South Africa's materials-hungry building sector is to have its appetite sated, at least to some degree, by a new entrant into the cement production industry, with Egyptian firm Orascom Construction Industries (OCI) announcing it is to set up a major facility in the North West Province.
OCI unveiled plans for the processing plant, and the company that will operate it, the Mafikeng Cement Company, on August 29. The Egyptian firm will hold 67.5% of Mafikeng's shares, with the remainder being owned by local communities.
Construction is scheduled to begin almost immediately, with the $440m plant due to start production by 2010, when it is expected to turn out 2m tonnes annually. The German firms of Polysius, a subsidiary of Germany's ThyssenKrupp, and Siemens will supply equipment for the new plant.
Announcing the launch at a ceremony in the North West Province's Ngaka Modiri Molema district, OCI's chief executive officer, Nassef Sawiris, said his company was committed to helping meet the country's fast growing demand for cement.
"Our new subsidiary will contribute to the development of the North West Province of South Africa through numerous ways, including the creation of new job opportunities during and after the construction of the plant," he said.
Mandisi Mpahlwa, the minister for trade and industry, welcomed OCI's entry into the South African market, saying it would help boost the economy and sustain the country's rapid industrial expansion.
OCI's announcement comes as South Africa is experiencing a cement shortage, which is negatively impacting some projects in the construction industry. Currently, the country's annual cement production capacity is around 13m tonnes, leaving a shortfall of about 5m tonnes last year.
Local demand for cement rose by 13% in the past 12 months, with no sign of demand dropping as the government has ramped up infrastructure projects, valued at around $60bn. At the same time, the private sector is creating heavy demand with residential, commercial and industrial developments all seeing an upsurge.
Udesh Pillay, the executive director of the Human Sciences Research Council's urban, rural and economic development research programme, says the economy is struggling to keep up with the demand for materials such as cement and other products.
"Any country with as high growth as we have seen in the last three to five years is going to run up against a range of supply-side constraints in the context of increasing consumer demand," said Pillay in an interview with a local financial publication on August 20.
This widening gap between demand and supply capacity has seen many of South Africa's leading producers look to imports to meet short-term needs, while also investing in new facilities to boost their own output.
At the end of last year, global construction materials group Lafarge announced it would invest $165m to increase its capacity by 1m tonnes a year while importing 600,000 tonnes over 18 months to meet the domestic shortfall. Its new plant is due to open in 2008.
Two of South Africa's other leading producers, Natal Portland Cement (NPC) and Pretoria Portland Cement are also in the process of building new facilities, which will have a combined capacity of 1.85m tonnes. NPC's new kiln is due to start production well before the end of the year, while Pretoria's 1.25m tonne plant is scheduled to come online in the second quarter of 2008.
OCI's announcement comes as the government is tightening up monitoring of the cement industry, with the South African Bureau of Standards (SABS) taking over the role of regulating cement industry from the Department of Trade and Industry (DTI), a move announced on August 14.
Under new regulations recently enacted, both importers and producers must comply with the requirements of compulsory specifications for cement as of September 6. These include material standards for all types of cement, as well as facility approval from SABS' regulatory chemicals, mechanical and materials department.
The new requirements are designed so that no shortcuts are taken in supplying cement and, even with the pressing need for the material, standards will be maintained.
Even with OCI starting up in South Africa and existing producers working to boost output, forecasted demand is still expected to outstrip domestic production for the foreseeable future, meaning there will be a continued reliance on imports in the construction sector.
