Kenyan cement firms complain about costs

Kenyan cement firms complain about costs
Published: 07 December 2005

Poor roads and inadequate communication infrastructure are making cement manufacturing too expensive Kenyan cement makers Bamburi and Athi River Mining are concerned that the high costs of production in the country will reduce the competitiveness of their product in the Comesa region and other regional trading blocs. The firms say that the high cost of power and poor infrastructure are eating into their profits.

"We are concerned about the poor state of roads, cost of power and inadequate communication infrastructure, which have made the playing field uneven, particularly in view of competition from Comesa and other trading blocs, which have more favourable cost structures," says Michel Puchercos, managing director of Bamburi Cement, the leading cement manufacturer in East Africa. Although Kenya does not import cement, Mr Puchercos says that, due to globalisation and regional integration, competition will soon start coming from outside the country’s borders.

"We have been lucky not to have any cement imports but are concerned that they could find their way into our markets if the cost structure continues to be unfavourable," Mr Puchercos told The East African, urging the Kenya government to move faster to ensure they compete favourably with manufacturers from countries such as Egypt, where the cost of production is comparatively lower.

The Kenyan cement sector, which has experienced strong growth over the past few years, is expected to to grow by 11 per cent by the end of this year. But the sector has been hit by the rise in global fuel prices from May. The rise in oil prices has considerably increased the cost of transporting building and raw materials.

Pradeep Paunrana, the managing director of Athi River Mining, says fuel and power costs have pushed up cost of production. He says his company is spending 44 per cent of its total production cost on power alone.

Mr Paunrana is also concerned about the high transport costs involved when importing coal, one of the raw materials for making cement. "We normally import coal from South Africa. But transporting it to our plant from Mombasa increases the cost two-and-half times," he told The EastAfrican last week.

The two cement firms have, however, registered a over good performance for the past few years. Bamburi Group (including Hima Cement, its subsidiary in Uganda) has seen after-tax profits rise steadily from Ksh370m ($5m) in 2000 to Ksh1.9bn ($25.69m) in 2004, representing a growth of 500 per cent over the period. Hima has also posted impressive results, with its profit after tax rising from Ksh291m (US$3.9m) in 2002 to Ksh502m (US$6.8m) in 2004.

The Bamburi Group’s sales volume has also been on the increase as well. The group’s half-year 2005 sales was Ksh7bn ($94.6m), against Ksh5.5bn ($74.3m) in the first half of 2004. As at last year, Bamburi, which also exports cement to Rwanda, Burundi and the Democratic Republic of Congo, had an estimated market share of 55 per cent in East Africa. The firm’s current annual cement production in Kenya and Uganda is 1.3Mt and 300,000tpa, respectively.