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Tuesday 23 August 2016

CEMENT MAKERS BULLISH ON PROSPECTS IN THE MARKET

Tanzania Portland Cement Company Limited.
Despite challenges of over-capacity and cheap imports in the local market, cement makers are optimistic about the future prospects of the sector which have been brightened by continuing construction boom.

The industry which is experiencing supply excess despite strong domestic consumption with installed production capacity at 8.3 million tonnes per annum against current demand of 4.3 million tonnes per annum, is buoyed by major infrastructure projects and revitalized shift of government seat to the designated capital of Dodoma which are expected to drive business and boost growth. 


The local market continues to attract new investors as the local producers are struggling to retain their market share with strategies to cut on costs and improve efficiency. Two producers, Tanzania Portland Cement and Tanga Cement managed to make profit last year though challenges in the market lowered their sales volumes.


TPCC recorded an increase in sales volumes of 22 per cent versus 2014. Total revenue increased by 44.6bn/- and profit for 2015 was 56.2bn/- which is three per cent above 2014. According to their financial results the increased sales volumes and profit was a result of increased capacity, production efficiency and consolidation of Twiga Extra as main product of its portfolio.



Tanga Cement recorded a declined profit in 2015 compared to that of the previous year due to stiff competition as a result of new entrants that lowered their volumes.
It experienced a decline in sales revenue of 9.9 per cent compared to the previous year and a net profit of 8.24bn/- down from 28.40bn/-made in 2014.

However, with the commissioning of the second kiln at its plant in Tanga in December last year and a number of initiatives to boost operational efficiency and overall business effectiveness, the company recorded a 55 percent increase in net operating profit for the first six months of 2016.


Tanzania's cement industry has been dominated for years by three major producers, Tanzania Portland Cement, owned by a subsidiary of Germany's Heidelberg Cement AG, Tanga Cement, majority owned by Afrisam Mauritius Investment Holdings Limited and Mbeya Cement, owned by France's Lafarge SA. 


A team of new players include Arthi Rhino Cement, Camel Cement, Lake Cement, Lee Building Materials, and Dangote Cement. However, it is the coming of Dangote Cement that changed the landscape significantly after it slashed cement prices up to 10,000/- per 50kg bag last year being only a few months after it started operations.


Other players had to follow suit by slashing prices of their products and begin sales promotion campaigns so as to survive in the market.The coming up of the new players has intensified competition which put downward pressure on sales volumes and profitability of cement producers hence shrinking their growth.


However, despite the sluggish growth to one of the major producer, the future outlook remains bright with the planned key infrastructure projects expected to begin this financial year that include construction of a 6.7bn/- USD standard gauge railway that will link Rwanda and Burundi with the Indian Ocean, a mega port and economic zone at Bagamoyo in Coast region that is expected to cost at least 10 billion US dollars and the proposed 4.0bn US dollar Oil pipeline this year which is expected to transport Ugandan crude oil to Tanga for export.


Other key infrastructure projects include rehabilitation of the Central railway line and improvements in Dar es Salaam and Mtwara ports. The government has raised spending by 31 percent in the current fiscal year with a focus on infrastructure and industrial projects.
However, despite the promising future, local cement makers complain cheap imports of cement products were subjecting them to unfair competition threatening their survival which will have significant impact on the number of people directly and indirectly employed in the industries, government revenue in terms of taxes and the image of the country as an investment destination.
The Managing Director for Tanga Cement, Reinhardt Swart said recently that some of the cheap products were clinkers on transit that are diverted in local market and sold cheap because they are not taxed.
“We ask the government to either stop the imports or at least impose higher tariffs on imported clinkers. We are also pleading with the government to ensure clinkers on transit reach their destinations.
This will remove unfair competition in the market,” said Reinhardt Swart, during the inauguration of the second kiln at the Tanga plant last week.
Mr Swart said they were also asking the government to reconsider decision to ban coal imports as it has raised the company’s energy costs. He said government decision to ban coal imports had made them incur extra cost for using thermal power as the local one was not suitable for their second kiln.
Mr Swart said they were also concerned that they had outstanding concessions agreed with the Tanzania Investment Centre (TIC) in 2012 but were not yet put in government gazette.
The failure to publish the concessions they had agreed with TIC raises questions on government sincerity in upholding investment agreements, he said. The Minister for Industry, Trade and Investment, Charles Mwijage who was the Guest of Honour during the inauguration of the kiln, advised local cement producers they need build a compelling case that will convince the government to act on their complaints.
The minister said that they should file their complaints at special desks on ease of doing business that have been established in the ministry in efforts of the government to improve business environment in the country.
“Let’s reason together so that we can build our case that I can defend to the government,” he said noting they need to reason together and build a compelling case on their complaints before the government.

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