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South Africa’s cement producers lay foundations for African growth

By Xolisa Phillip, in Johannesburg
Posted on Monday, 7 October 2019 12:34, updated on Wednesday, 9 October 2019 14:32

South Africa's cement manufacturers are struggling at home. REUTERS/Siphiwe Sibeko

The plight of South Africa’s embattled cement producers is a tale of two fortunes: better prospects in the rest of Africa and an uphill battle at home.

The cement industry is operating below capacity, grappling with a tough operating environment and cheap imports from China and Vietnam as financially-squeezed consumers are driving up demand for cheap blended alternatives to regular cement.

The Concrete Institute (TCI), an industry representative body, has petitioned the International Trade Commission of South Africa to slap an anti-dumping tariff to fend off the cheap imports.

The industry has also approached the department of trade and industry (DTI) to apply for special designation status, without which, it says, it will not be able to benefit from the government’s ambitious infrastructure plan.

Numbers game

  • TCI members include the Johannesburg Stock Exchange-listed PPC, AfriSam, Lafarge and Sephaku Cement.
  • PPC is the largest cement producer in South Africa. It has operations in the rest of the continent from Botswana and Zimbabwe to Rwanda, the Democratic Republic of the Congo (DRC) and Ethiopia.
  • The South African cement industry has capacity to produce 20 million tons a year but it is currently producing 13 million tons and has become a net importer of cement.

The industry contends producers are fighting for a shrinking pie, with cheap imports and blended products further complicating matters. In Gauteng alone, there are an estimated 60 variants of blended cement.

Rest of Africa

Mokate Ramafoko, PPC managing director for the rest of Africa, says markets outside of South Africa present unique challenges and opportunities.

According to Ramafoko, the markets are landlocked, making transport of cement there from Asia a challenge and an expensive undertaking:

  • In landlocked Rwanda the logistics of the port are costly and prohibitive.
  • Although the Democratic Republic of the Congo (DRC) has a port, it is one of the most expensive ports in the world. “Unless you are dumping, it is [im]possible to use it.”

Remaining competitive in Rwanda

“Rwanda operates in the context of the East African Community, where there is free trade. The only way to survive is to remain competitive,” says Ramafoko.

PPC has been the sole producer in Rwanda but is now bracing for a competitor.

  • “There is a new player coming. We are focusing on our operating costs and building strong relationships with customers,” said Ramafoko.

But unlike South Africa, Rwanda is not saturated.

Challenges and potential in Africa

However, the market in the DRC is similar to South Africa in saturation terms though not actual production: cement consumption is 1.2 million tons and capacity is 3.4 million tons.

“It is a challenge. We rely on retail, which is price sensitive,” explained Ramafoko.

In Ethiopia, there is some level of saturation but this is offset by substantial investments in infrastructure projects. Ethiopia’s market has huge potential for growth because of the country’s massive population of some 105 million.

In the rest of Africa, the regulatory burden is more relaxed compared to South Africa.

South Africa’s domestic consumption is about 280kg per person, with the rest of Africa’s domestic consumption being comparatively lower:

  • In the DRC, it is around 30kg per person.
  • In Rwanda, it is 50kg per person.
  • In Ethiopia, it is close to 100kg per person.

Africa’s low consumption rates “signal an opportunity for an upside”.

Where the opportunities lie

In DRC there are no roads, and the rail infrastructure is non-existent and limited.  Connecting the capital, Kinshasa (which is close to the West African coast), with Lubumbashi, which lies some 2,300 km away along the country’s southern border with Zambia, is “virtually impossible”. Connecting Kinshasa with the eastern part of the DRC is also a challenge.

According to Ramafoko, “this represents a future opportunity for consumption”.

However, unlocking demand will depend on the political will in the DRC, “which has been unstable for years”, says Ramafoko.

PPC has successfully lobbied for a ban on cement imports into western parts of the DRC. The ban is effective for a year and is renewed annually.

  • In Ethiopia, there is sizeable investment in hydropower and new apartment developments outside of Addis Ababa.

“I think this year, Addis Ababa placed $1.5bn for road infrastructure in the financial year that started in July. That is a good opportunity for cement consumption,” explains Ramafoko.

Home disadvantage

Njombo Lekula, PPC MD for Southern Africa, says a tariff on imports will be good for the industry and South Africa, assisting largely with job retention.

There are also related sectors to consider, including bag producers, coal suppliers and logistics operators.

“The industry has many inputs, including coal. Somewhere in a coal mine there will be a reduction in offtake because a cement plant has stopped operating,” warns Lekula.

Logistics operators are also key to the industry. On average, the product travels about 300 km from factory to market, with the main nodes being Gauteng, KwaZulu-Natal and Limpopo.

  • After shutting down its plant in Port Elizabeth, Eastern Cape, PPC uses “Transnet Freight Rail (TFR) to transport some of our intermediate material to Port Elizabeth. We transport coal from the inland provinces to the Western Cape, so does everyone else,” says Lekula.
  • “We transport almost one billion tons of material from Thabazimbi, Limpopo, to Gauteng by rail. If we have to shut down, that means TFR will lose out on those volumes,” he adds.

Relief on hand … but

Announcing an infrastructure plan is one thing, execution is another.

“I spent three-and-a-half years in Zimbabwe. There were glorious projects we calculated into our sources of growth in our strategy documents.

“I came back home to South Africa without a single one of those projects having taken shape,” says Lekula, cautioning against over-excitement about the government’s planned infrastructure drive.

However, the industry is on hand to capacitate government when its infrastructure plan eventually begins to unfold.

This is where a special designation from the DTI would prove useful, as it would guarantee the use of locally-produced cement in any infrastructure project the government undertakes.

Bottom line: “There is commitment to assist, but the wheels of government turn slowly,” says Lekula.

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