Overcapacity in Zambia continues unabated

This week, CemNet reported that the cement industry in Zambia has so much overcapacity that Lafarge Zambia has been forced to raise its prices in an attempt to stay in business. While domestic cement consumption stands at approximately 2.2Mta, the cement industry has a production capacity of about 5Mta and continues to expand.

Government support for cement sector
Zambia's ZMW106bn (US$8.1bn) 2020 budget will provide some relief for the sector as spending plans include ZMW1.1bn for power infrastructure to boost the country's electricity generation capacity and increase access in rural areas. For example, the 2400MW Batoka Gorge hydropower plant is expected to start construction in 2020, providing a significant opportunity for the domestic cement industry. 

In addition, the government has been responsive to the tax concerns of cement producers and mining companies. Cement companies will be able to claim back money on inputs and capital expenditure having paid VAT, rather than having to pay a controversial sales tax.

Rapid capacity expansion
The country is currently supplied by Zambezi Portland Cement, Sinoma Mpande Limestone Ltd (CNBM), Dangote Industries (Zambia) Ltd, Amaka Cement Industries Ltd (Scirocco Enterprises Ltd) and Lafarge Cement Zambia Plc (LafargeHolcim).

While existing cement producers have come under mounting competition from new greenfield plants, the sector continues to attract plenty of interest and investment, while ownership squabbles over one existing player have recently been settled in the Lusaka High Court. Rajan Mahtani lost his claim to ownership of Zambezi Portland Cement through his Finsbury Investments company to the Italian Ventriglia family and Manuela Sebastiani.

The Zambian cement industry is dominated by Lafarge Zambia and Dangote Cement, which each have a production capacity of 1.5Mta. Lafarge Zambia produces its cement in its 1Mta integrated cement plant at Chilanga and its 0.5Mta grinding plant at Ndola. Dangote launched its 1.5Mta works in Ndola in August 2015. The commissioning of CNBM's Sinoma 1Mta integrated Mpande plant, in Chongew Mpande Industrial Park, this year has exacerbated overcapacity in the country.

Furthermore, the cement industry continues to expand its production capacity. Central African Cement (ZCCM-Investment Holdings/SinoCast) is currently constructing a 2.2Mta plant in Ndola, which is due for commissioning in the summer of 2020. Work was scheduled to begin on this US$480m unit in April 2019. Sinoma and CBMI will jointly own 65 per cent of the shareholding in the new plant with ZCCM-IH owning the remaining 35 per cent. However, this is not the only cement plant under construction financed by Chinese entrepreneurs. Tanghan Jidong Cement and BBMG are building a 1.28Mta greenfield facility in Lusaka.

Other new entrants have announced plans for additional capacity beyond 2020. The greenfield integrated plant of Buffalo Consortium will have a cement capacity of 1.98Mta plant in Lusaka Rural by 2022. In addition, the Chilanga plant of WEYE Construction Materials Ltd will provide an extra 1Mta of capacity when it is commissioned in 2022.

Dangote Industries (Zambia) Ltd is also expanding its capacity with a 1.5Mta greenfield plant planned for Lusaka to come on-stream in 2022. Smaller plants are also in planning stages for Baudot Cement Zambia Ltd (0.3Mta), Glencores Limeco Resources (0.35Mta) and Blue Dreams Investment Ltd (0.3Mta).

Outlook
The recent discovery of a large limestone deposit in the Nyimba district is expected to attract further interest from investors for the cement sector. While Zambia's domestic cement sector is capable of supplying the domestic demand twice over, much of the cement produced in the country will be destined for exports. However, the domestic market has also received cement imports from Zimbabwe in recent years.

Overinvestment in Zambia is part of a wider pattern of oversupply in African markets, highlighted in Tony Hadley's uncompromising commentary on the issue in Turbulent times for Africa? in the September issue of ICR. While poor strategy is one root cause of the financial turmoil in the region, consolidation and further financial restructuring will be required to reset the industry on a course to sustainable profitability.