Nigeria’s cement producers are spearheading expansion and growth of West Africa’s regional cement industry. Spurred by sizeable spends on increasing existing production capacity, the Nigerian cement industry’s local output rose from 10.5 million tonnes in 2010 to 28.6 million tonnes in 2011. This robust increase in production also caused Nigeria’s cement industry to account for 63.6% of the West African region’s cement output in 2011.
Despite this substantial rise in production output, Nigeria’s leading cement manufacturers are continuing to pour more investment into further increasing their production capacities during the years 2012 to 2018. Strong economic growth forecasts is a key contributor to the local cement industry spending more on expanding their production capacities. In particular, massive capital spends on building new and upgrading old public infrastructure within Nigeria are being experienced. Investments in plugging the housing deficit in cities, such as Lagos, are another factor expected to boost local cement demand. Nigeria’s cement producers are therefore positioning themselves to take full advantage of this anticipated rise in local cement demand.
Dangote Cement Group Plc (DCP), listed on the Nigerian stock, has led the Nigerian cement industry’s capacity expansion growth. Between 2005 and 2011, DCP spent an industry unprecedented $6.50-billion on ramping up its production capacity. Through these massive capital spends, it has substantially grown its market share, becoming the Nigerian cement industry’s market share leader in recent years. In addition to Nigeria, the DCP is also implementing aggressive expansion, strategies by establishing production and distribution presences in 14 other African nations. Going forward, the DCP is expected to continue being an industry-leader in terms of growing its existing installed base and regional presence. Frost & Sullivan expects the company to produce 50.0 million tonnes of cement per annum by 2020.
Aggressive growth initiatives such as these are expected to have a significant impact on the existing status quo of Africa’s cement industry. In early 2012, the Nigerian government announced the banning of cement imports into the country, effective September 2012. As a key trade partner to several West African nations, Nigeria’s cement industry is well positioned to export its locally produced excess to these neighbouring states in 2014 and beyond. Such a development is expected to further impact non-regional cement imports into the region. Supported by anticipated successes in exporting cement within West Africa, Nigerian cement producers are also looking to break into central, east and southern Africa. Key geographic expansion strategies, that Nigerian cement manufacturers will implement, include:
• The building of import terminals and supply of bulk and bagged cement to countries with limited limestone reserves,
• The acquisition of a small-sized cement manufacturer with strong growth potential in countries with sizeable limestone deposits, and
• The construction of a greenfield cement manufacturing facility in countries with sizeable, but undeveloped, limestone and coal reserves.
Although aggressive regional growth plans are underway for the DCP, several constraints hinder the cement producer’s progress. The predominant use of low pour fuel oil (LPFO) to power cement kilns within Nigeria’s cement industry, significantly raises the Nigerian cement industry’s production costs, when compared to other African cement producers who use coal as their main energy source. Entering into regions like Southern Africa, where most of the cement producers use coal as a fuel source, is a factor that is expected to have a significant impact on pricing and profitability for the DCP, notes Frost & Sullivan. The DCP will also have to contest with lower priced Asian cement imports within the East African region. Transportation of cement to central and eastern Africa is another factor that is expected to further raise production costs, further impacting profits for the DCP.
Despite these setbacks, innovation is a key strategy that cement producers expecting to gain a sizeable market share within Africa will continue to adopt. Ashaka Cement, a Nigerian cement producer, is developing its colliery and plans to supply extracted coal to other cement producers within the country. The shift from the use of LPFO, to coal as a fuel source within Nigeria, will contribute to sizeable gains in cost reductions for local cement producers. Depending on price, these initiatives are also expected to create a few supply opportunities for Southern African coal producers.
As the Nigerian cement industry continues to invest in being a dominant regional supplier, cement producers within other regions should brace themselves for aggressive market competition in 2015 and beyond.
James Maposa is team leader for Environmental and Building Technologies at global consulting and research firm, Frost & Sullivan.