Displaying items by tag: South Africa

The creation of Lafarge Africa, the clearance of the Cemex West acquisition by Holcim in Germany and the sale of Lafarge's assets in Ecuador all hint at the scale of business that LafargeHolcim will command when it comes into existence. Despite the media saturation of coverage on the merger the implications in developing markets are still worthwhile exploring, especially in Latin American and Africa.

In sub-Saharan Africa, Lafarge is merging its cement companies in Nigeria and South Africa to create Lafarge Africa. Analysts Exotix have described the move as, 'the birth of a leading player on a continental scale'. Indeed, if Lafarge wanted to grow Lafarge Africa to encompass its many other African cement producing subsidiaries it could hold at least 17 integrated cement plants (including plants in north Africa) with a cement production capacity of at least 40Mt/yr in 10 countries and infrastructure in others. That puts it head-to-head with Dangote's plans to meet 40Mt/yr by the end of 2014 through its many expansion projects. Following these two market leaders would come South African-based cement producer PPC with its expansion plans around the continent.

Meanwhile across the Atlantic in Latin America the Lafarge-Holcim merger threatens Cemex. Unlike in Africa where Lafarge has a ubiquitous but disparate presence, Lafarge and Holcim's cement assets are more evenly scattered around the Caribbean, Central and South America. In terms of cement production capacity Cemex and Lafarge-Holcim will both have around 30Mt/yr, with Cemex just in front. The next biggest cement producers in Latin America will be Votorantim (present mainly in Brazil) with just over 20Mt/yr and Cementos Argos (Columbia) with about the same. This includes some new acquisitions in the United States for the growing Columbian producer. In Ecuador Lafarge and Holcim held over 50% of the market share, hence the sale by Lafarge of its assets to Union Andina de Cementos for US$553m.

Depending on how well the merger integrates the two companies, corals the various subsidiaries and implements strategic thinking the merger could just create business as usual with little disruption to the existing order. Yet in both continents the merger has the opportunity to shake up and reinvigorate the cement markets as existing players suddenly discover serious new competition and react accordingly.

Africa has a population of 1.1bn and it had a Gross Domestic Product (GDP) of US$2320/capita in 2013. South America had a population of 359m in 2010 and a GDP of US$8929/capita. This compares to US$27,250/capita in Europe and US$54,152/capita in the US. The economic development potential for each continent is humongous. Post-merger, LafargeHolcim will be first or second in line for some of this potential in Latin America and Africa.

South Africa: The board of directors of Sephaku Holdings have announced that Johannes Wilhelm Wessels died on 23 March 2014. Wessels was an alternate director to Rudolph de Bruin since 2007 on the Sephaku Holdings board.

Wessels originally provided legal counsel on the emerging business structure in 2005 and he later joined Sephaku Holdings as Head of Corporate Affairs holding key responsibility for group legal counsel, transaction structuring advice and contractual negotiations. He led the process of the group's unbundling strategy and worked on the legal and tax aspects of the process. Wessels helped reposition the company from a multiple mineral exploration company to a construction and building materials focused company.

"Wes was pivotal in negotiating the relationship agreement with Dangote Industries PLC to establish Sephaku Holdings' partnership in South Africa's newest cement producer since 1934, Sephaku Cement. At the time of his untimely death Wes was also serving as a director of the Sephaku Cement board. We will always remember him for his astuteness, legal savvy, business acumen and spontaneous sense of humour," said Chief Executive Officer, Lelau Mohuba.

Both Dangote Cement and PPC have reminded the world about their development plans for sub-Saharan Africa. In the wake of PPC's yearly results on 19 November 2013 came a spotlight on the South Africa-based cement producer's international ambitions. Not to be outdone, Nigeria's Dangote Cement then put out a press release detailing all of its big development projects.

Dangote and PPC are set to go into direct competition when the Dangote subsidiary, Sephakhu Cement, opens its 3Mt/yr integrated cement plant at Aganang, North West province in early 2014. It will be the first time the Nigerian cement giant will be producing cement in the same country as its competitor in sub-Saharan Africa, PPC. The encounter will set the tone for the producers' next clash when they both open cement plants in Ethiopia in 2015.

