Kenya’s cement manufacturing sector is grappling with a clinker shortage of 3.3 million tonnes, with 59 percent of the deficit being imported into the country duty-free from Egypt, a report by the National Independent Clinker Verification Committee released last week showed.
The committee tasked with assessing the status of clinker in the country following a dispute among market players on whether to increase duty on imported clinker to 25 percent from 10 percent, observed that even if both cement grinding and clinker production companies operated at full capacity, the country will still have to import 40 percent of the clinker.
In a report dated September 2021, the National Independent Clinker Verification Committee noted that an increase in duty on imported clinker is likely to have a trade redirection in favour of Egypt by virtue of the two countries belonging to a common Customs union under the Common Market for Eastern and Southern Africa (Comesa) free trade area arrangement.
Of the 40 percent of clinker imported into the country, 60 percent originates from Egypt at zero tariff rate.
Last year, Egypt and the UAE accounted for 92 percent of the clinker imported by Kenyan companies, with seven percent coming from Saudi Arabia.
“Thus, new investment or expansion of current plants in clinker production will minimise the shortfall,” says the report.
In 2020, the supply for locally produced clinker was 3.8 million tonnes against a demand of 5.3 million tonnes of clinker, with factories operating at 65 percent of their installed capacity.
Common External Tariff
According to the report, even if the factories operate at full capacity, the country will still face a clinker shortage of 3.3 million tonnes, which has to be offset through imports.
Clinker is charged 10 percent duty as per the EAC Common External Tariff regime for intermediate goods.
However, in the 2020/21 budget cycle, two cement manufacturers, National Cement Company Ltd and the Mombasa Cement Ltd — submitted a proposal to increase duty on imported clinker to 25 percent from 10 percent, arguing they have sufficient capacity to supply the aggregate local demand for clinker in the country.
But four other firms —Bamburi Cement Ltd, Savannah Cement Ltd, Rai Cement Ltd and Ndovu Cement Ltd — which rely on imported clinker for cement production opposed the proposal, arguing that this will lead to unfair competition and destroy their investments.
Consequently, government formed a committee to investigate the quantity and quality of locally manufactured clinker to resolve the dispute between the cement manufacturers and ensure a level playing field for all operators.
The committee comprises of members from the State Department of Industrialisation, Kenya Bureau of Standards, State Department of Mining, Kenya Association of Manufacturers, and representatives from cement grinders and clinker manufacturers.
All other factors held constant, the net effect of increasing of clinker import duty to 25 percent from 10 percent, is a 15 percent price increase for locally produced and imported clinker.
“The local production of clinker is competitive, and the industry may not require duty protection to thrive. Locally produced clinker is currently 15 to 30 percent cheaper than imported clinker,” according to the findings of the September 2021 report.
“Commercial clinker manufacturers should take advantage of the growing East African Community and Comesa regional markets for clinker through exports. The preferential rate for this product in the region is zero percent.”
Kenya’s clinker imports have increased in the last seven years from 1.5 million tonnes in 2012 to 1.8 million tonnes in 2019.
Last year, Kenya produced 3.8 million tonnes of clinker, equivalent to 70 percent of the industry’s capacity.
Of this, Kenya exported 223,000 tonnes of clinker mainly to Uganda, accounting for 98 percent of the total exports of clinker from Kenya, leaving a balance of 3.6 million tonnes consumed locally against a local demand of 5.7 million tonnes.
The current clinker installed capacity in the industry stands at eight million tonnes and is expected to increase to 12.4 million tonnes by 2025 on account of planned investments by six out of the seven industry players within a period of four years, according to the Committee report.
“Therefore, this demonstrates that there is an alternative market in the region particularly in Uganda,” according to the report.
Kenya’s cement industry production capacity has grown exponentially, from 2.1 million tonnes in 2005 to 6 million tonnes in 2019, while demand has been increasing at a diminishing rate, from 1.6 million tonnes to 5.93 million in the same period.
The demand for cement was highest in 2016, at 6.31 million tonnes largely due to the growth of the construction industry, as well as implementation of major infrastructure projects by the Government such as Standard Gauge Railway and roads upgrading and/or expansion.
There has been increasing demand for clinker, the raw material for cement manufacture over the years, attributed to increasing grinding capacity of manufacturers
According to the report the challenges facing companies that produce clinker include supply or availability constraints.
In addition there is neither an international nor national clinker standard since each company has its unique clinker specifications.
Six out seven cement companies are in the process of enhancing or building clinker facilities while five out of the six companies have requested for a minimum grace period of four years to enable them complete and operationalise their clinker plants before any increase in the import duty is considered.
The country’s total cement export in quantity declined sevenfold to 60,300 tonnes in 2019 from 457,200 tonnes in 2005 with the highest exports in 2013 at 827,000 tonnes.
The decline of Kenya’s cement exports has been attributed to new grinding plants and brownfield grinding expansions in Uganda and Tanzania.