Business Daily (Nairobi)
Jim Onyango
7 July 2009
A team of local and international investors has switched on a twin cement production plant that is expected to grind 2,000 tonnes every year, intensifying competition in the industry that is already facing heat from cheap imports.
Producing under technical support of Taiheiyo Cement Corporation--the largest cement producer in Japan, Mombasa Cement intends to cut its teeth in the domestic cement market currently shared by Bamburi Cement, East African Portland Cement and Athi River Mining Company.
"We will not export to the regional market. We intend to fulfil local demand first," said Mr Harish Patel, a director at Mombasa Cement Limited, which is trading under the Nyumba brand.
A 50kg of Nyumba cement brand will retail at Sh685 compared to an average Sh750 charged by the three local producers.
Despite anticipated competition, the new player says it does not expect to challenge the big three for market control especially with its relatively limited production capacity.
"We are not in competition with anyone. We have just started production and we expect to complement the supplies of other producers," said Mr Patel. The firm has production plants in Athi River, near Machakos town and in Mombasa.
East Africa Portland Cement produces 720,000 metric tonnes annually while Bamburi produces 2.3 million tonnes per year. Athi River Mining makes 360,000 tonnes annually.
Analysts say demand from markets such as Sudan is straining the local production, a market that the fourth cement maker will fully tap into.
The company enters the cement market at a time when, according to the Kenya Investment Authority, investor confidence is high after a threat to divert investment to neighbouring Uganda and Tanzania, during the post-election violence.
The setting up of the new cement factory also underlines the growth in Kenya's construction industry which has seen the government increase investment in road construction and the provision of affordable housing units.
The private sector has also been lured into the housing sector with Sh12 billion being ploughed into affordable homes in 2008 compared to Sh10 billion in 2007, according to the Economic Survey 2009. Analysts say these developments indicate increased consumption of cement in the country that could interest investors in the cement production.
Kenya's cement consumption considered a key indicator of activity in the construction sector, increased by seven per cent from two million tonnes in 2007 to 2.2 million tonnes in 2008.
The growth was mainly caused by increased government investments in infrastructure and the initiation of several Constituency Development Fund (CDF) projects and increased budgetary allocations for road construction, maintenance and rehabilitation activities.
Investment analysts African Alliance say Kenya's 3.1 million tonnes annual capacity will be exhausted by 2010 if no new capacity was installed.
Kenya's biggest producer Bamburi Cement projects that cement consumption in the region will grow by 12 per cent since the regional governments unveiled budgets which focused on spending on infrastructure projects such as roads.
In their cement sector updates for July 2008, investment analysts African Alliance estimated the total East African cement capacity stands at six million metric tonnes per year and this is likely to grow by 3.4 million tonnes in 2009 as companies plan to increase capacity and new entrants start production.
Currently, consumption across Kenya, Uganda and Tanzania is 4.5 million tonnes per year and the inclusion of Rwanda and Burundi results in a total cement demand of 5.5 million tones per year.
The increasing consumption in east Africa highlights the need for increased capacity as regional economies step up growth. Demand from Sudan is specifically growing beyond an annual estimate of one million tonnes imported from Kenya, Uganda and Tanzania.
However, a glut in Tanzania is threatening to reverse production as cheaper cement imports from Asia are preferred.
About 560,000 tonnes of cement was imported into the East African market 2007. Producers in Tanzania say most of the imports targeted Tanzania which has had to close two cement factories because of the glut.
East Africa Cement Producers Association says importers have taken advantage of the removal of the suspended duty to flood regional markets with cheaper products, leaving them with a shrinking market. The cement makers have asked the EAC governments to increase tax on cement imports to reflect the difficult production environment in the region.
Cement makers have complained of high cost of electricity and labour and some are planning to switch to coal to generate power for running the plants.
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