i-Capital Institute

I had the opportunity to lead a team of experts at Adama Science and Technology University in 2014. Our task was to create Ethiopia's Cement Industry Development Strategy for the period from 2015 to 2025. This strategy was intended to be used as input for GTP-II and, without exaggeration, it was one of the most thoroughly prepared industry strategies Ethiopia has ever had (and it remains so to this day).

At that time, we carefully considered all the key factors that influence demand for cement and made detailed projections. According to our projections, demand for cement was expected to increase from 5 million tons in 2014 to 19.97 million tons by 2025. In 2014, our main concern was how to address the gap between supply and demand, as demand was less than 50% of the total installed capacity in the country. It's worth noting that this was before Dangote and Habesha entered the market with additional capacities of 2.5 million tons (in 2015) and 1.4 million tons (in 2016), respectively, bringing the total installed capacity to 17.15 million tons. We referred to this period in the Ethiopian cement industry as the "inflaming excess/overcapacity" phase.

This year would have marked almost the 8th year of a successful cement industry and thriving construction sector in Ethiopia if the strategy had been implemented as designed. However, due to a lack of ownership and accountability, the strategy has become a textbook example of government failure in implementing strategies. As a result, the cement industry is now in a state of crisis due to a shortage of supply, rather than excess capacity. A product that was once readily available and sold door-to-door is now hard to find and is often obtained through under-the-table transactions or contraband.

Today, the demand for cement has reached 14.80 million metric tons (MT), but actual production is currently at 6.46 MT, a decrease of 56% compared to production in 2020 (8.22 MT) and 2021 (7.63 MT), according to data from the Mining Industry Development Institute. This raises the question, "What has actually happened?" There are many factors at play, but for now, let me explain why I believe the government's decision not to intervene in the cement market operation is not likely to change significantly.

The government has repeatedly failed in its efforts to regulate the cement market, leading it to abandon such efforts. These attempts at intervention have consistently backfired, causing more harm than good. It is generally advisable for governments to stay out of business and allow market forces to operate freely. This situation should have been avoided in the first place.

There are several reasons why the cement market is experiencing a supply gap of 8.34 million metric tons (MT) between demand and current production. One reason is that the market has come to understand that the government is unable to effectively regulate it. Another reason is that 1.08 MT of capacity is currently inactive due to a failure to implement an industry strategy. Additionally, the Messobo plant, which has a capacity of 2.5 MT, is currently suspended. This leaves a total effective installed capacity of 13.77 MT.

Even if the government removes its regulations and the cement market is allowed to operate freely, with factories able to choose their own distributors and no need to worry about government interference, it would still be impractical for the factories to meet the current demand of 14.80 million metric tons (MT) with an average capacity utilization rate of 107%. This is especially considering that the Messobo plant will soon be back in operation, requiring an average capacity utilization rate of 92% to meet demand. It is highly unlikely that capacity utilization could suddenly jump from its current rate of 46.9% to 92%. There is no magic solution to this issue.

The demand for cement in Ethiopia is projected to reach at least 19.97 million metric tons (MT) by 2025, creating a gap of 13.51 MT from current production and a deficit of 3.9 MT from available capacity, including the soon-to-be-operational Messobo plant. To meet this demand with 100% capacity utilization, Ethiopia would need new cement factories with an installed capacity equivalent to more than one Dangote or Habesha. Even if capacity utilization is assumed at a very optimistic rate of 75%, Ethiopia would still need the equivalent of five new Dangotes or close to eight new Habesha cement factories. 

Given these circumstances, it is unclear what there is to celebrate about any decision made regarding the cement market.

4th East Africa Cement and Mineral Summit

The East Africa Cement and Mineral Summit has been a successful and valuable event for professionals in the cement and mineral industries. The conference has provided a platform for experts to share their knowledge and insights, and has helped to create a dynamic and engaging environment for attendees to learn and network with their peers. The success of the previous three conferences has laid the foundation for the upcoming 4th summit, which is scheduled for June 21-22, 2023.

At the conference, attendees have the opportunity to stay up-to-date on the latest developments in the field and gain valuable insights that can help them in their professional careers. The conference covers a range of topics relevant to the cement and mineral industries, including advances in technology, sustainable practices, and industry trends.

We look forward to continuing the tradition of leading the industry conversation and providing valuable insights to attendees at the upcoming 4th East Africa Cement and Mineral Summit. Overall, the summit has been a successful and valuable event for those in the industry, and we are excited to continue this tradition with the upcoming 4th conference