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High costs taking toll on Ugandan and Rwandan cement firms

Friday April 08 2016

Despite global cement prices falling by 10 per cent, consumers in Rwanda and other landlocked countries in the region will continue paying more as manufacturers fight for survival.

The small cement market coupled with high operational costs have forced manufacturers to charge high prices to stay afloat.

The cement makers with plants in East Africa’s landlocked countries — Uganda and Rwanda — are less competitive. It costs Rwanda on average $4,990 to import a 20ft container of raw materials when competitors in Tanzania and Kenya pay less.

This explains why cement transported from Tanzania to Rwanda still remains competitive in Kigali. A comparison of prices by The EastAfrican shows that Tanzania-made Simba cement costs $110 per tonne, Twiga — $100 per tonne, Kilimanjaro $100 per tonne in Kigali.

Hima Cement from Uganda costs $177 while Cimerwa Cement, which is manufactured in Rwanda, costs $178 per tonne.

“Prices are a factor of logistics and operational costs. On the African continent the biggest challenge is distance of the market from where cement production takes place,” said Njombo Lekula, director of international operations at Pretoria Portland Cement. Another factor contributing to the high prices, according to industrial players is distance of cement factories from the market.

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For instance, in Uganda, Tororo Cement Industries sources its limestone from Karamoja to feed its factory in Tororo and transports the finished product to biggest market in Kampala.

READ: Reduced duty on imported cement sparks furore among EA producers

Likewise, Rwandan cement manufacturer Cimerwa is located 450km away from Kigali the major market for the cement the plant makes.

The players also cite the energy costs that have to be factored in before reaching the final cost of cement.

“For each bag of cement manufactured is energy costs account for 40 per cent of total costs,” said Dr Ivan Twagirashema, a board member of Cimerwa, adding that the region must find ways of cutting costs of production.

The experts noted that cement manufacturing is a capital-intensive business whose margins depend on turnovers.

“At policy level, the region should protect the local market from cheap cement imports,” said Patrick Mugenyi, general manager of Hima Cement.

The global cement market has seen a surge in production as demand remains flat.

“Generally, there has been a surge in new capacity coming online at the same time that demand is either slowing, or in some cases, declining. So the deterioration in the supply-demand balance has created pricing pressure in many markets,” said chief executive of IA Cement Ltd, Imran Akran.

But Rwanda’s Minister for Infrastructure James Musoni said the region offers huge potential; for a robust cement industry given an increase in commercial projects, housing developments and ongoing government infrastructure projects.

In sub-Saharan Africa, Nigeria remains the largest consumer, with an estimated 18.3 million tonnes consumed in 2013, followed by South Africa that consumed 12.2 million tonnes. Together these two countries represent half of sub Saharan Africa’s cement consumption.

The statistics were released during the just concluded 8th Africa Cement Summit in Kigali.

On average over the past decade, East African cement consumption has been growing at a rate of 14 per cent and is expected to continue growing in the near future at around 8 per cent per annum with total capacity expected to reach 14.4 million tonnes by 2017.

READ: Dilemma for EA cement firms: production set to pass consumption

Imports from India, Pakistan and China have been blamed for flooding the market in East Africa.

The growing imports from Asian countries continue to pose the biggest challenge for the industry, particularly in Tanzania where producers estimate that 300,000 tonnes of cheap cement could be finding its way into the local market every year.

The cement market in Kenya has strong links with Uganda and Tanzania, with several producers having production units in more than two countries so the actual geographic market of cement may be even wider than Kenya itself.

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