UGANDA: Cement Market Jitters

In Uganda, a construction customer buys cement at about $124 per tonne. That is higher than the average global price for gray cement - which hovered between $76 - $77 per tonne in 2013 - and higher than the $100 average in Sub-Saharan Africa. In fact, Kenyans and Tanzanians buy cement more cheaply than Ugandans who buy a 50-Kg bag of cement at an average price of about Shs 28,000 in local retail shops around the country - quite high for a product whose main raw material - lime stone - is abundant locally. That explains why the per capita cement consumption of cement in Uganda stands at a miserable 35 kg way below the global average of 500 kg.

Cement producers in Uganda say it is inevitable that Ugandan cement should be expensive. Alok Kala, the Tororo Cement general manager, says Ugandan cement is comparatively more expensive because of a couple of factors. He says Ugandan cement is charged Excise duty tax, which for instance the Kenyan cement producers don't pay, and Ugandan power tariffs are also higher than the Kenyan tariffs. Also, Uganda imports clinker, a major raw material, from Kenya, and coupled with infrastructure bottlenecks, the high cost of business must translate into more expensive products.

Part of the problem has been attributed to the high demand, which outstripped supply several years ago - thanks to the booming construction and real estate sector and the lucrative markets in South Sudan and DR Congo. Uganda has two main cement manufacturers - Hima Cement - owned by Lafarge Group - and Tororo Cement - both of which have a combined capacity to produce 3.6 million tonnes - way below the rising Ugandan market demand. Consequently, Uganda does import a substantial amount of cement from countries such as Kenya, Egypt and Pakistan among others.

Two new companies; the Kuwait-based DAO Group, and China National Machinery Import & Export Corporation , are investing in new cement manufacturing plants worth $400 million with a combined production capacity of 1.6-million tons a year. The two new factories are being set up in Budaka District in eastern Uganda, and in Karamoja in the north-east. Those could offer a respite in the medium-long term but not in the short term when the demand is expected to spike thanks to the several large scale projects including dams, highways, bridges and buildings that are expected to kick off in the next few months. That means cement prices are expected to rise even higher in the short-term.