Increasing cement production in Tanzania attracts international companies

Outside of food and beverages – and the broader agro-processing segment – the manufacturing sector is supported primarily by cement manufacturing, with the country’s cement capacity expanding rapidly in recent years, most significantly after the 2015 market entry of Nigeria’s Dangote Cement, one of the continent’s largest cement players. Dangote’s entrance has had a mixed impact on the industry, which includes Tanzania Portland Cement Company (TPCC), currently the largest market player, according to Nairobi-based investment firm AIB Capital, and Tanga Cement, along with subsidiaries of a number of multinationals.

Although supply has risen substantially, increased competition has resulted in narrower margins, exacerbated by broader industrial issues, including chronic fuel and electricity shortages. In spite of this, the outlook for cement demand is bullish, with expectations of a steady rise on the back of new construction activity, although the near-term challenges will likely continue to weigh on growth and profits in 2018.

Production

Cement production has expanded sharply since the early 2000s, supported by robust macroeconomic growth and rising construction activity. According to AIB Capital, output reached a compound annual growth rate of 9.7% between 2001 and 2015, starting the period at 900,000 tonnes. The Ministry of Finance and Planning reported that output rose by 4.3% in 2011 to 2.4m tonnes, against 2.3m tonnes in 2010. Production increased by 7.1% in 2012 to 2.6m tonnes, although it moderated in 2013, to 2.4m tonnes, before growing by 18.1% in 2014 to 2.8m tonnes.

AIB Capital found that total installed capacity stood at 3.7m tonnes in 2015, with production averaging 3.3m tonnes, compared to 6.5m tonnes in Kenya, 2.1m tonnes in Uganda and 800,000 tonnes in Rwanda.

TPCC and Tanga Cement are two of the largest Tanzanian cement producers, with market capitalisation of $4bn and $1.1bn, respectively, in 2016, while Germany’s HeidelbergCement, Switzerland’s LafargeHolcim and South Africa’s AfriSam Investment Holdings also operate units in the country. TPCC held a 36% market share at the end of 2015, with 1.9m tonnes per annum (tpa) of production, followed by Tanga Cement, with 1.2m tpa.

Recent Investment

Dangote’s new site represents the sector’s largest recent capacity boost, following the November 2015 inauguration of the $500m, 3m-tpa cement plant in Mtwara in the south-east. The factory has 3000 tonnes per day (tpd) of clinker output, and three packing machines with capacity for 2400 bags per hour, or 2880 tpd, with plans to fuel its operations via a 30-MW gas-fired power plant.

The plant benefits from Tanzania’s abundant mineral resources, and Dangote also owns 500m tonnes of limestone reserves at nearby Mtwara mines, providing nearly 150 years of supply. Dangote had captured a 23% market share as of May 2017, according to local press.

Cement capacity increased further in August 2016, when Tanga Cement opened its second production line, boosting total annual capacity to 1.25m tpa.

Challenges

Industry growth is facing challengeshallenges, however, with Dangote moving to undercut competitors by offering cement at $80 per tonne, compared to the national average of $90-100 per tonne. Tanga Cement reported its revenues dropped by 20% in 2016 as a result of new competition, as well as lower-than-anticipated state infrastructure spending, with sales falling from TSh209bn ($95.1m) to TSh166.9bn ($75.9m). TPCC’s profits fell by 29% in the same year to $17.6m, owing to declining revenues and impaired assets.

Energy shortages are also a major challenge, and Dangote’s facility closed briefly in December 2016 after the company reported that promised supply of natural gas for its onsite power plant had failed to materialise.

Upcoming Projects

The cement industry is poised for future growth, however, with the government reporting in December 2016 that three unnamed companies plan to invest up to TSh20trn ($9.1bn) in new cement production projects, doubling current capacity.