Kenya: Housing boom pulls Chinese firm to cement market

Kenya: Housing boom pulls Chinese firm to cement market
Published: 04 December 2007

A fresh round of turf wars is expected in the local cement market when a group of Chinese investors roll out a new production plant in Kajiado district next year.

A ground-breaking ceremony for the Sh536 million plant is planned for February if the National Environment Management Authority (Nema) gives the project the greenlight.

The factory – to be established off Viwandani Road in Kitengela Township – will run a grinding mill with the capacity to produce 50 tonnes of cement per hour and a packing section with the capacity to handle 90tph of cement.

The Chinese investors acting under the umbrella of Catic Cement (Kenya) Company Limited, have presented its environmental impact assessment report to Nema for approval.

Nema regulations demand that it takes about two months to process such applications – meaning the verdict could be out by February 2008.

"The proposed project is in line with the Government’s Economic Recovery Strategy 2003, which focuses on wealth and employment creation," EMS Consultants -- the company that conducted the EIA says in its report to Nema. Besides creating about 300 new jobs, the project is expected to raise the level of competition in the cement market with huge benefits to the fast-paced construction industry.

People familiar with the matter said Nema’s verdict on the application is expected to come earlier than scheduled because the cement firm’s application is among the two major EIA reports before the regulator.
A preview of Catic Cement’s investment plan shows that it will import clinker, a key raw material in cement production, from China through the Port of Mombasa.

Analysts said importation of clinker would give the company a huge economic advantage making it possible for it to compete favourably on pricing in the market.

Environmentalists are particularly happy about the company’s decision to import clinker on grounds that it would minimise environmental degradation that is associated with processing of the material.
"Cinker production consumes a substantial amount of energy. Importing it should therefore promote sustainable utilisation of energy sources while cutting down on cost of producing cement," the consultants say in their submissions.

China’s Ministry of Commerce said it had endorsed Catic Cement’s forays into Kenya as a joint venture enterprise. The team of investors includes China Aviation Technology Import and Export Corporation, Beijing in Kenya, Beijing Huatai, Savanah Heights Limited and a Kenyan based businessman Mr Xu Hui.
Beijing China Aviation holds the highest stake of 45 per cent from an investment of US$5.46m, Beijing Huatai has five per cent for the US$0.6m it has put into the venture, Savannah Heights 40 per cent for US$4.8m dollars while Mr Hui holds a 10 per cent stake for US$1.2m.

The entry by the Chinese firm into the local cement market is expected to heighten the anxiety that has been building up since early this year when a Saudi firm, Arabian Cement announced plans to buy into the region’s cement market as part of its expansion outside the Middle East.

"We are looking at any opportunity to construct a cement factory and seize the chance by focusing on the Middle East and North Africa region along with Africa," Arabian Cement president and CEO Muhammad Uthman said.

East Africa’s cement market is currently dominated by four main manufacturers with the entry of new players is expected to trigger price wars that may benefit consumers.

Bamburi Cement has the largest share of the regional market with a 51 per cent stake. Bamburi runs a subsidiary Hima in Uganda through which it plans to make a foray into the fast growing Sudanese market.
The remaining 49 per cent pie is shared among East African Portland Cement and Athi River Mining, both Kenya as well as Tanga Cement of Kenya.

Arabian Cement’s plan to expand into East Africa came through as the firm prepared to start construction of its first cement plant outside Saudi Arabia at a cost of US$400m

The project is listed for construction in Jordan is part of US$900m venture by the company to more than double its capacity to 7Mta in the Saudi market by 2010 even as its management saw fresh opportunities in countries such as Sudan, Zimbabwe and others in East Africa.

Arabian Cement also indicated that it would import its clinker from as a cost cutting strategy. Analysts said the East Africa region’s cement production has slowed down because of increase in raw material prices especially for clinker, which is sourced outside the country, rising global fuel price and increase in transport costs as a result of high fuel prices and dilapidated infrastructure.

The entry of Catic into the Kenya could be timely because the demand for cement has been on a steady climb thanks an economic take over that has seen investments in real estate grow rapidly.

Similar growth has been reported in the neighbouring Uganda and Tanzania even though the most notable cases of demand have been recorded in Sudan that is under going reconstruction after decades of war.