Footprints in cement

Above: NHI celebrates the opening of a cement plant with its Ethiopian partner. Below: The plant will be able to produce 1.4 million tons of cement by 2015. Provided to China Daily

Chinese companies build up African bases as domestic construction dries up and hardens

One of China's largest cement and heavy machinery providers, Northern Heavy Industries Group Co Ltd, is laying down the foundations of a big new market in Africa.

With a recently built cement plant in Ethiopia, deliveries of mine loaders and concrete to Tanzania, and power plant equipment to Angola, the Shenyang-based company's footprint has spread across 13 countries in the continent.

While many Chinese cement companies are facing overcapacity in a saturated domestic market, Africa's hunger for cement and heavy machinery is driving NHI's growth.

The Chinese company made its African foray in 2008 when it started building a cement plant for Habesha Cement Share Company, an Ethiopian state-owned company in Holeta, west of the capital in the Oromia region.

NHI received $70 million for this project, which was completed in December. It also helped to train more than 310 local workers to manage, operate and maintain the plant. There are now 750 workers on site, of whom 70 are Chinese, and annual production capacity is expected to reach 1.4 million tons in 2015.

NHI president Geng Hongchen says the Ethiopian government stipulated a better environmental performance as part of the engineering, procurement and construction deal to minimize pollution. Cement production burns a huge amount of coal.

"The facilities and equipment we designed for our Ethiopian clients are useful tools in dealing with problems caused by municipal waste," Geng says. "The waste can be processed into alternative fuels to replace coal. This technology hasn't been widely used in China."

Once it starts to produce at full capacity, Habesha Cement will be the third-largest producer of cement in Ethiopia after Mugher Cement and Messebo Cement, which produce 1.9 million tons and 1.7 million tons annually.

There are 11 companies with a combined annual production capacity of 5.4 million tons in the country. Total production of cement in Ethiopia is expected to reach 27 million tons in 2016, according to the government's draft economic plan.

Africa's fast economic growth and infrastructure development in recent years have significantly raised the demand for cement. There has been continued investment in roads, housing, sport stadiums and airports.

Africa imported 112 million tons of cement from China last year, a 26 percent increase on the previous year, the China Chamber of International Commerce says.

Huang Guanghui, project manager of Sinohydro Corporation Ltd's 400-megawatt Bui hydroelectric project on the Black Volta River in Ghana, says the cement price from local procurement is $220 a ton. It can be bought for $65 a ton in China.

Many other African and foreign construction contractors face a similar situation regarding costly and insufficient local cement supplies, and struggle to complete their projects on time. Delays caused by poor port facilities and bureaucracy, and late shipments from Europe or North Africa, make matters worse.

However, it is not cheap to ship cement to Africa from China, mainly due to container loading costs. Huang says "the cement must be properly packed and protected, otherwise it is easy to get wet and it will lose all its uses immediately".

Huo Jinhai, deputy general manager of the overseas branch of China Construction International Corporation, says many African governments have realized that developing a cement industry could accelerate the pace of urbanization and raise people's living standard through large-scale infrastructure improvement - and they are keen to attract Chinese investment and technology providers.

"Tied by a single economic developing mode and political instability, many governments of sub-Saharan African countries, such as Gabon, Chad and Cameroon, are short of cash and technology to establish a cement plant to support long-term infrastructure projects," Huo says.

To gain a greater market share in Africa, NHI is discussing the possibility of building a wholly-owned cement subsidiary in Chad and a joint venture cement factory in Angola this year.

NHI is working on a $40 million contract for the reconstruction of an iron ore mine in Sierra Leone, including supply of two bucket-wheel stackers, four belt conveyors, two heavy slab feeders and staff training programs.

Last year, NHI exported $500 million worth of heavy machinery and construction facilities for manufacturing projects to Southeast Asia, Africa, South America and Eastern Europe. The African market accounts for about 40 percent of its overseas businesses.

"In comparison with the Asian and South American markets, the African one is more flexible in terms of the style of doing business and industrial development," says Wang Cumin, deputy general manager of NHI.

Wang says his company usually needs to spend time first determining what kind of heavy machinery or building materials African governments urgently need, or which industry to treat as a priority, then it can be easy to complete all the official procedures before getting down to work.

"It appears we have found a new growth area in Africa's cement industry, and investing in this sector will become one of our focuses this decade," Wang says. "Less competition in this market also gives us an early advantage and can help us secure a better position."

Sun Fuquan, a researcher at the Chinese Academy of Science and Technology for Development in Beijing, says cement companies in China do not have much leeway to profit at home, because the Chinese government, keen to cut pollution, has started to optimize the industrial structure of the cement sector and reduce the number of plants.

In March, China's Ministry of Environmental Protection said it will impose pollutant emission caps on six industries, including cement, iron and steel industries.

Other Chinese cement producers have already found the African market to be a lifeline. Since last year, China National Building Material Group Corporation, China Railway Construction Corporation Ltd and Jidong Development Co Ltd have all invested in building new cement plants in Ethiopia, Angola and South Africa.

"Though this shift is still in the early stage, it will have deep economic implications for both sides, because it comes at a tricky time when most sub-Saharan countries are counting on China to supply cement and carry out big construction projects," Sun says.

"Since a slowdown in economic growth in China hit businesses such as cement, construction machinery, real estate and logistics, Chinese cement producers have become less dependent on the domestic market.

"So there are signals that they will run fast to spread their footprints in the African market."

Contact the writers at zhongnan@chinadaily.com.cn and liuce@ chinadaily.com.cn

(China Daily 05/17/2013 page15)