The Ethiopian cement industry is facing various critical challenges affecting the productivity and growth of local cement factories.
At the first East African Cement, Concrete and Energy Summit held from March 17-19 at the African Union Conference Hall, industry players said that the local cement industry was at crossroads.
Gemechu Waktola, managing director of i-Capital (Africa) Institute, said that though the cement production capacity of the nation was in general growing the consumption of cement was not increasing proportionally. Gemechu said the construction boom occurred from 2004-2012 escalating the demand for cement and shortage of cement was created in the market. “Foreign companies invested in the cement sector and the local factories undertook expansion projects aggressively,” he said.
There are more than 20 cement factories and the aggregate installed cement production capacity has reached 15 million tons with the new giant entrant of Dangote Cement with 2.5 million tons annual production capacity. Muger Cement, Messebo, Dangote, Derba and National Cement are the leading industry players. Habesha Cement with the capacity of 1.4 million tons will join the market next year.
Though the annual cement production capacity grew by five fold to 15 million tons the annual cement consumption stood at only six million tons. The country’s per capita cement consumption is 62kg, which is very minimal compared Sub-Saharan per capita consumption of 165 kg. Ethiopian cement factories are utilizing fifty percent of their production capacity.
According to Gemechu, the cement market has saturated. He said the Ethiopian government made an erroneous projection at the beginning of the Growth and Transformation Plan (GTP). “It was projected that the annual cement consumption would be 27 million tons by end of GTP-I (2015) and the per capita consumption was supposed to be 300kg. By end of the GTP-I the consumption was only 5.47 million tons,” Gemechu said. “Both the government and the industry should share the responsibility for what happened,” he said.
The local cement manufacturers tried to export cement to South Sudan, Djibouti and Kenya. However, the market is limited and could not solve the market saturation problem. “Transporting cement by truck more than 300km will not make you competitive,” Gemechu said.
Haile Assegide, CEO of Derba MIDROC Cement and president of the Ethiopian Cement Producers Association, said that the demand for cement which was growing 24-25 percent dropped to 15-16 percent. According to Haile, the current annual demand is 8-9 million tons. Haile said shortage of skilled manpower is the other challenge the cement industry is facing.
The Ministry of Industry in collaboration with the Adama Science and Technology University has drafted a National Cement Development Strategy to be implemented between 2015-2025. The strategic document is not yet endorsed and implemented. Gemechu said that it needs a coordinated effort by the government and all stakeholders to solve the problems facing the industry.
“The draft strategy is accepted by the government but it is not endorsed and implemented. I think there are certain steps that need to be taken and unfortunately time is not on our side. The problems are getting tougher and tougher. If we do not act quickly the damage will happen soon. Price war is a possible scenario,” Gemechu said.
According to Gemechu, the big companies will swallow the small ones. “The small factories will phase out. Watch out! Everyone should take the problem seriously.”
Gemechu recommended that additional market should be created. “Market stimulation is very crucial. And we should work hard on energy substitution.”
Energy cost accounts to 50-60 percent of the total operational cost. The industry global average energy cost is 30-40 percent. Ethiopian cement factories use coal and heavy fuel oil which are costly to import and this skyrockets their over all production cost. Replacing carbon fuel with bio-mass such as coffee husk should be given due attention, according to experts.
Haile Assegide said that it was imperative that stakeholders need to examine and assess the issues related to energy substitution, distribution and logistics efficiency, standards and regulation and human resource development. “A sustainable future for Ethiopian cement industry requires no piecemeal or fragmented solutions, which have proved not enough to enable the domestic cement industry flourish. It rather requires enduring solutions that comes out of a harmonized and coordinated effort of the stakeholders in the industry,” he said.
The East Africa Cement, Concrete and Energy Cement is organized by the i-Capital (Africa) Institute in collaboration with the Adama Science and Technology University, the Ethiopian Cement Producers Association, the Ethiopian Chemical and Construction Inputs Industry Development Institute and the Ethiopian Construction Project Management Institute.