ARM Cement’s new Kigali plant causes jitters among market players

Saturday October 1 2016

An employee of ARM Cement packages cement at the firm's Athi River plant in Kenya. PHOTO |FILE

An employee of ARM Cement packages cement at the firm's Athi River plant in Kenya. PHOTO |FILE 

By KABONA ESIARA

ARM Cement, a company listed on the Nairobi Securities Exchange, is expanding its production capacity in Kigali to grow sales as competition in the Tanzania and Kenya markets has reduced the regional manufacturer’s profits.

But analysts warn that the Rwanda cement market too, has challenges, ranging from high electricity and transport costs, making cement manufactured in Rwanda uncompetitive in pricing.

While the cost of the expansion of the Kigali plant has not been made public, the plan is to increase the capacity from 100,000 tonnes annually to 350,000 tonnes.

ARM used part of the $140 million, CDC, the UK development finance institution equity investment in the cement maker.

In Rwanda, ARM acquired a 100 per cent equity stake in Kigali Cement plant in 2014 as part its expansion plans to grow sales in Rwanda and the neighbouring markets of Burundi and the Democratic Republic of Congo.

Hima Cement, a Ugandan cement maker, is another dominant player on the Rwandan market set to compete with ARM Cement. Industrial players said due to significant market share in Rwanda, Hima Cement became a price setter.

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AIB Capital in its latest East Africa cement sector report estimated that Hima exports 80 per cent of cement to Rwanda.

“The Hima Cement plant is located 400 kilometres South West of Kampala, which makes it costly to supply the Ugandan market when it’s much closer to other markets such as Rwanda,” reads the report.

South Africa’s cement maker — Pretoria Portland Cement (PPC) — is another competitor both in Rwandan and Democratic Republic of the Congo markets.

In Rwanda, PPC has a controlling stake in the largest cement maker — Cimerwa while in DRC it is constructing another plant.

The PPC’s plant in western DRC, located 20km from Kimpese is set to be commissioned by the end of this year.

Whereas cement prices in other East African countries have dropped, the retail prices cement in Rwanda have remained high, ranging between $240 and $290 dollars depending on the quality.

In Kenya, the cement prices have fallen from an average of $140 per tonne in 2011 to the current average of $100 per tonne and are expected to drop further.

The regional cement makers’ woes were worsened when the East African Council of Minsters lowered import duty on cement from 35 per cent to 25 per cent.
Rwandan cement market has also been distorted by cheap imports from Pakistan and China.

Market players, however, are optimistic about increased production of cement by ARM, arguing that the competition will result in low prices.

ARM manufactures’ clinker at Kaloleni and Tanga have production capacity of 1.65 million tonnes per year.

“This allows the company to control and capture the entire value chain, from mining of limestone to the manufacture and distribution of cement. It is approximately 70 per cent cheaper to produce rather than to import clinker in a region with clinker shortfall, which gives ARM a competitive advantage in terms of cost efficiency,” the report points out.