High costs of producing and transporting cement by local manufacturers are constraining access to lucrative regional markets at a time when there is an acute shortage of foreign currency in the country, severely affecting viability, Industry and Commerce permanent secretary, Mavis Sibanda has said.
Zimbabwe’s cement industry, which has the potential to be one of the country’s major foreign currency earners, comprises of five companies — PPC Zimbabwe, which has a milling capacity of 1,4m metric tonnes per annum, Lafarge Cement (400,000 tonnes per annum), Sino Zimbabwe Cement (350,000 tonnes per annum), Livetouch (400,000 tonnes per annum) and Pacstar Cement (80 000 tonnes per annum).
Sibanda told the Parliamentary portfolio committee on Industry and Commerce last week that Zimbabwe was a high cost manufacturing base driven by high energy costs, high logistic or transport costs, which are key cost drivers in the cement industry.
Unless high costs are addressed, she said the industry will remain in a fix.
Consequently, local industry cannot competitively export cement into the region.
Transport is a key part of the cement value chain due to high volumes and weights involved. Apart from that, the cost of spares and engineering services for maintenance is very high in Zimbabwe compared to regional players. This has been aggravated by the decay of the industry forcing most companies to outsource key services to other countries such as South Africa.
The high costs are largely driven by import duties which range from 5% to 40% due to foreign currency constraints. This makes Zimbabwe’s cement the most expensive in the region resulting in it becoming uncompetitive.
“Noting that the sector is capital intensive, it requires foreign currency to import spares and packaging materials hence the exporting becomes paramount in order to generate the forex. The industry is currently not exporting because of the high cost of production,” Sibanda said.
“Energy cost is the major driver of cement manufacturing sector cost.
Zimbabwe has the highest cost in the region for both fuel and power.
Inconsistent supply of power is a major factor in further driving up costs.
“The industry is affected by electricity tariffs which are higher than regional countries. Cement manufacturers are on a ring fenced power supply arrangement paying US$0.14 per kilowatt hour effective June 2019.
“Frequent power outages and poor power quality causing intermittent stoppages. This prevents efficient production runs and also causes equipment damage.
Fuel cost in addition to power cost is impacted by the cost of moving coal, or diesel especially in light of the poor supporting infrastructure in the market compared to regional markets.
“The cost of rail transportation is also very high and service is unreliable with limited networks.
In most cases, it is more expensive than road transportation. Rail cost in Zimbabwe is US$0.675 per kilometre/ ton vs US$0.179km/ton for South Africa and US$0.392 km/ton for Zambia.
Road in Zimbabwe delivers cement at US$0.11 km/ton vs US$0.07 km/ton for South Africa,” Sibanda added.
Despite the commitment to regional integration and free trade agreements, Sibanda also said there seems to be a protection of the cement industry in the region.
The local industry directly employs more than 1 000 people. This is because cement factories are highly automated in order to achieve target efficiencies.
Other challenges facing the industry are the influx of cheap imports from Zambia and Mozambique, making local cement more expensive and less competitive.
Mozambique cement imports into Zimbabwe do not pay duty yet Zimbabwean exports into Mozambique are subjected to tariff barriers.
PPC Zimbabwe, which operates plants in Harare and Bulawayo, is 75% owned by its parent company in South Africa and Zimbabwe government owning 25%. The Zimbabwe government shares were purchased through the National Economic Empowerment Fund.
Swiss-based Lafarge-Holcim subsidiary Lafarge Zimbabwe is listed on the Zimbabwe Stock Exchange, while Gweru-based manufacturer Sino Cement Zimbabwe is owned by the Industrial Development Corporation of Zimbabwe and a joint business venture between a Chinese Foreign Direct Investment partners, China Building –Material Corporation for Foreign Econo-Technical Co-operation.
Redcliff-based Livetouch and Pacstar, based in Kwekwe, are 100% owned by the Chinese.
The cost drivers include energy costs, fuel costs, and transport costs.