Displaying items by tag: Ethiopia

Ethiopia: Deep Kamara, the country manager of Dangote Cement Ethiopia, has been shot dead in an attack by unknown assailants. A driver and a secretary were also killed in the incident, according to the Addis Standard newspaper. The attack took place at Inchini, near to the cement producer’s Mugher plant.

A local government source that spoke to the newspaper said that Kamara had recently visited the plant as part of discussions between the company and local residents. Oromio state suffered riots in 2016 and 2017 with damage incurred to Dangote Cement’s plant on several occasions.

The old saying goes that nothing is certain except for death and taxes. But maybe that should be cement and taxes. Paying your taxes is something most people and companies just get on with, perhaps with some grumbling or perhaps not, but certainly with little press. So two news stories popping up in the same week about cement plants with tax issues is out of the ordinary.

The first concerned Lucky Cement’s battle in Pakistan to keep one of its plants open following accusations of underpaying its taxes. The local tax office tried to shut the Pezu plant down for not paying its property tax. The cement producer hit back with a restraining order from the provincial high court. The second detailed efforts by the Ethiopian authorities efforts to claw back US$10m from a local cement producer accused of deliberately understating its profits. In both cases it’s hard to tell if there is an obvious right or wrong party. Yet if these kinds of stories are hitting the local press headlines then either something has gone wrong or both parties are digging in for a fight.

Looking over a longer time frame two major stories about tax have been doing the rounds over the last year in the industry news. India’s Goods and Services Tax (GST) is a classic example of how cement producers sometimes have to deal with changes to existing regulations. It received another outing this week in the form of the credit agency ICRA’s latest forecast. It explained how the introduction of the new tax, a consolidation of other existing indirect taxes, had slowed production in the second quarter of the Indian financial year in 2017 - 2018.

The other example from a large cement producing country was US President Donald Trump’s cut to federal corporate tax in December 2017. The tax cut was expected to particularly benefit companies that produce materials, like building materials manufacturers. It prompted HeidelbergCement to say in early January 2018 that it expected to see a boost to its profits in 2019. Warren Buffet, the chairman of Berkshire Hathaway and owner of insulation producer Johns Manville amongst other companies, put it bluntly when he said in his 2017 annual report that nearly half the gain of his company’s net worth came from the changes to the US tax system.

Multinational companies, including some cement producers, face issues when dealing with different rules and regulations between the various countries that they operate in. However, sometimes unfairly, sometimes not, large companies also hold a reputation for trying to avoid paying tax.

In this context it’s interesting to look at how LafargeHolcim says it approaches the issue. The company published its tax principles in 2016 where it talks about being responsible and that it, “…accepts tax as a necessary and required contribution to society.” It then talks about the necessity of transparency and good relationships with tax authorities. The same year it declared a total tax bill of Euro726m versus total sales revenue of Euro23bn. By contrast Cemex UK in its tax strategy talks about how it follows the US Sarbanes Oxley Act 2002, which applies a more stringent international accounting and auditing standard. It feels far more honest when it says that it aims to minimise the tax burden upon its shareholders by using methods outlined by the UK government. Taxes may be a certainty but nobody wants to pay a penny more in taxes than they have to.

Ethiopia: The Ethiopian Revenues & Customs Authority (ERCA) says that Chinese company Inchini Bedrock Cement owes it US$10m for alleged tax evasion. The cement producer has declared a loss for five of the seven years it has been in operation, according to the Addis Fortune newspaper. However, ERCA’s Large Taxpayers Office (LTO) has refuted these claims and, following an audit, says that Inchini Bedrock had failed to keep records of the raw materials and finished products in stock. The investigation was triggered following the discovery of documents relating to Inchini Bedrock whilst ECRA was looking at another case.

Inchini Bedrock Cement employs 265 employees, including 22 foreign nationals. However, it appears to have no manager or representative at present, except for the head of the expatriate department, according to sources quoted by Addis Fortune. The manager of the company left Ethiopia in late 2017 due to medical reasons. The plant had a cement production capacity of 0.3Mt/yr when it opened in 2012.

The small cement industry of Mozambique, in south west Africa must be an interesting place to make cement. On one side the country's producers, like their more vocal South African counterparts, have been fighting off cheap imports from Iran, Pakistan, China et al. On the other side of the coin though, Mozambique has growing domestic demand and is within striking distance of growing markets further into Africa, like Malawi and the Democratic Republic of Congo (DRC).

With the announcement this week that there will be not one but two new integrated cement plants in the country, bringing over 2Mt/yr of new capacity, everything should be set fair for the coming years then, shouldn't it? Domestic production will rise, the price of local cement will fall as a result, competition from imports will drop off and money will be made from new exports.

