In 2007, two engineers, Mesfin Abi and Gizaw Teklemariam, and their workmate, Eskindir Desta, sat around a table, pondering how to respond to the escalating cement consumption in Ethiopia. At the time, the national cement output was a meagre two million tonnes per year, while consumption was rocketing day after day by an unprecedented amount.
The trio, along with four friends and colleagues, decided to build the first cement factory owned by local shareholders. Upon fulfilling the legal requirements, the engineering troupe began selling shares to the public, raising 300 million Br from over 16,500 shareholders. It became the widest public investment in the country, unprecedented at the time.
On April 19, 2017 – eight years after its legal establishment – Habesha Cement Share Company held an inauguration ceremony for its manufacturing plant in Holeta, 35Km North West of Addis.
The turnkey plant was completed in two years for around 80 million dollars, it was constructed by Northern Heavy Industries Group Co Ltd., a company responsible for building the National Cement factory three years ago.
Habesha expects 1.4 million tonnes of cement production yearly, which would increase Ethiopia’s cement output to 16.4 million tonnes a year. The factory has already become operational after the construction of a 20 MW electricity power substation completed, according to Mesfin, CEO of the company.
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The inauguration ceremony was attended by high-level political officials including Prime Minister Hailemariam Desalegn, and Ahmed Abitew, the Minister of Industry. Representatives from two South African cement companies, Industrial Development Corporation (IDC) and Pretoria Portland Cement (PPC), were also present.
Habesha entered the manufacturing sector after a series of challenges, including foreign currency fluctuations and unreliable power supplies.
At the moment, the cement market has hit a low point, according to vendors around Merkato and Qality.
“Demand has reduced for the moment, but it could return soon as many halted constructions resume,” said Tamene Ayalew, a cement retailer with eight years of experience in the Gojam Berenda area.
With massive construction projects in infrastructure sector – including residential and commercial segments – currently under way in Addis Abeba and other parts of the city.
The Ethiopian cement industry has experienced a lot of ups and downs in the past decade.
Until Dangote joined the industry two years ago, Messebo Cement Factory Plc used to control much of the northern and north eastern cement markets of the country, and Derba, owned by Mohammed Hussein Al Amoudi, was a major player in the central parts of the nation. After Dangote joined the country, the industry experienced a surge in supply and price stablisation.
Some retailers say the new cement factory will be able to make a mark on the market if it can ensure high-quality standards.
“Dangote Cement is the most celebrated and expensive because of its quality,” says Tamene. “The fact that Dangote works well with less water, as well as its other features have allowed it to break into the market and control it easily.”
The cement market has two orientations- price and quality, according to cement retailers around Addis Abeba,
“Price is not a principal factor in the cement market,” says Senait Worku, a retailer who works around the Saris area, along Debrezeit road. “Mugher, for instance, has the market’s lowest price but lower demand. Cement with better quality is in demand, especially for large scale constructions.”
Another feature for a winning cement brand is its packaging, say the retailers. One retailer in Gojam Berenda says that Mugher’s demand fell because of its messy paper sack.
“The paper sack rips easily, even in storage,” she says, pointing at a pile of Mugher cement paper sacks, most of which are dusty from cement leakages.
Founded in 1984, Mugher Cement factory earned a profit of 23.5 million Br in the first half of the current fiscal year, achieving 31pc of its set targets. Technical problems, shortages of electricity and a shortage of spare parts were the major reason for the factory’s underperformance.
Likewise, the entire cement production industry is also facing the daunting challenge of financial shortages; Habesha took seven years to collect the equity it needs to start work.
Imported coal and other energy sources to produce electrical energy for cement plants are not widely utilised, which is another big problem that producers are facing.
Last week, during the second East African Cement and Energy Summit held at UNECA, a study presented by Gemechu Waktola, a human resource development expert, revealed that a shortage of human capital is also one of the major problems in the cement industry.
The industry is under threat, reaching a point where it affects the stability of the local manufacturers, the study underscored. Some industry veterans agree with the study’s assessment of the manpower issue, saying it has caused the general production costs to soar.
“Knowing the shortage of skilled manpower, some foreign experts ask for a large amount of salary,” said Abebe Dinku (Prof.), an expert in the industry, who is a professor of civil engineering at Addis Ababa University Institute of Technology.
Studies indicate that local cement industry usually tends to import skills. Most cement factories are also managed and run by experts from overseas.
There is a serious shortage of human capital, which needs the attention of the local companies, according to Gemechu, the human resources expert.
“The cement factories must realise that human capital is a prime asset,” he said.
Despite all these challenges, the cement market is expecting to see new suppliers in the next few years.
Recently, Oromia Regional State and Ambo Gnmer Manufacturing, Mining & Agro Industry Share Company reached an agreement to construct a cement plant, with a cost of seven billion Birr in Ambo, 130Km from Addis Abeba.
Similarly, in Amhara Regional State, a cornerstone was laid by Abay Share Company to construct a 7.5 billion Br cement factory in Dejen, 241Km from Addis.
Nevertheless, the entry of the new companies is not seen as a good move amongst some industry players.
“There is no need for new cement factories as the supply is more than demand,” said Senait, a cement retailer, who sells thousands of tonnes of cement to contractors.
However, Mesfin Tadesse, the deputy general manager of Operations for Flintstone Engineering, who uses 20,000 quintals of cement in a month for construction purpose, disagrees.
“Currently there is no excess in the market. It is just a slowdown in construction,” he told Fortune. “The growing number of mega infrastructures and housing projects will result in a surge in demand.”
By the same token, a senior manager at Messebo Cement, a company which produces 2.1 million tonnes of cement per year, shares Mesfin’s sentiments.
He believes that stepping up production is a must, since the needs of the enormously flourishing construction sector may not be satisfied by the current cement supply.
“The cement industry needs more output and producers,” he said. “The market is very lucrative and still untapped.”
The government has a plan to raise annual cement production to 27 million tonnes in the next three years.
“With a rise in production, the true demand and supply can be realised. Then, the market will become self-sustaining,” said Abebe, the professor. [Addis Fortune]