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Ethiopian cement firm hit by falling demand

Updated: 2014-10-10 08:43
By Chen Weihua (China Daily Africa)

Ethiopian cement firm hit by falling demand

Zhong Shun Cement Manufacturing's plant in Ethiopia's Eastern Industry Zone cost $10 million to build. Chen Weihua / China Daily

Oversupply, falling prices and rising competition mean production set to fall well below target

Chinese cement producers in Ethiopia say they are experiencing toughening market conditions as demand falls and competition in the market grows.

The slump has left an oversupply at many factories, putting pressure on some companies to look at surrounding markets to meet their targets. It has also meant a marked drop in local cement prices.

One of the country's largest Chinese cement investors, Zhong Shun Cement Manufacturing, says that when it first started production in July 2010, its cement was mainly being used on the construction of the huge Eastern Industry Zone, the country's first dedicated industrial park, located 40 kilometers from the Ethiopian capital, Addis Ababa.

Its cement plant there was the first to set up in the zone, with funding of Jiangsu Yongyuan Investment Co Ltd from Zhangjiagang in East China's Jiangsu province.

Ethiopian cement firm hit by falling demand

Wei Zhijin, Zhong Shun's deputy general manager in Ethiopia, says that at the time the country was suffering from a shortage of domestically produced cement, as the second most populous country in Africa continued to enjoy rapid economic growth.

Numerous infrastructure and housing projects helped fuel a boom in demand for locally produced cement.

Zhong Shun's plant cost $10 million to build and was designed with an annual production capacity of 250,000 tons of cement. It had to import its clinker, the raw material for cement, from outside Ethiopia to cope with orders.

But now, Wei says, within what is a relatively short period, that has all changed.

"The Ethiopian market no longer suffers from a shortage of supply of domestically produced cement.

"In fact there are too many new cement projects, and this has had a serious impact on the market, which we expect to last for years to come."

"Cement has a shelf life, so we only now produce according to orders we receive."

Despite the fall in demand, Ethiopia still stands third after Nigeria and South Africa as sub-Saharan Africa's leading cement producer. But according to the latest figures from Ecobank in Nigeria, Ethiopia's cement output has reached just 12.6 million tons this year, well short of original government targets.

The country's government five-year plan (2010-14), known as the Growth and Transformation Plan, had predicted demand would reach 27 million tons by next year, but Wei says that prediction looks grossly exaggerated, and demand has failed to keep up with what has been fast-growing supply.

Some cement producers are having to look at exporting their output, for instance, to Somalia.

In some areas, heavy commercial trailers ferrying loads of the commodity out of the country have created traffic jams, particularly on roads in major towns in the country.

Ethiopian cement firm hit by falling demand

The most recent industry figures suggest Ethiopian cement exports reached $9.5 million last year, and that is now being predicted to rise to $15 million by the end of this year, according to worldcement.com.

Another set of figures, in a study issued in April by leading local producer Mugher Cement, suggests national demand is just 7 million tons.

The price of cement has also dropped considerably, from between 3,000 to 4,000 birr ($150 to $200) a ton in 2011 to the current 2,500 birr, Wei says.

Zhong Shun's output is expected to reach 170,000 tons this year, he says. The company's combined annual cement capacity, along with its other plant, East Cement, is more than 700,000 tons, but that is considered small compared with many others, he says.

Zhong Shun has 105 employees, including 15 from China.

Ethiopian cement firm hit by falling demand

Wei, who has worked in the cement industry for more than 20 years in East China's Fujian province, says the company's investment in Ethiopia has been considerable, not least in its training of local workers, many of whom were previously unskilled farmers mostly from nearby towns.

Ethiopia's strict labor laws are very protective, meaning salaries can only be raised, even if performance is poor and market conditions start to work against a company.

The company has already promoted some local workers into managerial positions, including a deputy general manager, but in recent months, it has had to reduce numbers, including some top-tier technical and managerial staff.


(China Daily Africa Weekly 10/10/2014 page19)

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