Except that might not happen. Before the announcement of these two plants, (one of which does not state a capacity), there was around 5.5Mt/yr of grinding and integrated capacity either currently active in Mozambique or due to come onstream in 2015. With the new projects this rises to over 7.5Mt/yr.

The desirable chain of events described above starts to break down due to the fact that domestic demand in Mozambique, while rising, is not currently anywhere near as high as domestic supply. The United States Geological Survey estimated that the country produced just 1.2Mt/yr in 2012. Data for 2013 and 2014, though unavailable, is highly unlikely to show a three-fold increase. Indeed Insitec, a minority shareholder in Cimentos de Moçambique, predicted in 2014 that demand for that year would rise to just 1.5Mt, before hitting the dizzying heights of 1.8Mt in 2018 – And that's still three years away!

So what are the options? Option 1: Some or all of the planned and mooted cement plants will fail to come to fruition. Option 2: Some or all of the plants will be built but will operate at reduced capacity and/or on a campaign basis. Option 3: The Mozambican cement industry becomes a regional powerhouse and starts to export to its neighbours.

Option 1 is certainly possible. Limak Group, one of the parties linked to the new projects, is a Turkish cement producer that is inexperienced outside of Turkey. There has also been a lack of information on the progress of projects by Austral Cimentos ('coming on stream in 2015'), Star Cement and Consolidated Building Materials, although a lack of progress reports does not necessarily imply 'no progress.'

Option 2 is more likely, as some producers already operate on a campaign basis. InterCement's plant at Nacala, formerly an integrated plant, currently operates only as a grinding station. Option 3 is also possible, with Malawi particularly lacking in cement production facilities.
In reality a combination of all three 'Options' is the most likely outcome. However, this will lead to Mozambique becoming yet another player in an increasingly busy African cement market. The desire for self-sufficiency in cement production, a common goal for the region's governments, can easily lead to over-estimates of local demand growth, with resultant over-capacity. Of course the expectation that all African countries can get rid of this extra cement capacity via exports will ultimately backfire.

In southern Africa we already have South Africa exporting. Angola declared 'cement self-sufficiency' in October 2014 and banned imports at the start of 2015. Zambia, Botswana, Zimbabwe and DRC all have large-scale Dangote and/or PCC projects near completion or in production that will greatly reduce their need for imports. Meanwhile, further north, Nigeria is already a gigantic producer and significant cement exporter. Cameroon has recently banned imports and Ghana is thinking of doing the same. Over in the east of Africa, Ethiopia's (and the rest of that region's) rapidly-developing situation was covered in this column just two weeks ago.

Finally, in the north of Africa, Algeria has declared its intention to be self-sufficient in cement by 2016. This news must have 'gone down like a lead balloon' in Italy, Spain and Greece, which have been reliant on north African markets after the bottoms fell out of their own economies. In the north east, Egypt has different problems at present, also described previously. It needs fuel not cement!

So where does this all lead for regional cement dynamics in Africa? Well perhaps the situation in India points the way. There, as in Africa, local and regional producers with the desire to expand grew from their local bases and eventually overlapped. Against a backdrop of lower-than-expected demand, the country now has overcapacity. This has resulted in smaller producers being acquired and leaving the market.

Could this eventually happen in Africa? Only time will tell. However one thing is certain: It's just not possible for every country to export to every other country!

Just one week after Dangote started trial production at its new Mugher cement plant in Ethiopia it announced that it would be doubling capacity at the site. Upgrade work is slated to begin before the end of 2015, according to Nigerian media.

The move shows how much potential Ethiopia is seen to have for the cement industry. With a population of around 90m, it had a cement production capacity of 9.7Mt/yr before the new 2.5Mt/yr Dangote plant comes on line, according to Global Cement Directory 2015 figures. Including the new Dangote plant and even at 100% capacity utilisation this would place cement consumption in the country at 135kg/capita. This is a low figure internationally and hence the continued interest in new capacity. Subsequently, a large number of projects have been rumoured and mooted in Ethiopia over the years. However, many of these publicised projects then fail to make it to construction.

Mebrahtu Meles, the Minister of Industry, said that there were 18 companies engaged in cement production at the 7th Africa Cement Trade Summit that took place in Addis Ababa in April 2015. Meles placed the installed production capacity at 11.2Mt/yr (including the Dangote plant) with the expectation that this will increase to 17.15Mt. However, these cement plants are only producing 5.47Mt/yr, giving the country a capacity utilisation rate of below 50%. This too is low by international standards (60% or more). Cement consumption was placed at just 62kg/capita in 2014.

