Ethiopian Cement Industry Overview

Current installed capacity and location of cement factories in Ethiopia

S.N Cement companies Production capacity Plant location

1 Dangote Cement plc. 2,500,000 Near Mugher

2 Derba Medroc Cement plc. 2,300,000 Derba
3 Mugher Cement 2,260,000 Mugher
4 Messebo Cement Factory Plc. 2,260,000 Mekele
5 Habesha Cement S.C 1,400,000 Holeta
6 National Cement S.C 1,200,000 Dire dawa
7 Ethio-Cement plc. 850,000 Chancho
8 East Cement Plc. 750,000 Fiche
9 Pioneer Cement Plc. 450,000 Dire dawa
10 Feng Huang Cement Plc. 435,0000 Modjo
11 Capital Milling and packing Plc. 300,000 Sebeta
12 Inchini Bedroc Cement Plc. 300,000 Inchini near Mugher
13 Ture Dire Dawa Cement S.C 300,000 Diredawa
14 Zhongeshan Cement Plc. 250,000 Dukem
15 Dashen Cement PLC 90,0000 Dejen
16 Mengistab Industrial & Commercial plc. 650,000 GebreGuracha
17 Abyssinia Cement Plc Chancho
18 Hua Yu Cement Addis Ababa

19 Debresina Business & Industry plc Holeta

20 Red Fox International Adama

Refer: Cement Plants located in Ethiopia (cemnet.com)

Cement production, sales and market share for the selected cement firms in Ethiopia in
2008/2016 and 2009/2017 in tons.

Market
Cement Change in share in
S.N firms Year Production Sales Sales (ton) %
Dangote
1 Cement 2008/2016 1,854,985.04 +186,536.39 24
1,850,897.38
2009/2017 2,055,622.53 2,041,521.43 24
Messebo
2 Cement 2008/2016 1,784,977.72 1,724,997 +78,223.07 22.7
2009/2017 1,794,472.52 1,803,220.07 21
Derba Medroc
3 cement 2008/2016 1,818,820 1,358,305 +212,667 18
2009/2017 1,544,257 1,570,972 18.6
Mugher
4 cement 2008/2016 710,579 673,982 +399,331.45 9
2009/2017 880,512.70 1,073,313.45 12.7
National
5 Cement 2008/2016 602,053 631,981 +165,863.4 8
2009/2017 814,007 797,844.4 9
Pioneer
6 Cement 2008/2016 349,985.37 298,620.29 -282,908.79 4
 2009/2017 19,166.4 15,711.5 0.18
Capital
7 Cement 2008/2016 167,327.39 167,327.39 +121,691.71 2
2009/2017 289,019.1 289,019.1 3
Inchini
8 Bedrock 2008/2016 89,001.02 86,826.02 +15,223.98 1
2009/2017 102,050 102,050 1
Dashen Cement
9 Plc. 2008/2016 134,687.3 134,687.3 -50,851.6 2
2009/2017 83,835.70 83,835.7 1
10 East Cement 2008/2016 218,905.13 225,668.51 +28,880.73 3
2009/2017 238, 761.7 254,549.24 3
Zhongshun
11 Cement 2008/2016 206,623.62 195,098.78 -30,215.61 2.5
2009/2017 194,847.73 164,883.17 2
Abyssinia
12 Cement 2008/2016 33,959 33,634 -13,644.68 0.4
2009/2017 20,158 19,989.32 0.2
Ture Dire
Dawa Cement
13 S.C 2008/2016 195,639.06 189,144.89 +20,700.01 2
2009/2017 216,814.50 209,844.90 2
Total 2008/2016 8,163,454.99 7,575,257.22
2009/2017 8,253,524.88 8,426,754.28

Marketing mix strategies and Ethiopian cement industry

Focus on 4ps (price, product, promotion and place)

Marketing mix strategy is a planned mix of the controllable elements of a product’s marketing plan
commonly termed 4ps – product, price, place and promotion. Marketing mix was offered by McCarthy
in 1964 as a conceptual framework that identifies the principal decisions making managers make in
configuring their products or services to satisfy consumers’ needs. The tools are used to develop long
term strategies and short term tactical programmes.

Price trend
Cement price in Ethiopia has shown significant rise, sometimes even in days interval, for the last
decade. It can be categorized as high compared to global price.

