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Africa’s cement industry is expanding fast

Expansion of cement industry

This analysis is by Bloomberg Intelligence analyst Sonia Baldeira. It appeared first on the Bloomberg Terminal. in 2016

Ethiopia emerges as jewel in crown for Africa’s cement industry
Ethiopia has emerged in the past two years as one of Africa’s largest markets for the cement industry, vying with Nigeria, Tanzania and South Africa. Dangote targets a 25-30% market share in the country, making Ethiopia its second-largest nation in terms of capacity installed. Ethiopia, Africa’s second most populous nation, lags behind many African countries with annual cement consumption of 61 kg per person, according to Global Cement. China has become critical in funding Africa’s largest infrastructure projects.

Ethiopia has excess cement production capacity, though the outlook for demand in the next 10 years is attractive given forecast population growth. Derba Cement plans to spend $300 million on expanding its cement plant in the country.

Ethiopia offers potential for cement industry on building boom
Ethiopia offers the greatest potential for Africa’s cement industry. The country has one of the lowest urbanization rates in the world at 19% and 97 million habitants consuming a meager 61 kg of cement a year per person. In the past six months, Ethiopia has shown a commitment to infrastructure projects, such as the newly opened metro in the capital Addis Ababa. In the past four years, the government has prioritized support for agriculture by investing in transportation and power projects.

Cement demand in Ethiopia is projected to increase to 8.88 million metric tons and 10.56 tons in 2016 and 2017, respectively, according to Dangote forecasts.

Gas discoveries may boost Tanzania’s construction industry
Tanzania’s appeal to the construction industry stems from its relative political stability. Construction GDP has risen at an annual average rate of 11.5% in the past decade. The economy is expanding at about 7% a year, driven by exports and tourism. Gas discoveries in the country may also help lift economic growth by eliminating fuel imports bill and job creation. Dangote plans to expand its cement capacity in the country to 3 million metric tons by 2019, after opening an integrated cement plant in October 2015.

Dangote prepares for expected surge in Tanzania cement demand 
Dangote plans to double its cement capacity in Tanzania to 6 million metric tons by 2019, indicating confidence in the outlook for the country’s construction industry. Annual per capita consumption of cement in Tanzania is relatively low at 65 kg. Average wages are increasing and the rate of urbanization is likely to accelerate from its meager 31%. Cement demand rose by 8-10% in the first two months of 2016, HeidelbergCement said in March.

Tanzania’s government aims to attract 8 million visitors a year by 2025 from 1 million in 2015. Cement consumption reached 4.2 million metric tons in 2015, with 400,000 tons imported.

South Africa’s cement plants are calling out for investment
South Africa’s cement industry is dominated by five producers generating a combined total of about 17 million tons of capacity. The country has several aging production facilities, with kilns at PPC, Afrisan and Lafarge showing an average age of 32 years. This is damaging efficiency and raising maintenance costs. Older kilns need to be retired and others modernized if the industry is to maintain capacity. Dangote, in partnership with Sephaku Holding, owns 64% of the youngest plants in the country.

South Africa’s cement industry has raised capacity through large greenfield investments by Nigerian-backed Sephaku cement and Chinese-backed Mamba Cement. But demand has slowed since the country hosted the 2010 Fifa World Cup.

Oil exposure may help determine stability of Africa investment
Investors are likely to remain mindful of economic dependency on oil revenue between different Sub-Saharan African countries. Zambia, South Africa and Kenya have shown more resilience to persistently low oil prices as well as Ethiopia and Malawi. Nigeria, Chad, Congo and Ghana are more vulnerable to low oil prices, which may affect their ability to provide a return on investment.


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