Dangote boon for Zim economy

Rumbidzayi Zinyuke
African investment will be the oil that spurs the growth of the Southern African economy in the wake of an infrastructure boom that requires funding, analysts say.
This comes in the wake of the recent visit to Zimbabwe by Nigerian billionaire Aliko Dangote.
The United Nations Conference on Trade and Development (UNCTAD) in its World Investment Report 2014 said intraregional investment has the potential to contribute to the build-up of regional value chains.

And perhaps more significantly, UNCTAD suggested that increasing intra-African foreign direct investment (FDI) is in line with leaders’ efforts towards deeper regional integration.

But for a long time intra-regional FDI has represented only a small share of intra-African flows.
Until now.

Dangote, who is Africa’s richest man, is taking advantage of his business boom to make his presence felt across the continent.
He has been expanding his company’s footprint into Southern Africa, which has been growing significantly.
Dangote Group’s business spans across manufacturing, logistics and power generation among others.

After investing in South Africa, Tanzania and most recently Zambia where the group established a $400 million cement manufacturing plant, Dangote has stated his intention to invest billions of dollars in Zimbabwe’s economic enablers among them power generation, cement production and coal mining.
The construction will start early next year as soon as the Government of Zimbabwe expedites logistical issues.

“We have already decided to invest in three areas. The first one is to do with power (generation), second one is cement (manufacturing) and the third one is coal (mining). Our team will be back into the country next week to execute this plan and what we have already planned to do in terms of investment, to create jobs and also to help Zimbabwe to develop their own economy,” he said after meeting President Mugabe, Vice Presidents Emmerson Mnangagwa and Phelekezela Mphoko and several cabinet ministers.

“The timeframe for the investment is dependent on getting all the documentation, for instance the mining licences but if we get everything this year, we will start construction by first quarter next year. We will move very fast but that all depends on the Government.”

It seems even big producers like Larfarge and PPC that have enjoyed large market shares, not to mention cheap imports flooding the market, or the slump in the world’s most traded currencies, will not stop him

Dangote’s proposed investment in Zimbabwe could be a major economic boost for the country which has been struggling to attract foreign direct investment. The country is pulling in less than 1 percent of all foreign direct investment going into sub-Saharan Africa.
Market watchers say Dangote’s move might also pave the way for more investments into the economy.

Harare-based economist Gift Mugano said the investments are what is needed to jumpstart the economy.
“The investments will be a serious boost to the economy. The wait and see attitude adopted by investors in the past has been a cancer for Zimbabwe’s economy. But the more we have people like Dangote showing interest in investing in Zimbabwe, the more it will prompt other investments,” he said.

He said this will be a litmus test for the Government to show how much support will be given to such a huge investment.
“We also have to show that we have changed our one-size-fits-all Indigenisation laws. We want to see government being clever about it,” he said.
Another economist, Witness Chinyama, said it was good to see a fellow African investing in Africa.

“It’s humbling that we have an African investor who want to invest in Zimbabwe. Ease of doing business is an issue that should be looked at seriously now. That guy has already made a decision to invest, he is not scouting, and we cannot make him wait in line with everyone else,” he said.
He said his investments would have a positive impact on the targeted sectors.

Southern Africa and East Africa have become some of the fastest growing regions, contributing the biggest share of the projects implemented across the continent last year.

The projects include the Mombasa-Kigali Railway project, Kenya’s Konza Techno City, the Grand Inga Dam in the Democratic Republic of Congo and SolarReserve’s Jasper Solar Power project in South Africa.

Mozambique’s construction industry has also been on a rise following the discovery of gas reserves in Tete province.
And Zimbabwe has its fair share of projects that include the Kariba South hydro-power station, the completition of the Tokwe Mukosi dam and construction of other numerous dams and roads. The ZimAsset blueprint also highlights a host of infrastructure development projects targeted at growing the economy.
And at the heart of it all, is cement.

“Africa’s future growth is intrinsically linked to cement,” Dangote said earlier this month when he opened the new factory in Ndola, Zambia.
With 50 million tonnes a year of cement capacity, LafargeHolcim is the largest producer in continental Africa.

But Dangote Cement, which has expanded capacity five-fold in the last four years, plans to about double potential output, to 80 million tonnes. Effectively taking the reins from Lafarge.

Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management, is on record saying: “Dangote is rapidly expanding its footprint across sub-Saharan Africa. Many of the cement plants within the region are old and aging. Their efficiency has fallen, so with its new plants it will be able to compete strongly.”

Mugano concurred with this sentiment and said Zimbabwe might even experience a price reduction in the sector if there is healthy competition.
“For the cement industry, his coming in will raise the competition in the market. We have a few players in the industry and it is not good for the market. They can connive to charge higher prices. We already have a shortage of cement and our prices are higher than in South Africa and other countries in the region. We need more players to balance everything out. Some of the cement companies have old antiquated machines and they spend money on repairs. So a newcomer might force them to spend on new machinery,” he said.

Zimbabwe’s cement industry has been dominated by Pretoria Portland Cement and Lafarge.
PPC is spending $200m on expanding its production facilities in Zimbabwe by 2020 and will add new milling facilities in Harare to milling and clinker assets in Bulawayo and Gwanda, bringing total capacity in the country to about 1.2-million tonnes annually.

The new Harare plant will cost about $86m and should be up and running in the middle of next year.
Lafarge plans to increase its cement production capacity to 0.5 million tonnes once a current plant upgrade is complete at its Manresa cement plant. The plant upgrade would cost between $15 million and $20 million,

On the other hand, Dangote will bring a 1,5 million tonne plant, larger than all the others. And invest an estimated $400 million in it.
Construction companies say cement prices have decline by about 20 percent in Zambia, a result of the company’s push against LafargeHolcim. Maybe the same effect will be felt in Zimbabwe and result in lower prices.

While PPC and Lafarge have already established their niche markets and spread their wings, they have been struggling to meet local demand. And their products have been on the expensive side.

A bag of cement in Zimbabwe costs an average of $12 while in the region, it goes for as little as $6 per bag.
Analysts have said Dangote Cement’s move into cement production might not affect the operations of existing players in the short term, but will help fill the supply gap they have failed to cover. It will, however, become a force to reckon with in the medium to long term.

John Makunura, managing director of Saybridge Construction, said the coming in of a new player will be welcome but constructors are more worried about the quality of the product he will bring in than anything else.

“Pricing is important, but we also have to consider the product that the new player will bring in. If he brings in a good quality product that will not compromise the integrity of the final product we will be happy. And if the price is lower, the better for us. It will now be up to the Standards Association of Zimbabwe to make a proper comparison on the limestone used by the companies to ensure quality standards,” he said.

The construction industry, he said, wants a product that has been tried and tested.
And Dangote will have to prove his worth once he enters the market.

April 2016
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