Both the African cement producers are targeting a swathe of south to east sub-Saharan Africa from South African to Ethiopia. PPC, based in South Africa, has a presence in neighbouring Botswana, Zimbabwe and Mozambique. It has bought stakes in cement producers in Rwanda, Ethiopia and the Democratic Republic of the Congo and has new cement plants on the way in Ethiopia, Rwanda, Zimbabwe and the Democratic Republic of the Congo. In contrast to PPC's more 'organic' growth strategy from an established base, Dangote, with its existing presence in west Africa is about to enter this region. It has new projects planned in Kenya, Tanzania and Zambia, as well as in Ethiopia and South Africa.

To compare the financing behind each company's expansion, Dangote reported that it had committed US$884m for acquisitions in 2012. PPC intends to spend US$276m on capital expenditure in its 2014 financial year. If these figures from financial reports are correct, Dangote is spending three times as much as PPC on expansion. Dangote may have more money for expansion but PPC has long-standing presences in the region or has recently acquired them.

Dangote reported an 18% rise year-on-year in turnover to US$1.8bn in 2012. The same year its sales volumes increased to 10.4Mt from 8.66Mt in 2012. The company's installed cement production capacity was reported as 19.25Mt from three plants in Nigeria. In comparison, PPC reported a 13% rise in revenue to US$820m for its financial year to the end of September 2013. No exact cement productions figures were released but PPC said that cement sales increased by 7% in the period.

How Dangote and PPC spar in South Africa remains to be seen but one area where they may agree will be on imports. In its final results for 2013, PPC again highlighted the continuing threat of imports from Pakistan, mainly via Durban. Imports comprised 7.6% of national demand as of June 2013. In Nigeria in 2012 Dangote led successfully a campaign to cut foreign imports. Irrespective of increasing demand for cement, adding Dangote to the anti-cement import lobby in South Africa might well make space for a new producer.

In the global cement news this week, we see that PPC (the former Pretoria Portland Cement), a large-scale domestic player in the South African cement industry, has taken it upon itself to provide association-like services to cement and concrete consumers in the country. PPC says that it felt obliged to supply information on things like quantity analysis, setting advice and product testing in the place of the now-defunct Cement and Concrete Institute (CCI).

The CCI, lambasted by PPC and other cement producers for years, was accused in April 2013 by PPC of not providing the kind of advice and services that cement producers should expect from an association. PPC, Lafarge and AfriSam all pulled funding and the CCI collapsed.

If the CCI had simply ceased to exist, PPC's new stance, putting its own cash into industry-wide assistance, might be seen as laudable. However, the CCI has been re-born as the Concrete Institute (CI), an organisation that is, by its own admission, no longer on the lookout for the interests of the whole industry. The CI is largely backed by Sephaku Cement, itself majority owned by the Nigerian cement juggernaut Dangote Cement, making PPC's stance suddenly look like one of self-preservation. Dangote is making rapid progress in the sub-Saharan cement industry and firms like PPC cannot afford to let it sweep aside the status-quo in South Africa.

The speed and scale of Dangote's rise, covered previously in this column, is huge. Nigeria's largest company now has interests in Senegal, Zambia, Tanzania, Congo, Ethiopia, Cameroon, Ghana, Sierra Leone, Ivory Coast and Liberia as well as Nigeria and South Africa. Not a month goes by without the announcement of another upgrade, plant or project. Dangote has a fantastic position in its domestic market that has enabled these new projects to be funded.

By contrast PPC is battling a stale construction market in South Africa. South African cement sales fell by 3.8% year-on-year in the fourth quarter of 2012. To counteract this, PPC has committed to expand outside of South Africa to the tune of 40% of total production by the start of 2016. It announced in early 2013 that production is on track to come online in Rwanda, Ethiopia and the Democratic Republic of Congo by the fourth quarter of 2015. Zimbabwe is expected to follow suit by the middle of 2016. It already has interests in Botswana and Mozambique.

