Cement sector needs strengthening – PPC


THE country’s largest cement producer, PPC Zimbabwe, says urgent measures are needed to safeguard the viability of the local cement industry against the crippling impact of imported cement.

Despite having adequate capacity to supply the local market, Zimbabwe remains a destination for cheap and substandard cement products, which are finding their way through the country’s borders as well as via smuggling, PPC Zimbabwe managing director, Mr Kelibone Masiyane, said in an interview.

The cement industry constitutes five players, namely PPC Zimbabwe, Lafarge Zimbabwe, Sino Zimbabwe, Livetouch and Pacstar Cement with a combined installed capacity of 2,6 million tonnes per year compared to a current annual demand of 1,4 million tonnes per year.

According to Mr Masiyane, the local cement industry’s competitiveness when compared to regional players is both at a disadvantage and vulnerable.

He went further to explain that the issue and impact of imports is two-fold: there is the threat imports pose on sustainable operation of local cement industry and there is the hazard of using substandard cement products.

The Zimbabwe cement industry is a significant contributor to economic growth, employment creation and trade. Without this industry, cement would have to be imported in large quantities, thereby increasing demand for the scarce foreign currency.

Given the significant role that the industry plays, all regional countries, have adopted tariff measures to protect their cement industries from imports, with the exception of Zimbabwe.

The country attracts imported cement due to the high selling price in the market and excess capacity in the region.

Zimbabwe and its six neighbouring countries have a total production capacity of 39,8 million tonnes per year compared to total demand of 23,5 million tonnes per year. South Africa, Mozambique and Zambia suffer from huge excess capacity.

This poses a serious threat to the local market as regional players find it lucrative to export into Zimbabwe using a variable cost pricing model.

PPC Zimbabwe alone used to export over 100 000 tons of cement into the region annually around 2012, but all this has reduced to insignificant volumes due to the high cost of production in Zimbabwe coupled with deterioration of regional currencies against the US dollar, rendering the country uncompetitive within the region.

The cement industry is a capital intensive and high energy consumption sector, which is vital for sustaining and growing local infrastructure.

Because of the huge capital investment required to set up a cement manufacturing facility, capacity utilisation becomes one of the most important aspects that impact on profitability and sustainability and shareholders expect a return on their investments.

When capacity utilisation is very low due to suppressed demand, as is the case in Zimbabwe, the cement industry viability is threatened.

The industry is, therefore, requesting for “protection” from imported cement until such a time that the playing field is even with cost drivers in local production have been revised to competitive levels.

Mr Masiyane went on to confirm that the local cement industry has made submissions to the Ministry of Industry and Commerce.

“The local cement industry has met the Minister of Industry and Commerce (Dr Sekai Nzenza) and we are confident of a positive response”, said Mr Masiyane.

He said survival of the industry is even more critical given the impact of Covid-19 in an already fragile economy.

Another point of concern relates to substandard imported cement products in the market.

Mr Masiyane called for policy measures that protect consumers from substandard cement. All neighbouring countries have standards protection procedures. Mozambique uses Intertek, an independent group with a contract with the government responsible for quality controls.

Zambia, Botswana and Malawi use their own standards bodies to control imports of cement. Samples have to be submitted and certificates are issued after the standards are met. These are done at the cost to the importer.

Bureau Veritas in Zimbabwe tests the first three samples if it is for a manufacturer, thereafter, product comes through without any further inspections, making it easy for substandard product to be dumped into Zimbabwe, he said.

“Institution of mandatory testing of cement products on the market will help curb this problem. Standards Association of Zimbabwe is well equipped to effectively carry out this task once the relevant legislation has been promulgated”, said Mr Masiyane.

Increased surveillance at borders should be carried out as substandard imported cement is a threat to the viability of the local industry.

“This is an issue to us and needs to be addressed at national level,” said the PPC managing director, adding that the failure to conform to local standards not only has an impact on the structural integrity of buildings, but also poses a threat to possible damage of property and even loss of life should the walls collapse.

“When cheap substandard cement comes in, our capacity utilisation goes down and unit cost goes up and this doesn’t benefit business or the consumer.”

Between 2016 and 2018 Zimbabwe’s industry capacity utilisation grew roughly by 3,1 percentage points from 48,2 percent but the figure dropped drastically to about 30 percent in 2019.

“This is a huge gap and comes about as a result of cheap imports that are forcing local firms to scale down and prices to go up,” said Mr Masiyane.

He said the industry’s desire was to increase capacity utilisation and lower unit cost, which would allow producers to pass the benefit to consumers in terms of pricing.

The drastic drop in capacity utilisation also implies that companies will struggle to service investment loans.

Mr Masiyane said cheap substandard cement costs the economy greatly as built infrastructure projects would not last and tend to require upgrade or reconstruction in future. Substandard imports also impact negatively on the contribution of the local cement industry to the total Zimbabwean economy.

For instance, Mr Masiyane said the sector was contributing about 4 percent to the gross domestic product, warning that reduced viability would also cripple the job security in the sector. The industry has 1 400 direct workers.

“If we find ourselves not viable as a sector, the impact on jobs and the value chain is huge. We are not only focused on profit-making, but we are also spending a lot in terms of corporate social investment” said Mr Masiyane.

“The industry believes in the old proverb ‘Honour the tree that shelters you’. We’re all responsible for sustaining our communities and we’re obligated to give back something in proportion to our abilities and resources”, said Mr Masiyane.

The other issue is loss of contribution in terms of equivalent taxes from the Industry, amounting to just over US$40 million annually.

“As a country we can’t afford to lose this given where we are as an economy.

“That is why it is important to jealously guard what the cement industry is contributing and the need to address the issue of imported cement,” concluded Mr Masiyane, who strongly believes that the cement industry is the hinge to the economy. – Herald