East African Cement Makers Face a Significant Drop in Revenues

East African cement makers face a significant drop in revenues due to cheap imports and rival foreign firms looking to pump millions of dollars into the regional industry. A recent market study shows that as foreign companies eye the region, local companies are expanding their capacity to sustain their market share and profitability amid declining margins.

The decision by the East African Council of Ministers to reduce duty on cement imports from non-EAC countries from 35 per cent to 25 per cent has also heightened competition, amid high power costs in the region, which account for 40 per cent of production costs. For example, cement prices in Kenya dropped to $100 per ton last year, from an average of $140 per ton in 2011, while the industry’s net profit margin contracted to 10 per cent from 15 per cent in the same period.

Nigeria’s Dangote Cement, with a market capitalization of $30.96 billion, is plotting a dramatic entry into Kenya by setting up a 1.5 million ton plant. The company has already set up a three million ton capacity plant in Tanzania, with production initially scheduled to start in August.

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Equities

Market activity on the first trading day of the month sent out mixed signals as shown by the market indicators.

The NSE 20 Share index hardly changed as it closed the day at 3179.23 points compared to 3178.83 points previously, while the NASI was flat at 134 points. The NSE 25 Share index lost 9.89 points to end the day at 3509.43 points.

Market capitalization decreased slightly to KES 1936.516 billion from KES 1943.201 billion earlier, whilst equity turnover advanced to KES 2.00 billion from KES 1.78 billion yesterday due to a 55.29% jump in the number of shares traded.

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Currencies

The Kenyan shilling registered marginal gains against the US dollar as it traded at a mean of KES 101.33 up from an average of KES 101.36 on Thursday due to subsiding dollar demand from the manufacturing sector and inflows from charities offering support. The Sterling strengthened against the shilling while the Euro weakened against the local currency.

Since the UK public voted out of the EU, a cloud of uncertainty has surrounded the UK economy and therefore sterling exchange rates. The UK did cut interest rates this month and are now pumping a large amount of quantitative easing into the economy, which overtime should devalue sterling.