With two of its largest home-grown cement producers both expanding rapidly outside of their domestic markets, and a relative lack of interest from the big four multinationals, the sub-Saharan cement market is set for big changes in the medium to long term. PPC and Dangote are expanding towards each other and already share many markets. Dangote has expanded more rapidly and is moving towards exports from Nigeria. PPC is catching up by taking shares in strategically-placed plants. Is sub-Sahara headed for a showdown...? Whatever happens, the future of this rapidly-growing market will certainly be interesting.

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.

South Africa: Pretoria Portland Cement (PPC), the biggest producer of cement products in South Africa, has appointed Ketso Gordhan as CEO from 1 January 2013. Gordhan will succeed current CEO Paul Stuiver, who will have completed his contract.

Gordhan will join the group's board as CEO-designate from 1 November 2012. His most recent role has been in the South African Presidency, where from 2009 he developed performance metrics and targets for government ministries. Before working for the Presidency, Gordhan was head of private equity at FirstRand Financial Services Group for almost a decade. He was also city manager of Johannesburg between 1999 and 2000.

Previously Gordhan was the campaigns manager for the African National Congress and policy co-ordinator between 1990 and 1994. He was also director-general of the Department of Transport between 1994 and 1999 and was involved in privatising Airports Company SA and setting up the first privately funded toll road to Maputo. The South African National Roads Agency was also created during this period.

"Ketso brings a wealth and blend of experience in business and in government, as well as knowledge of various industries," said PPC group chairman Bheki Sibiya.

Pakistan's Lucky Cement received the 'all clear' for its cement imports from the South African regulators last week. The situation exposes the increasingly competitive market in the country after the South African Competition Commission cartel investigations in 2011.

Sales of Lucky Cement were originally shut down in 2011 due to accusations made by its competitors, including Pretoria Portland Cement (PPP) and Natal Portland Cement (NPC). They complained that Lucky was not complying with South African standards. South Africa's National Regulator for Compulsory Specifications (NRCS) then ran its independent investigation and released its results last week.

The regulator's full 28-day test found no evidence that Lucky Cement imports were non-compliant with regards to their quality. A minor infringement concerning underweight bags was found and fixed. However, about a week beforehand, Lafarge South Africa's CEO said that his company was considering approaching another trade body with concerns about 'low-quality cheap cement' imported from Pakistan.

More serious criticism came from the Cement and Concrete Institute when the NRCS admitted that it didn't know how much cement had been imported into South Africa so far in 2012. The NRCS is supposed to inspect and approve the testing bodies each producer and importer uses for every 500t of cement.

Lucky Cement has been a regular importer of cement to South Africa since 2009. It exports around 1.65Mt/yr to over 22 countries in South East Asia, the Middle East and Africa. CCI figures reckon that 140,000t of cement was imported to South Africa in the first quarter of 2012, mostly by Lucky Cement. According to the Global Cement Directory 2012 South Africa's capacity is around 11Mt/yr.

Four domestic producers – Lafarge, PPC, AfriSam and NPC – were accused of cartel activity by the South African Competition Commission, in a case that has been running since 2008. PPC confirmed the existence of the cartel, whilst Lafarge and AfriSam were fined US$19.6m and US$16m respectively.

By letting Lucky Cement resume the sale of its cement in South Africa, the NRCS has arguably done more than the Competition Commission to prevent cartel activity. With reports surfacing that other producers in Pakistan and India are considering exports to South Africa, domestic producers are going to have to become more inventive and more competitive.

Thierry Legrand: Lafarge has appointed a new country CEO for its South African operations. Thierry Legrand was formerly the General Manager of Lafarge in South Africa but has changed role in line with the French building material giant's worldwide restructuring programme.

"Implementing this new structure will allow us to focus more efficiently on our customers and get closer to our markets," said Legrand. "We will use the strengths of our different product lines to design solutions in line with our customers' needs."

Legrand has managed several senior portfolios within the Lafarge group, both in South Africa and Europe.