The Ministry of Industry is drafting a national cement industry development strategy that will enable it to assist the fast growth of the industry.
State minister of Industry, Mebrahtu Meles (PhD), told The Reporter that his ministry in collaboration with the Adama Science and Technology University started drafting the national cement industry development strategy last July. Mebrahtu said the cement industry is facing several challenges including high production cost, limited market, inadequate transport service and unavailability of locally produced packaging materials. According to Mebrhatu energy cost accounts to 60 percent of the total expenses of a cement factory.
Most of the cement factories use coal as fuel. Though coal deposits are found in different parts of the country it has not been utilized. Cement factories import coal from South Africa and other countries. Mebratu said the coal import escalates the cost of production. Recurrent power cuts is another headache to the cement industry.
The construction boom that started in 2008 created a huge demand to cement that led to the impartation of cement in large quantity with hard earned foreign currency. This prompted the Ethiopian government to invite local and foreign investors to invest in the cement industry. A number of cement factories were built in short period of time and importation of cement was banned with the exception of especial cement. The government also suspended issuing investment license for cement factory development.
At the 7th annual Africa Cement Trade Summit held April 6-7 at the Sheraton Addis, Mebrhatu said that there are 18 companies engaged in cement production. The installed production capacity has reached 11.2 million tons. This is expected to further increase to 17.15 million tons. The factories are actually producing 5.47 million tons per annum.
Mebrhatu said the average cement production capacity utilization rate in the country is below 50 percent. "This level of capacity utilization is substantially low compared to global average of 60-70 percent or recommended acceptable optimum production capacity utilization rate that range between 80-85 percent."
Ethiopia historically has low cement per capita consumption as low as 39 kg in 2011 where it reached 62 kg in 2014 where it is still low compared to global average of 500 kg and 765 kg of sub-Saharan Africa average.
The major cement markets are geographically concentrated around Addis Ababa. Mebrhatu said the current profit margin of cement firms in Ethiopia is very low. "The in efficient road transport contributes to the high trade cost for the cement industry."
The production of cement has surpassed the demand. Mebrhatu stressed the need to stimulate the induced cement market due to high price.
The newly built Dangote Cement factory will soon start channeling its product to the market. The factory built at a cost of 500 million dollars near Muger town, 87 kms west of Addis Ababa, has the capacity to produce 2.5 million tons of cement. The factory recently started trial production of clinker. According to Teshome Lemma, general manager of Dangote Cement Ethiopia, the factory will start production in the second week of May.
Habesha Cement Factory is also expected to start production in 2016. Habesha has an installed cement production capacity of 1.4 million tons. Industry observers fear that there could be surplus production of cement when these companies join the market.
With the view of avoiding market saturation and price war the government the Ministry of Industry stopped issuing license to new cement factories. However, Mebrhatu said this is a temporary measure adding that the ban could be lifted as the demand for cement picks up. According to him, the cement industry development strategy will resolve this and other problems. The strategy is expected to be finalized and endorsed in the coming few months.
Guest of honor at the Africa Cement Trade Summit, Mekuria Haile, minister of Urban Development, Housing and Construction, said that the mega public projects including the construction of sugar factories, railway lines, and hydro power plants created a high demand for cement consumption. "In order to respond to the growing demand of cement, our government has taken major actions in creating conducive environment for cement production by both local and foreign investors. Recently, different national and international business groups have shown interest in investing in Ethiopia-this may witness cement self sufficiency and export possibility too," Mekuria said. Ethiopia is exporting cement to Somalia, Djibouti and South Sudan in small amount.
According to Mekuria, the country's annual demand reached seven million tons of cement and the production capability is more than the demand. However, he said the price of cement in the local market is still high. He stressed the need to work on production cost reduction and market stimulation. The construction sector in Ethiopia contributes 7.4 percent to the country's GDP is expected to have a significant share by the end of the second GTP. The annual growth of the construction sector is expected to continue to grow at a rate of 30 percent in the GTPII.
Albert Corcos, Dangote Cement regional CEO Eastern and South Africa, said that his company wants to consolidate its leadership as a Pan African Cement Group and occupy leading markets in Sub Saharan Africa. Corcos expressed his company ambition to gain more than 60 percent market share in each country of investment - with the highest market quality product.
Dangote Cement built cement factories in 17 countries. The total cement production capacity is 50 million tons. The company will boost the production capacity to 60 million tons in 2017.
According to Corcos, infrastructure, dearth of energy, skilled manpower and inefficient transport are some of the major challenges facing the cement industry in Africa. Dangote Cement took various measures to address the challenges.
Dangote Cement is forced to build its own power generation plant in some countries where it established cement factories. It also operates its own trucks due the unavailability of capable transport companies. "If we want to mobilize 100 trucks at a time there is no such company with that capacity," he told participants.
Dangote Cement operates a fleet of 7000 trucks in Nigeria. According to Corcos, the company will import 600 trucks for the Ethiopian Cement factory. "Three hundred of them will arrive end of this month and the others will come some other time."
He said that the company imports cement bags from Saudi Arabia adding that it will consider building its own cement bag manufacturing plant in Ethiopia.
The Africa Cement Trade Summit is organized by a Singaporean company, Center for Management Technology in collaboration with the Ethiopian Ministry of Industry. The meeting is organized in Addis Ababa up on the recommendation of Aliko Dangote. More than 15o participants attended the summit. The delegates visited the newly built Dangote Cement factory. The factory will soon be inaugurated in the presence of senior Ethiopian government officials and Aliko Dangote.