Dangote Cement has the strategic goal of becoming one of the world’s leading cement companies and certainly the largest in Sub-Saharan Africa, which we believe will be the next big growth market for cement.
Sub-Saharan Africa has a large population of nearly 1bn people and a population growth rate of 3% per year. By 2050, the UN estimates, the region will have grown to 2bn people. Furthermore the region is experiencing greater political stability, less conflict and good economic growth, well above global averages. In 2014, the World Bank estimates Sub-Saharan Africa experienced GDP growth of 4.6%. Even accounting for recent falls in commodity and oil prices, the World Bank forecasts growth of around 4.2% to 5.0% across the region from 2015 to 2017.
Growth in population size and GDP will require considerable investment in infrastructure and housing as urbanisation increases and economies move way from agriculture, or diversify from dependence on minerals and oil towards manufacturing, retailing and services. Increasing personal wealth and the ongoing shift towards younger, more affluent and more mobile populations will increase demand for property as household occupancy falls towards more global levels of around four people per house.
It is the combination of these drivers that will see Sub-Saharan Africa’s demand for cement increase substantially in the coming years, from around 100Mt at present to many times that in the coming decades. Although the market has 130Mta of capacity at present, we believe this will soon be overwhelmed by demand as population sizes and GDP continue to drive consumption upwards. Such rapid growth will far exceed that experienced in other markets, where most countries have gone well beyond their ‘infrastructure build-out’ phase.
Our strategy to expand rapidly and serve this growing market began in 2008 when we took the first steps into manufacturing cement in our home country of Nigeria, which is perhaps Africa’s most attractive and profitable market for cement.
Benefiting from tight cost control and investment incentives in the form of tax holidays, our strong cash generation in Nigeria has funded our expansion both inside and beyond its borders. At the end of 2015, we had 29.3Mta of capacity in Nigeria, giving us a substantial position in our home market. Our entire production base now consists of 44Mta of production and import capacity in a total of nine countries spanning Africa from Senegal to Ethiopia and down to South Africa. Indeed, within months of opening our factories in these three countries, we achieved rapid gains in market share in each, despite the presence of strong incumbents.
Furthermore, our business model is based upon rapid expansion at a time when the world’s major cement companies are distracted by high debt, by merger integration or by both. When we look for new opportunities we are look for several key features in the market: the availability of good limestone from which to make cement; the availability of investment incentives, usually in the form of tax holidays; a large population with a growing economy; access to good transport infrastructure; access to low-cost fuel; a cement deficit; strong infrastructure and housing commitments; and an industry that is characterized by substantial imports, as well as older, less-efficient, more costly and sub-scale plants.
Our strategy in every country is to be the leader on costs, on quality and on service. We are building large, modern, highly efficient plants that deploy the latest equipment from Europe, China and beyond enabling us to make higher-quality cement at lower costs. In this way we can sell higher-grade cements at a price that will compete with lower-grade products already in the market. Furthermore, our plants are designed to make the higher-strength cements (such as 42.5 and 52.5 grades) that will increasingly be demanded as the size and height of buildings increase in Africa’s growing economies. This is an inevitable shift in the market from which we are strongly positioned to benefit.
The advantages accrued by our factories will be augmented by the advantages we can achieve in logistics and procurement, where our size and financial strength enable us to invest in strong distribution capabilities at costs not attainable by competitors.
Our business is organised into two regions: Nigerian Operations and Pan-African Operations. Each region pursues a strategy in line with the overall strategic aims of the Group, but mindful of the prevailing conditions in each market.
Nigeria is Sub-Saharan Africa’s largest market for cement, consuming more than 21Mt in 2015. In Nigeria our strategy has been to invest heavily to become the leading manufacturer of cement for domestic consumption. From our three factories, all located south of the country’s two main rivers, we can reach almost every local market in Nigeria with our extensive and market-leading fleet of distribution trucks. We deliver more than half of all cement we make directly to customers, a strategy that has enabled us to build close relationships with them. The remainder of volumes dispatched form our factories are collected by third-party distributors with whom we have also forged strong relationships.
