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 (oloo@thinkbusiness.co.ke)
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