At the same event, the Ministry of Industry revealed that it was working on a national Cement Industry Development Strategy from 2015 to 2025. The strategy will tackle local industry issues such as unavailability of locally-produced packaging materials, poor transport links, high costs of production and a limited market. Key targets include stimulating cement demand to 12.22Mt/yr by 2020 by moving to concrete road construction and raising capacity utilisation rate to 75% by 2017 and to 80% to 2025.

Despite the publicity Dangote isn't the only player creating new capacity in Ethiopia. Habesha Cement is set to open its 1.4Mt/yr cement plant near to Addis Ababa in 2016. Habesha also has an international angle, given that South African cement producer PPC purchased the majority stake in Habesha Cement in the autumn of 2014 following the project's difficult financial history.

The new Dangote plant predates the country's new cement industry strategy but the upgrade plans demonstrate confidence in both the market and the government's plans. To meet its targets though the country is going to need to increase both its capacity utilisation and build more production capacity. Although muted from previous pronouncements the current target relies on Habesha Cement building its plant and the capacity utilisation rate rising from 50% to at least 75%.

South African weekly newspaper, M&G Africa, has described how Africa faces an infrastructure 'apartheid' whereby 44 of the continent's 58 countries share just 25% of the continent's infrastructure. Building things in Africa costs more because of this infrastructure deficit and it hits cement capacity utilisation rates as well. Ethiopia is one of the region's richer countries in terms of gross domestic product (GDP) but the same issues apply. Hitting its targets for the cement industry may be hard.

In the January 2013 issue of Global Cement Magazine, we featured a review of the Ethiopian cement industry. At the time we were hopeful with respect to the country's future cement demand, buoyed along by Ethiopia's own bold targets for development of the sector. It seemed only a matter of time before international and regional producers went to Ethiopia and cashed in on a cement plant-building bonanza.

Ethiopia's government is keen to further develop Ethiopia's cities and infrastructure and wants to increase its per-capita cement consumption from 35kg/yr at present to ~300kg/yr in the period to 2017. To do this, it is encouraging the cement sector to swell from its current capacity (7.4Mt/yr integrated capacity with additional grinding capability) to over 27Mt/yr by the same year. At the same time, the country has banned cement imports, a bold statement of intent designed to protect its own growing industry.

This week, we have learned that the country is hitting its bold production targets, largely without assistance from outside players. However, it seems that Ethiopia is incapable of consuming the volumes of cement that have been produced. As of 12 August 2013, the Ministry of Industry announced that Ethiopia made 12Mt of cement in the year to 7 July 2013, more than double the 5.4Mt/yr that it demanded over the same period. This revelation casts the government's future predictions for rapid cement demand growth in serious doubt.

While it takes effort to picture Ethiopia producing 27Mt/yr of cement by 2017, such rapid development is happening in west Africa, where Nigeria's Dangote Cement is achieving 'regional-giant' status.

However, it would take a very great leap of imagination to believe that Ethiopia could consume 27Mt/yr in 2017, five times what it does today, even with the development of major projects like the Millennium Renaissance Dam (a US$4.2bn hydroelectric project), major city and road-building projects and a rapidly growing population. Its cement capacity would have to grow by 4.9Mt/yr, representing average year-on-year cement demand growth of 52.5%/yr. Even with a cement industry the size of Ethiopia's, this represents almost impossible growth. To support this increase in demand, GDP/capita, which is often closely correlated to cement demand, would probably also have to raise fivefold, from US$374 to US$1870. This difference would take it from the bottom 20% of African nations well into the top third by this measure.

If this over-production trend continues, it does not bode well for Ethiopia's domestic cement industry. While exports may appear attractive, options are limited. Kenya to the south has a larger and more well-established cement industry, Somalia has major economic and security drawbacks and Ethiopia's relationships with Eritrea and Djibouti, both of which declared independence from Ethiopia, are tense. With no coast of its own, maritime exports will be difficult, especially with low-cost cement flowing from India, Pakistan and Iran. South Sudan, with its lack of cement production facilities, plentiful oil and major trade/border dispute with Sudan, could offer a small market for Ethiopian exports, but not enough to satisfy a ~20Mt/yr overcapacity.

Read Global Cement's January 2013 review of the Ethiopian cement industry here.

Ethiopia: Tamiru Wondimagegn has been appointed as board chairman of Habesha Cement. He is a prominent lawyer and board member of Habesha Cement. He succeeds Gizaw Teklemariam, who previously worked in the oldest state owned cement factory, Mugher.

Habesha held elections for its board in late January 2013, following a reduction in board places from 12 to nine. The Ethiopian cement producer has also given three board of directors seats to two South African companies, International Development Corporation and Pretoria Portland Cement, which are credited for bringing in 49% equity to Habesha.

