Is Africa's Cement Industry Semi-Globalising?

I analyze Africa’s cement industry in general, specifically Dangote Cement Industries. Dangote Cement Industries is a Nigerian multinational conglomerate and subsidiary of Dangote Industries Limited headquartered in Lagos, Nigeria. Dangote Cement Plc, formerly known as Obajana was incorporated in 1992 and has since grown into the first truly indigenous African multinational with a market capitalization of US$ 14 billion (Bloomberg, 2016). Dangote Cement operates three major cement plants in Nigeria with a combined annual output of approximately 20 mmtpa. Dangote cement opened a new cement plant in Zambia in 2010 and another in Senegal in 2015, with new plants set up in Cameroon, Ethiopia, South Africa and Tanzania over the period 2014 and 2015. Over the period 2016 to 2019, the company has plans to expand to Benin, Ghana, Democratic Republic of Congo, Liberia as well as Kenya. As a result, the company’s forecast annual output is estimated to reach 77.3 million metric tons by 2019 (Ibukun, Onu & Hill, 2016). Dangote Cement Plc also plans to list on the London Stock Exchange.

According to McKinsey (2010), “40 percent of Africa’s 1 billion population live in Cities.” McKinsey estimates that by 2030, “the continents 18 Cities will have a combined spending power of over $1.3 trillion.” (p.18). Charles Robertson, chief economist at Renaissance Capital, says “demographics will support Africa through the downturn in commodity prices” (Economist Intelligence Unit, 2015). Despite concerns about inequality and questions regarding the real size of Africa’s middle class (Economist, 2015), Africa’s growing labor force and the related rise of the middle class has enormous implications on urbanization and demand for affordable housing. The primary market driver for the cement Industry’s aggressive expansion, in my view, is the "broad convergence of consumptions patterns (de Kluyver, 2010:32) of cement and related building materials, driven by growing housing demand underpinned by dynamic and changing population demographic (McKinsey, 2010:1). Cement is a standardized commodity with few differences in technical standards and regulatory requirements for production. Furthermore, the cement market isn’t as fragmented as for example fast moving consumer goods segments or agriculture. It is also important to understand that the expansion of most major African conglomerates, especially in the telecom and financial services sectors, is driven by the “semiglobalization” (de Kluyver, 2010:5) of African economies. The economic landscape of Africa is characterized by emerging economic blocs whose free trade agreements and customs unions are increasingly breaking down barriers to trade, allowing duty free quota free market access and implementing common external tariffs. The Economic Community of West African States (ECOWAS), the East African Community (EAC) customs union and common market, the Southern African Development Cooperation (SADC), the Common Market for Eastern and Southern Africa (COMESA and now more recently the SADC-COMESA-EAC Tri-partite trade bloc are all reflective of the growing trend towards liberalization of the free movement of goods, capital, services and even labor amongst partner states. All of the trading blocs listed above have mega-infrastructure projects of energy (hydropower generation plants, refineries) and transport (the EAC standard gauge railway, the northern and central corridor highway, Seaport expansions in Mombasa and Dar-es- salaam, the The Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor project) in the pipeline, all of which will demand considerable amounts of cement worth billions of United States dollars. But more importantly, the rail and road transport and port infrastructure will significantly reduce the cost of transportation between Western, Eastern and Southern Africa.

The cost globalization driver (de Kluyver, 2010:32) that underlies cement industrial expansion in Africa in general and Dangote Cement in particular is the large difference in factor costs of cement production across the continent. Countries where Dangote hasn’t invested in cement plants yet still suffer severe electricity shortages with poor power distribution grids and low generation capacity (DR. Congo for example). Furthermore, incumbents in the cement industry in Africa do not enjoy any significant economies of scale and scope as to erect high barriers to entry because of the limitations imposed by infrastructure deficits in most African states. Late entrants like Dangote have therefore sequenced expansion to coincide with infrastructure developments, improving business climates, economic integration efforts and changing cost structures in Africa.

The cement industry in Africa is characterized by a diversity of competitors. However, from a competitive driver perspective (de Kluyver, 2010:33) competition from cheap subsidized cement imports from South East Asia (a bag of cement from China is priced at US$ 1; Pakistan’s cement industry is subsidized and can deliver a bag of cement C&F to East Africa at US$ 1.8) has helped fuel the Government drivers of “semi-globalisation” (de Kluyver, 2010:32) with Dangote Cement demanding tariff protection against cheap Chinese imports in Nigeria (ICR newsroom, 2013) and Ghana (Global Cement, 2016) and other cement industries (importers mainly) demanding tariff protection against Dangote’s cement exports, case in point being Zimbabwe (Marawanyika, 2016). Clearly, Dangote isn’t the only company expanding production capacity to meet the demands of a growing market. According to Hill & Hill (2015), Lafarge Zambia is doubling capacity in their Lusaka plant in response to Dangote’s foray into the market; Johannesburg-based PPC Ltd is building new plants in the DR. Congo, Zimbabwe, Ethiopia and has brought production online in Rwanda. HeidelbergCement AG of Germany added 2.9 million tons capacity in Africa in 2014 (Hill & Hill, 2015).

From the analysis, globalization or better still, semi-globalisation, hasn’t significantly dampened prospects for the cement industry in Africa. Even with cheap Chinese imports factored into the equation, I foresee increased aggressive market expansion based on the forecast of 50% increase in cement demand in Africa by 2020 with economies of scale and scope favoring both the incumbents and Dangote Cement. Ultimately, the welfare gains for the African population are likely to be significant over the years, occasioned by substantial reductions in the cost of civil infrastructure, cheaper housing and job creation.