It often happens that human beings, and more so, bureaucrats, become so fixated with history that they barely take notice of what is going on around them.
This would appear to be what has happened to the local cement industry in recent times.
For in the face of emerging dynamics, it is clear that the long-held notion of dominance in the Kenyan cement industry, and by extension, the suspicion of uncompetitive behaviour, can no longer stand to scrutiny.
The local cement industry has experienced phenomenal growth in the last few years, headlined by the entrance of new players, making it one of the most dynamic and competitive market ecosystems in the region.
An industry survey by the East African Cement Producers Association shows that installed cement production capacity has grown from three to 6.5 MT (million tonnes) between 2007 and 2014. Domestic demand has also increased, albeit more slowly, to 3.8 MT, up from 2.1 MT.
The direct corollary of this has been heightened competition among the six producers that now rule the roost in the industry.
These include Athi River Mining, Bamburi Cement and East African Portland Cement Company (EAPCC). Others are Mombasa Cement, which started off in Uganda and still has an active operation there, the National Cement and Savannah Cement.
As a result, cement consumers are enjoying some of the best prices ever, as producers hanker for new ones in a market that has consistently shown growth in demand.
These downward price movements subsist in a high-inflation environment, which means the only logical justification for the trend is the fight for market share by cement manufacturers.
This low price “dividend” which consumers are reaping is bound to continue, given the bullish talk coming from prospective new entrants. Nigeria’s Dangote Group and CemTech are often mentioned as having set their eyes on the Kenya and East African cement markets.
Currently, there are no duties on imports or exports of cement or clinker between Comesa and EAC members.
EASY TO ENTER MARKET
Imports are reported in the survey as marginal on current form, with clinker, a key raw material in the manufacture of cement, being the main related import landing on the East African shores in material quantities.
Even then, this could change drastically in the face of a reduction in import duties in the region, opening the floodgates to cheap cement from low-cost and State-subsidised producers. Industry estimates put at between 2 to 2.5 MT the amount of cement that can be imported into the Kenyan market.
The purchase of clinker from fellow manufacturers to add on to the imports and smooth over existing capacity shortfalls is a notable trend, especially in the period before 2011. This window is used to meet the demand of Kenyan producers as well as their peers in landlocked Uganda, Rwanda, Burundi and South Sudan.
The ability to import clinker has been cited as one of the reasons new entrants are finding it relatively easy to enter the local market. Even with the scarcity of natural deposits of limestone in most parts of East Africa, any player can build and retain market share by importing clinker.
In any case, there is a big market to be had, most of it beyond Kenya. In addition, massive construction of infrastructure and property are underway in the region.
With price emerging as a key matrix of competition for what is sometimes considered a generic product, the pressure is now on manufacturers to reduce their costs. A natural stop in this pursuit is energy costs, given that cement manufacturers have some of the highest energy bills in the country.
Such has been the sea-change in the local cement industry that Bamburi Cement Ltd, which before 2009 controlled over 60 per cent of the stakes, has seen its share fall to just around 39 per cent.
EAPCC, in which Lafarge maintains what is largely a financial stake with no operational role, has also seen its market share go down to about 20 per cent from 28 per cent in 2009.
Mr Oloo is a Nairobi-based business analyst and CEO of Think Business (firstname.lastname@example.org)