Source: Cement imports temporary as investors build new capacity – herald
THE dramatic increase in Government infrastructure programmes and the robust Zimbabwean construction industry gearing up to meet demand for housing, factory, commercial and office space has seen a surge in demand for cement.
Massive infrastructure projects being implemented by the Second Republic have driven demand for cement and allied products, resulting in temporary shortages but a corresponding increase in investors setting up cement factories will likely offset this deficit in the not-so-distant future.
While Zimbabwe’s cement factories, with three dating to before independence, have been modernising and expanding, and the small number of new factories since independence taking more load, the demand for cement has not just exceeded supply but has overtaken the capacity of the existing industrial base.
Many of the past shortages of cement were driven not so much by capacity shortages but more by the need to upgrade and modernise factories, with the deficits arising from the general industrial downturns and the need to find foreign currency and capital to replace older equipment and machinery.
This was fairly typical throughout Zimbabwe’s industrial sector.
One problem in recent years has been the difficulties faced by outside owners of the largest factory on the eastern outskirts of Harare, which have tended to limit the sort of upgrading required although recent changes in ownership appear to have been overcoming this long-term capital shortage.
The need to make cement factories more environmentally friendly, and cut down a lot on the dust and other pollutants, was taken on board but the producers were able to include this in their general modernisation programmes.
Cement uses almost 100 percent local raw materials, basically limestone and clays used to produce the clinker that forms the basis of the bulk of all Portland-style cements, although other materials such as thermal power station ash and other readily available inputs are added.
Economically, cement is a bulky product, where the finances work out best when the factories are close to markets, so transport distances are short.
This is a requirement when pre-mixed concrete is moved and sold, but even when cement tankers and bagged cement are the main sales, it is expensive to ship huge tonnages.
The opening up of Zimbabwe to investors by the Second Republic attracted attention and the growing demand for cement interested the potential investors.
Several Chinese companies have new cement factories in several stages of development in Mount Hampden, Chegutu, Hurungwe and Hwange, all areas where the required limestone and clay raw materials are almost at the factory gate.
The first of these new factories is likely to be delivering its first sales early next year.
This month Africa’s largest cement manufacturer, the Dangote Group, announced plans for a major investment in Zimbabwe following a visit by Aliko Dangote to Zimbabwe and who expressed his commitment to a wide range of investments in primary industries in the country in deals signed off before President Mnangagwa.
This means that work can start early since the detailed investment requirements have already been approved.
The gap in supply was being filled to an extent by Zambian factories, especially after the Dangote group opened its factory up north.
But Zambia is also undergoing a development boom and more and more of its production is needed back home, far closer to the factories and so conforming to the general cement industry maxim of producing the best revenue streams and profits when the factory and the customers are next door.
Zimbabwe’s main markets are not next door to Zambian factories so the imports were intrinsically temporary, just taking up the surplus while the Zambian State and private sectors were increasing their construction demands.
There is other spare capacity in neighbouring states, and the Government decision to permit private sector imports will allow this to be tapped.
But imported cement will never be the cheapest option and while imports can suppress scarcity pricing, or even stopping the inefficient from overcharging, they can never lead to any general cut in prices as manufacturers work out more efficient production and bring in the best possible technologies.
The capacity increases, especially with brand-new factories or completely revamped older plants, should allow manufacturers to cut prices in a competitive market with modern management and technology.
This was seen in Zambia when Dangote Group opened its new large factory there, ending shortages in that country and being exceptionally competitive in even a normal environment.
The lower prices must have had a major influence on the ensuing construction boom, as a lot of customers found they could now not only obtain cement easily but could afford to pay for it.
Besides the huge demand in Zimbabwe by contractors working on the growing Government infrastructure of dams, solid cement interchanges and bridges on the roads, and Government housing programmes, there is also growing demand from private developers, and from ordinary people in both urban and rural areas who simply want to build a decent house.
All these groups of customers will be seeing more cement, so the new factories that investors are now building or have firm plans to build will not be idle.
The customers are there and will be keen to buy cement that has a low transport component in costs, which imports lack although they are needed when there is no other source.
Having multiple companies in the supply chain also increases competition, important if we are to use markets to set prices rather than trying to use edict, and makes it ever more unlikely that a problem at one factory could have damaging effects on the downstream economy.
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