Ethiopia tops Dangote’s list as most profitable cement market

Tuesday December 19 2017

Early this year, Dangote registered two

Early this year, Dangote registered two companies in Kenya as an entry into the region’s largest cement market: Dangote Cement Kenya Ltd for cement production and Dangote Quarries Kenya Ltd for limestone mining. PHOTO | FELIX MIRING'U | NMG 

By ALLAN OLINGO
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Ethiopia has emerged as the most profitable market for Dangote Cement, which sold 1.7 million tonnes there, pushing its sales volume across Africa by 7.5 per cent to seven million tonnes.

And now, the firm has entered into an agreement with the Industrial and Commercial Bank of China to finance the construction of two cement plants in Kenya, which should be operational by the end of 2021.

Early this year, Dangote registered two companies in Kenya as an entry into the region’s largest cement market: Dangote Cement Kenya Ltd for cement production and Dangote Quarries Kenya Ltd for limestone mining.

“Kenya is high on our list of priorities and we plan to build two plants of 1.5 million tonnes per annum each, near Nairobi and Mombasa, to serve the local market. We hope to be operational in Kenya by 2020/21,” the company said.

According to Dangote’s financial results for the first nine months of this year, the region (including Zambia) contributed 2.7 million tonnes to the overall sales, pushing its revenues up by 40.4 per cent to $528.03 million.

“Our factories continued to consolidate their market shares across Africa. Pan-African net income increased by 43.5 per cent to $88.6 million while operations sold about 42 per cent of total group cement volumes, and provided nearly 32 per cent of group revenues,” the firm’s outgoing chief executive Onne van der Weijde said in the financial report.

Fastest-growing economy

Ethiopia has been touted as one of sub-Saharan Africa’s fastest-growing economies and the World Bank forecasts its GDP to grow at 8.9 per cent this year.

The firm increased sales in Ethiopia by 16.8 per cent in the first nine months of 2017 from 1.4 million tonnes — or 88 per cent of its 2.5 million tonnes per annum factory.

The cement firm, which imports coal and other raw materials for its Mugher plant through Djibouti, however saw its net ex-factory pricing rise to $80 per tonne, slightly higher than at the start of the year.

“We estimate our market share to have been 22 per cent at the end of June 2017, consolidating Dangote Cement as Ethiopia’s leading brand after two years in the market. Our increased sales can be attributed to higher sales of the ordinary Portland bulk cement from our factory at Mugher,” it said.

“We were able to increase deliveries of cement to remote regions of Ethiopia while improvements in our fleet management drove higher fuel efficiency, avoidance of misuse of trucks and quicker turnaround times. In addition, we used our own cement delivery trucks to backhaul coal and other raw materials from Djibouti, thereby saving on logistics costs. At the plant itself, we reduced power consumption and kiln energy consumption per tonne of cement and increased the clinker/cement ratio (thereby reducing CO2 emissions per tonne of cement). These and other efficiencies enabled the Ethiopian operation to continue generating strong net income margins in the African region.”

Tanzania's plant

Dangote has also revealed that its gas plant, which was supposed to start up its Tanzania’s’ Mtwara plant in September, will be activated in January instead, leaving the factory to still rely on expensive diesel generators.

“The factory is still reliant on diesel gensets for electrical power which results in net income losses that weigh on African margins. The pipeline to feed the temporary gas turbines has now been installed. In addition, we expect to be able to fire our kiln on gas from March 2018, using the gas supply,” the firm said, adding that it will also be investing $90 million in a coal/gas-fired power station to replace the temporary power generators.

Tanzania’s annual cement production capacity stands at 11 million tonnes; Dangote’s three million tonnes per annum factory at Mtwara is the largest and most modern in the country.

The plant still remains the leading subsidiary for its high capital expenditure, which stands at $13.48 million mostly as a result of the use of expensive diesel-powered generators to run the plant.

“In the year to September, the Mtwara plant increased volumes by more than 12 per cent to nearly 541,000 tonnes in the first nine months; we estimate this to have given us a market share of 14 per cent at the end of the period. The ex-factory price during the period was around $63 per tonne in September,” it said.
The cement firm, owned by Africa’s richest man Aliko Dangote, used its Ethiopian and Tanzanian plants to gain a foothold in the regional cement industry, causing jitters in the market with its low-cost cement —20 to 40 per cent cheaper than locally produced products.