Dangote Cement, Africa’s largest cement manufacturer, continued to experience a slowdown in performance at home in Nigeria and other key African markets such as Ethiopia and South Africa in the first half of this year, but recorded remarkable improvement in Tanzania.
The group’s half-year revenues declined by three per cent to $1.2 billion from $1.3 billion during the same period in 2018, largely blamed on lower volumes and net average prices in Nigeria.
The cement maker’s pan-African operations posted a 2.7 per cent rise in sales to 4.7 million tonnes, up from 4.6 million tonnes over the same period in 2018. The total pan-African volumes represented 38.2 per cent of group sales volumes.
But the group operating profit declined by 15 per cent to $464.6 million, from $546.5 million in 2018, due to the depreciation of the Nigerian naira.
“Our variable costs continue to be affected by foreign exchange effects as well as higher fuel and distribution costs,” said Dangote Group chief executive Joe Makoju.
Dangote, however, tripled its market share in Tanzania to 22 per cent from seven per cent last year, after resolving operational challenges that resulted in a significant rise in sales.
The company is emerging as a key beneficiary of the fall of some of its regional competitors such as ARM Cement (Athi River Mining) and Tanzania’s move to block cement imports from Kenya, over contentions on the source of raw materials used in its manufacturing.
In Tanzania, Dangote Cement, which in September 2018 started running its Mtwara plant on gas instead of coal, posted a 172 per cent rise in cement sales to 543,000 tonnes in the first half of 2019 compared with 200,000 tonnes in the same period last year.
“We saw a stronger performance in Tanzania, which is now running on gas turbines. Our higher volumes were supported by higher prices across the market as demand rose across the country, particularly the southern region,” said Mr Makoju.
The switch to gas was a significant turnaround in terms of saving costs and uninterrupted production, with uptake driven by the government’s vast investments in infrastructure projects that are driving construction activity. These include the Dar es Salaam-Morogoro railway, the Kenya-Tanzania railway, major road and bridge projects and commercial housing.
In the first half of 2018, Dangote was forced to suspend operations in its Mtwara plant due to high cost of fuel for the diesel generators after the Tanzanian government banned importation of coal from South Africa.
In Ethiopia, electricity rationing and shortage of foreign currency resulted in a decline in sales to 945,000 tonnes in the first half of this year, from the 973,000 tonnes sold in the same period in 2018, with its market share in the country stagnating at 21 per cent.
The plant got only 50 per cent of the power normally needed for full production, a scenario that significantly impacted both volumes and margins.
“In general, the cement market in Ethiopia is driven by demand for large government infrastructure projects. However, shortages of foreign exchange are impacting infrastructure projects as well as dampening general economic activity,” said the company.
Dangote is however optimistic that the rains which have begun to normalise water levels in the country’s hydroelectric power cascade coupled by improvement in transport logistics, increase in use of local coal and the commissioning of a new cement bags factory could result in a rise in sales in the second half.
Dangote holds nearly 46 million tonnes capacity of cement across 10 countries in Africa. Nigeria, where its production capacity stands at 29 million tonnes, remains it flagship market, accounting for over 60 per cent of sales.
Across the region, cement companies are experiencing tough times.
Kenya: ARM is in administration while Bamburi Cement’s profit for the first half of this year shrank substantially to $2.8 million from $11.4 million in 2018.
East Africa Portland Cement Company is on its knees.
Rwanda: Loss-making Cimerwa is already on the market, with the government, which owns 49 per cent stake, eager to sell it off.