC there are no roads, and the rail infrastructure is non-existent
and limited. Connecting the capital, Kinshasa (which is close to the West
African coast), with Lubumbashi, which lies some 2,300 km away along the
country’s southern border with Zambia, is “virtually impossible”. Connecting
Kinshasa with the eastern part of the DRC is also a challenge.
According to Ramafoko, “this represents a future opportunity for
consumption”.
- In his first address to the UN General Assembly on September 26, DRC
President Félix Tshisekedi proposed opening up the country to regulatory mining
in exchange for development. “We want
industrial jobs. We need training and we need development”, he said, which means increased consumption of
cement.
However, unlocking demand
will depend on the political will in the DRC, “which has been unstable
for years”, says Ramafoko.
PPC has successfully lobbied for a ban on cement imports into western
parts of the DRC. The ban is effective for a year and is renewed annually.
- In Ethiopia, there is sizeable investment in hydropower and new
apartment developments outside Addis Ababa.
“I think this year, Addis Ababa placed $1.5bn for road infrastructure in
the financial year that started in July. That is a good opportunity for cement
consumption,” explains Ramafoko.
Home disadvantage
Njombo Lekula, PPC MD for Southern Africa, says a tariff on imports will
be good for the industry and South Africa, assisting largely with job
retention.
There are also related sectors to consider, including bag producers,
coal suppliers and logistics operators.
“The industry has many inputs, including coal. Somewhere in a coal mine
there will be a reduction in offtake because a cement plant has stopped
operating,” warns Lekula.
Logistics operators are also key to the industry. On average, the
product travels about 300 km from factory to market, with the main nodes being
Gauteng, KwaZulu-Natal and Limpopo.
- After shutting down its plant in Port Elizabeth, Eastern Cape, PPC uses
“Transnet Freight Rail (TFR) to transport some of our intermediate material to
Port Elizabeth. We transport coal from the inland provinces to the Western
Cape, so does everyone else,” says Lekula. - “We transport almost one billion tons of material from Thabazimbi,
Limpopo, to Gauteng by rail. If we have to shut down, that means TFR will lose
out on those volumes,” he adds.
Relief on hand … but
Announcing an infrastructure plan is one thing, execution is another.
“I spent three-and-a-half years in Zimbabwe. There were glorious
projects we calculated into our sources of growth in our strategy documents.
“I came back home to South Africa without a single one of those projects
having taken shape,” says Lekula, cautioning against over-excitement about the
government’s planned infrastructure drive.
However, the industry is on hand to capacitate government when its
infrastructure plan eventually begins to unfold.
This is where a special designation from the DTI would prove useful, as
it would guarantee the use of locally-produced cement in any infrastructure
project the government undertakes.
Bottom line: “There is commitment to assist, but the wheels of government turn slowly,” says Lekula.https://www.theafricareport.com/18204/south-africas-cement-producers-lay-foundations-for-african-growth/
