Africa's economic growth is driving demand for building materials. Nigeria's Dangote Cement and Europe's Lafarge and Holcim are the top players fighting for dominance in Africa's cement trade.
Cement giants Lafarge of France and Dangote of Nigeria have skirmished before, but they are now crossing swords in earnest as Swiss group Holcim prepares to merge with Lafarge to form the world's largest cement-producing group.
In April, Holcim announced its plans to merge with Lafarge to form LafargeHolcim, but the deal faces some obstacles from anti-trust authorities, especially in Europe, and could be settled in the second half of the year.Indigenous companies and foreign firms are setting up new plants all over the continent. But while Africa certainly needs more building materials to feed its infrastructure drive, will the fight lead to oversupply?
If it is approved, the company will provide intense competition for Nigeria's Dangote Cement, which is ramping up production.
The cement magnate Aliko Dangote's expansionist policy in Africa over the past couple of years includes the rolling out of new capacity in 13 countries across the continent.
The Holcim-Lafarge deal has also sparked merger and acquisition speculation across the globe as both companies look to divest operations in order to avoid problems with competition commissions.
In the meantime, a number of other companies are also plan- ning to extend their footprints on the continent in the shadows of Dangote and Lafarge.
The International Finance Corporation (IFC), the World Bank's private-sector arm that has a $1.1bn global cement portfolio, estimates that Africa needs to add capacity of 10-15m tonnes per annum (mtpa) for each of the next 10 years to meet the market's growing demand.
Production in Africa rose by 33mtpa over the previous four years to reach 88mtpa in 2013.
Consumption of cement per capita is around 100kg in Africa, compared with around 570kg globally or 285kg if China's consumption is excluded.
Although many African countries have a large unmet demand for cement, some analysts suggest there might be too much new capacity.
"Given all the projects that are in the pipeline today, it's very difficult to think that Africa will absorb all this capacity projected to come on stream in the next three to five years," says Andy Gboka, equity research analyst at London-based Exotix.
Prices in sub-Saharan Africa have averaged around $180/tn in recent years, compared with around $100/tn worldwide. New capacity is likely to push prices down further.
The companies that are set to be affected adversely are those that export to Africa – companies such as Pakistan's Lucky Cement.
According to Exotix, two thirds of sub-Saharan African countries rely on imports to meet half of their demand, with imports worth $5bn in 2012.
The new capacity should help boost interregional trade in cement, which was only at 13% of consumption in 2012.
Across the continent, demand and supply remain unevenly spread. Demand is not strong in countries such as Côte d'Ivoire, while in Ethiopia there is a large amount of supply due to come online.
In 2012, Ethiopian- Saudi businessman Mohammed Al Amoudi's MIDROC opened a cement plant at Derba, adding 2.5mtpa of capacity. Rising supply in Ethiopia pushed down prices, which plummeted from $250/tn in 2011 to $150/tn in 2012.
They are now hovering at around $120- $130/tn, according to Exotix.
Dangote catches up
For now, Lafarge remains the largest cement manufacturer in Africa, and it also operates in 64 countries around the world.
Lafarge has the capacity to produce 44mtpa in Africa, much of it in North Africa, where it has large operations in Egypt, Algeria and Morocco.
"Lafarge has not invested anything over the past three to four years in Africa," says Michel Folliet, industry analyst for the building materials sector at the IFC. "They were concentrating on reducing their debt," he explains.
"Lafarge will not be caught [up] by Dangote over the next five to 10 years," Folliet says, because of Lafarge's large base in North Africa.
In sub-Saharan Africa, however, Folliet predicts Dangote will take over as the largest manufacturer this year. "I can see [Dangote] with 25% of the total sub-Saharan market," he says.
Dangote currently has 20.3mtpa of capacity in Nigeria, 1.5mpta in South Africa and a 1mpta import terminal in Ghana.
The company plans to commission another 7mtpa in the rest of the continent this year, including another 2.5mtpa in South Africa.
Strengthening its rivalry with Dangote, in July Lafarge shareholders approved a merger of its Nigerian and South African operations to create an entity called Lafarge Africa.
The company will have 12mpta of capacity and will be listed on the Lagos Stock Exchange.
The merger between Holcim and Lafarge could also bring some consolidation in countries where the two companies operate as separate entities.
Lafarge's operations in sub-Saharan Africa are considerably larger than Holcim's, although the Swiss firm has plants in Côte d'Ivoire, Guinea and a few other countries.
Nigerian consolidation
The proposed merger raises some interesting questions in Nigeria, where the two companies already have a joint venture, Nigerian Cement Holding, that owns a controlling 72% stake in United Cement Company of Nigeria (UniCem).
"The big question mark is will they buy out the minorities," says Exotix's Gboka. The other 28% of UniCem is owned by Flour Mills of Nigeria, which did not respond to our request for comment.
Both Holcim and Lafarge have paid fines for anti-competitive behaviour, mainly in Europe, and are likely to be keen to avoid paying out again.
In Morocco, the question of competition comes into sharper focus. Combined, the two companies' operations – Holcim Morocco and Lafarge Morocco, which Lafarge runs as a joint venture with the state-owned Société Nationale d'Investissement – control more than 50% of the cement market.
The country does not have strong anti-trust authorities, but Holcim and Lafarge may still come under some pressure to reduce its dominance.
While Dangote Cement has emerged as the most high-profile local player on the continent, there are other pretenders to its crown. The winners going forward will be those companies that can keep down their production costs.
One model for companies to do this is to control the supply of clinker – a mixture of limestone and aluminosilicates that is used to make cement.
In Ghana, for example, companies have to import clinker because of the very limited local limestone reserves.
Ghana consumed 5.25m tonnes of cement in 2013, according to the IFC, and three quarters of it arrived in the country as clinker that was then ground into cement.
South African firm PPC is on a drive to expand its business into the rest of the continent. It is already expanding into Ethiopia, Rwanda, the Democratic Republic of Congo and Algeria and recorded first-half profit growth of 52% in 2014.
Its model is to build integrated plants, where it controls both clinker production and grinding.
Moroccan contender
Another company aiming to increase its footprint is Ciments de l'Afrique, owned by Morocco's Groupe Addoha.
It is adding capacity in eight countries and plans to send clinker from Morocco to West Africa, where it will build grinding capacity.
"They are going much faster than Dangote," says Gboka. However, few see Ciments de l'Afrique as a rival to Dangote. "Nobody is interested [in the company's expansion]," says Gboka.
Addoha's cement strategy is tightly linked with that of its real estate arm, which is working on low-income housing projects in countries such as Ghana.
Not put off by competition, players such as China's Jidong Development Group are moving into the continent.
In May, Jidong and its partners announced plans to build a R1.8bn ($167m) greenfield plant with more than 1mpta of capacity in South Africa's Limpopo Province through a vehicle called Mamba Cement.
Although the expansion priority of China's huge cement companies – including Anhui Conch and China National Building Material Company – is still Southeast Asia, Jidong's entry shows that they are beginning to look at the African market.
Dangote and LafargeHolcim look set to dominate the continent's cement market for the foreseeable future. But their ef- forts are opening up the way for newcomers with an eye on the continent's long-term demand.
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