During 2015 we realigned our pricing in Nigeria, reducing it by ₦300 per 50Kg bag or ₦6,000 per tonne, to make it more affordable, especially for large infrastructure projects such as road building. We were able to cut prices in part because of the strategy we have pursued to ensure security of our fuel supplies and to reduce the overall cost of fuels we use in our kilns. Even if imported, coal is much cheaper than the LPFO we had previously used as a back-up fuel to natural gas, so we have invested to equip all our lines in Nigeria with coal milling facilities in the event that the gas supply is reduced. This strategy has already helped us to improve margins through savings we achieved by not using LPFO. In the longer term we intend to mine coal near to our Obajana and Gboko plants and this locally produced coal will be more competitive in costs compared to gas.
Nigeria is a country blessed with large limestone deposits and surrounded by countries that do not have native limestone. As a result they are forced to import either finished cement or its intermediate product, clinker. In fact, many of the 15 countries in the Economic Community of West African States (ECOWAS) – especially those on the coast – are obligatory importers reliant mainly on imports from the Far East.
This is a major reason we have so quickly built our capacity in Nigeria, because we have the opportunity to become the largest supplier to the surrounding countries. In September 2015 we announced the start of our export drive using a fleet of more than a thousand trucks to take cement and clinker to neighboring countries where we have bagging or grinding operations, for example Ghana and Cameroon.
By trading within the ECOWAS region we are able to offer a product that is free of import duties, compared to Far Eastern products the region currently imports, which are liable for import duties.
Because we ourselves import bulk cement into Ghana and clinker into Cameroon, our first goal will be to substitute these imports for products we make ourselves in Nigeria. By manufacturing additional product in Nigeria, we will increase the capacity utilization of our plants, thereby increasing their efficiency and profitability. Furthermore, shipping times will be considerably reduced when exporting from Nigeria to these nearby countries, enabling us to land a ‘fresher’ product than cement or clinker that has been at sea or even in storage for some time.
Our Pan-African operations encompass everything outside of Nigeria.
In West Africa this includes our existing or planned operations in Senegal, Liberia, Sierra Leone, Ghana, Côte d’Ivoire, Niger, Mali, plus Cameroon and the Republic of Congo in Central Africa.
As previously mentioned, many of these countries lack native limestone and are therefore obligatory importers of cement or clinker. With integrated facilities in Senegal and Rep. Congo, we can export cement or clinker to neighbouring countries such as Mali or the Democratic Republic of Congo. We have a cement grinding factory in Cameroon and plan to build or are building similar facilities in Ghana, Côte d’Ivoire, Mali and Liberia. These will be supplied by our integrated factories in Nigeria and Senegal – by road at first but in time, by sea, which will reduce shipping costs and make our products even more competitive.
In all of these countries we will compete by offering a superior product in the market, compared with what is available at the moment, and at competitive prices. This strategy has already proved highly successful in Senegal, where we have achieved more than 28% market share in our first year of operation, despite the presence of two incumbents.
EASTERN & SOUTHERN AFRICA
In Eastern and Southern Africa we have existing and planned operations in South Africa, Ethiopia, Zambia, Tanzania, Kenya and Zimbabwe. All of these countries have ample native limestone and as such, all of our facilities in the region will be integrated factories, with the exception of the Delmas cement grinding plant in South Africa.
Countries in these regions are to some degree exposed to cheap imports from Pakistan and the Far East. As a result, our strategy is in most cases to site our factories well inland, where pricing is higher and where imported cement would face additional shipping costs to reach the market.
We have demonstrated highly successful market entries in South Africa and Ethiopia because of our strategy to be the leader on costs, quality and service. The markets we have entered have been characterised by competitors with older, less efficient and more costly factories top operate, many of which are sub-scale.