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Cement makers defy strong headwinds

MTHANDAZO NYONI
A SHARP rise in housing construction and private sector-led infrastructural development programmes have pushed demand for Zimbabwe’s cement makers, with capacity utilisation in big manufacturers trudging towards the 100% mark, Finance and Economic Development Minister Mthuli Ncube said this week.

Ncube, who spoke during an international business conference on the first day of the Zimbabwe International Trade Fair (ZITF), said developments in the cement production sector contrasted with the situation in other manufacturing businesses, which have battled to ride out of Covid-19-induced subdued demand.

However, the boom is in line with projections by industrial bodies like the Confederation of Zimbabwe Industries (CZI), which said in May that manufacturing capacity utilisation in the country would end at 61% this year, from 27% in 2020.

“I have never seen such a demand for cement in my life,” Ncube told the international conference.

“Things are going well in the cement sector and cement companies are loving it. I think PPC can safely say they are operating at 100% capacity and I think the same applies to Larfage.

“The biggest demand is not even from the roads that we are constructing as government. It’s coming from housing and private sector construction activities. It is amazing. Some of the diaspora remittances end up in the construction sector. We are expecting growth in 2021,” the minister added.

The cement industry is dominated by Zimbabwe Stock Exchange-listed giant PPC Limited and Lafarge Zimbabwe, which have been expanding operations lately, setting up new manufacturing plants and introducing new products.

Until now, the survival of Zimbabwe’s cement makers has been threatened by an overflow of regional imports, which precipitated price wars.

But it appears with supply chains affected by Covid – 19 induced border closures in the past year, demand has shifted to the home front.

The 21-page paper prepared by the Zimbabwe Concrete and Cement Institute (ZCCI) last year, titled An Attractive Market for Excess Regional Capacity, exposed how South African, Mozambican and Zambian cement players had capitalised on low overheads in their home markets to ship excess output into Harare.

Their products land on the Zimbabwean market at far cheaper prices than those obtaining here, but are viable enough to give them a profit.

The report warned that if left to spiral unchecked, a regional price war could throw all of the country’s five producers into bankruptcy, and proposed extensive State interventions to limit foreigners’ forays into the domestic market and protect cement makers.

Competitors eyeing the Zimbabwean market have a combined 39,8 million tonnes annual grinding capacity, which outstrips about 23,5 million tonnes required in their markets.

“Given this excess capacity, the direct cement import threat to Zimbabwe is estimated at more than three million tonnes, which is within an economically viable distance to the market,” ZCCI warned.

It said Zimbabwe’s cement prices have generally been distorted by the avalanche of imports from the region.

“With such excess capacity, these imports can put the Zimbabwean cement manufacturers out of business in less than a year,” ZCCI said.

“Cement price distortions normally arise from price wars when a country has production capacity that is significantly higher than demand.

“While price wars may result in a reduction of prices in the short term, they are not sustainable and almost always result in some competitors folding up and the remaining players failing to recapitalise and operate sustainably. There are no winners in a price war,” itpointed out.

During his ZITF address, Ncube said the tourism industry is one of the worst affected sectors by the Covid-19 pandemic.

“I have got two types of sectors. There are those that are moderately affected and resilient sectors. Those that are moderately affected, include the transport sector, financial services sector, education sector (worse than severely affected),” Ncube said.

“The tourism sector is clearly severely affected. There has been an 80% drop in international passenger traffic right across the world and a 60% drop at least in the domestic tourism industry and a serious drop in aviation services and a 90% drop in hotel occupancy.

“Of course, we go through waves but this is how bad it got during the pandemic. The manufacturing sector was also affected but moderately so and, the mining sector was also moderately affected by the pandemic. We expect a rebound and resilience from this sector,” he said.

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