The outgoing chief executive of PPC (Portland Pretoria Cement) officer, Paul Stuiver, summed up the dilemma facing cement producers on the east coast of Africa. Building near the coast leaves you vulnerable to imports.

In a recent interview with the South African business weekly, 'Financial Mail', Stuiver said that imports are not a threat to African expansion, provided that a facility is not built within 200km of a port. Exactly the same issue was raised by Yves De Moor in his column in the November 2012 issue of Global Cement Magazine.

Countries along Africa's east coast receive imports, but Stuiver said that Africa's high logistics costs mean the prices increase steeply as the cement is transported inland. He commented that the markets in Mozambique and KwaZulu Natal in South Africa were especially vulnerable and that most imports to South Africa come through Durban. Unsurprisingly both of PPC's big recent investments have been in landlocked countries, Zimbabwe and Ethiopia respectively. In July 2012 it also tried to invest in CINAT, the Democratic Republic of Congo's state-owned cement producer.

The import issue to South Africa reignited last week when the South African National Regulator for Compulsory Specifications (NRCS) confirmed that it had confiscated 'sub-standard' cement imported from Vietnam. As we covered in August 2012 in this column this follows a row in July 2012 about whether cement from Pakistan's Lucky Cement was complying with South African standards.

Although standards still lead the argument, more honesty has emerged with the use of the word 'dumping' in the complaints. Stuiver explained that "...the price of cement from Pakistan, India and Vietnam is low because electricity, fuel and transport rates are subsidised." Whilst PPC can report that its revenue has risen by 9% to US$837m for the first nine months of 2012, complaints against foreign imports seem overly protective. In 2009 PPC confirmed the existence of a cartel in the country. PPC has even gone to the Advertising Standards Authority to stop imports with elephants on their bags!

With reports that Nigerian producer Dangote is building a new US$389m plant in South Africa, thoughts turn to what will happen once South Africa becomes 'self-sufficient' in cement, like Nigeria which has proudly announced this recently. Giant infrastructure projects are one way to use all that excess cement and this is what Lafarge WAPCO has been asking the Nigerian government to do recently, in a road building drive. Better transport links in South Africa would wreck Stuiver's maxim about not building near a port.

Two solutions from this week's news might appeal to the industry on the south and east coasts of Africa. The first is to use inventive export barriers just like the Bureau of Indian Standards have imposed to slow down exports from Pakistan. The second is to persuade importers to do what a North Korean ship reportedly did with its consignment of cement this week off the coast of Somalia: dump it in the sea.

However bad the multinational cement financial reports get as they tighten their operations remember that it could be worse. For example, they could face the challenges the East African Portland Cement Company (EAPCC) has confronted over the last year. Reuters broke the news this week that EAPCC had widened its loss to US$9.96m due to poor sales, a major plant breakdown and labour unrest. All of this occurred in a construction economy demanding ever more cement.

EAPCC has seemed surrounded by controversy over the last year starting with a conflict of interest issue raised over a change in clinker supply in December 2011. This then led to the removal of the company's directors by the Kenyan government, which in turn led to a strike. In the chaos a worker was shot and wounded. On top of that the report reveals that there was a 'major' breakdown in one of the plant's kilns. It's a wonder that EAPCC didn't make a greater loss in the 2011-2012 year.

Demand for cement in Kenya and in the other countries in the east African region is growing. Data from the Kenya National Bureau of Statistics in December 2011 showed that cement consumption in Kenya rose by 12% in the nine months to September 2011. As reported last week in GCW72, ARM Cement (formerly known as Athi River Mining Ltd) reported a net profit of US$9.71m for the first nine months of 2012. This marks a 328% growth in profit compared to the same period in 2011 when it made US$2.26m. Meanwhile this week it was announced that Ethiopia is about to open its second cement plant in the town of Dire Dawa. More plants are on the way. Over in Tanzania, the Tanzania Investment Centre (TIC) announced that the country's cement deficit surpassed 1Mt since 2011.

As has happened elsewhere in Africa, notably in Nigeria and South Africa, local producers are pushing hard to restrict foreign imports as they grow their own capacity. In September 2012 the East Africa Cement Producers Association (EACPA) made warnings on the issue. The chairman of EACPA at the time was none other than the managing director of the EAPCC. In addition potential investors should take note that Kenya will hold its next general election in March 2013. Over 1000 people died in the protests following the 2007 election as well as the displacement of over 500,000 people.

Given this growth in protectionism, international producers who want to expand are being forced to seek riskier territories. Pakistan's Lucky Cement, a major importer of cement to Africa, is doing exactly this. It announced this week that it is entering into joint ventures in plants in DR Congo and Iraq. However these projects perform, Lucky Cement must be praying that they don't end up looking like the last year that EAPCC has endured.