A consortium of Chinese and local investors is setting up an Sh8 billion cement grinding plant expected to open early next year, tapping growing local and regional demand for the product.
The firm now known as Savannah Cement will break into the highly competitive regional market that has seen the entry of two new manufacturers in the past three years, as the existing players have raised their production capacities.
The new plant in Athi River is expected to be complete by December—a year after the planned timelines following the relocation of the initial site from Kitengela town when residents objected to its establishment, to the current premises within the Export processing Zone (EPZ).
Benson Ndeta, the chairman at Savannah Cement and a former chair of the government-controlled East African Portland Cement, says his firm was keen on satisfying supply shortfalls since demand for cement is projected to overtake the installed supply within the next two years.
“A cement plant is a very capital intensive investment that would take as much as three years to complete, which means that the installed capacity will fall below demand in the next two years,” said Mr Ndeta, adding that the growth of the construction industry promises sustained demand.
“Year-on-year growth of cement in the region is projected to exceed 14 per cent which the installed capacity cannot match,” Mr Ndeta said, revealing that 30 per cent of the company’s production would be sold in the countries outside the five East African countries.
Savannah Cement is a joint venture bringing together Savannah Heights—a consortium of local investors, Wan-Ho, a Chinese investment firm and Catic Cement sharing the stakes at 40 per cent, 40 per cent and 20 per cent respectively.
The entry of Mombasa Cement and Simba Cement over the last two years, with a joint installed capacity of 1.4 million metric tonnes has raised competition in the cement market, where Larfage-owned Bamburi and EAPC have maintained dominance while Athi River Mining (ARM) completes the list of top three.
Only ARM among the three major players has gained on market share while sales for both Bamburi and EAPC have remained nearly flat, an indication that they have ceded market shares to the newer entrants.
Bamburi has an installed capacity of 2.3 million tonnes, EAPC has about 1.5 million tonnes while ARM has about 650,000 metric tonnes—though it is keen to double the output in 2013 when its next plant will be complete.
Analysts at the Standard Investment Bank project Bamburi and EAPC will control just under half of the cement market in view of rising competition by 2015, since the newer entrants are able to price their products more competitively owing to the cheaper technology that they have used.
Market estimates place the energy costs at about 40 per cent of the entire production costs for the older plants—a factor that Savannah will be keen on capitalising to have the ‘lowest production costs’ in the market, according to Mr Ndeta.
Catic had initially planned to go solo on a cement production in the Kitengela plant before the resistance from the community occasioned an about-turn that saw the entry of the local investors, and the subsequent relocation of the plant to EPZ.
Savannah Cement plans to invest an additional Sh15 billion ($150 million) in a clicker plant in the second phase, expected to fall within the next three years and dependent on the market.
Mr Ndeta says the firm will head-hunt a chief executive to head the operations of the new cement maker rather than advertise, because the firm ‘has an idea of whom it wants’.
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