 High energy cost,

  High inbound and outbound logistic cost,
 High initial investment cost, and
 Lower level of production capacity utilization rate

are among reason for cement price hikes. In 2004 shortage of cement supply resulted in the country and
price of cement raised to$ 24 per quintal in 2008/09in cement history.

Energy cost has influenced the cement price in the industry, (global cement, 2013) the energy cost for
Ethiopian cement firm’s accounts 50 – 60 per cent of the total production cost structures compared to
30 - 40 per cent of global standards.

According to Ethiopian reporter March 2018 issue, while local cement factories are finalizing price
increment due to rise in their production cost; the retail price of cement has already increased by 28
percent. Many reasons contributed for the Cement price hikes.

Firstly, political instability in some parts of country, especially in Oromia regions made frequent
interruption in the transport of cement from factories to the market. Secondly, currency devaluation
increased 25-30 percent production cost for the factories. The cement price will further soar if the
factories make the adjustment they are undertaking; this intern might decrease the cement demand in
the market.

Factory Price Shop Aug

Factory Name Agent Price Note
May-22 Aug-22 22 Price
1 Dangote 480 640 1280-1350
2 Derba 650 1300-1350
They are not
3 Ethio Cement 525 1200-1300
working for two
4 Habesha 695 month *Jinad is
working instead There is no
5 Muger price for it.
6 National Cement 500
7 Tura Cement 760

Product-the product portion of marketing mix can be described by product variety, quality,
characteristics, brand, and image. There are cement products in a country with lowest price but lower
demand. Cement with better quality is in demand, especially for large scale constructions. Another
feature for a winning cement brand is its packaging; companies fail because of their messy paper sack.
In the country the customers pay due attention for the quality of cement and related packages as well.
Types of cement products produces in Ethiopia according to the Ethiopian standards ES1177-1 are;
ordinary Portland cement (CEMI), Portland pozzolana cement (CEMII/B-P), Portland lime stone
cement (CEMII/B-L) and low heat hydration cement, cement technology road map.

Promotion-is one significant component of marketing mix. However it is used to inform about the
product and putting good image on target customers. Promotion is moderate in the industry and merely
attracting customer, the primary customer focus mostly depend on quality and price.

Distribution-The ability to transport goods quickly, safely, economically and reliably (logistics) is seen
as vital to success of businesses and nation’s prosperity and capacity to compete in globalized economy.
Cement distribution in a country is major chunk cost in the industry market globally. Feasible
transportation radius for cement production is 200km as identified by Mohammad Zarkesh
(2018).Transporting more than the above distance would not be economical for the factories. In a
country factories used only trucks to transport their products. Having no alternative transportation
system like railways and transporting the products over long distance on poor and aged infrastructure
are challenging the industry market.

Ethiopian logistics system is characterized by poor logistics management system and lack of
coordination of goods transport, low level of development of logistics infrastructure and inadequate
fleets of freight vehicles in number and age, damage and quality deterioration of goods while handling,
transporting and in storage.

Cement Industry analysis

Corporate finance institution, (2018) defines industry analysis as; it is a market assessment tool used by
business and analysts to understand the complexity of an industry. It helps them get a sense of what is
happening in an industry, demand- supply statistics, degree of competition within the industry,
future prospects of the industry taking into account technological changes, and the influence of
external factors on the industry. Industry analysis helps the industry players to understand its position
relative to other participants and allow them to identify both the opportunities and threats coming their
way and gives them a strong idea of the present and future scenario of the industry.

1. Porters five force model for Ethiopian cement industry

Porter’s 5 Forces, was introduced by Michael Porter in his 1980 book “Competitive Strategy:
Techniques for Analyzing Industries and Competitors. According to Porter, analysis of the following
five forces gives an accurate impression of the industry and makes analysis easier.

 New entrants - though the industry is highly capital intensive barrier is high. Government is
promoting investors for the sartorial growth and to its own infrastructural sector
requirements as well. Economies of scale are very high as it is homogenous product
that is produced in an integrated process. Currently, the industry is facing with under capacity
and unsatisfied demand and/or the cement product is in shortage, here granting of new
entrants for the industry would be primary activity for the government, rather demand
simulation projects schemes.

 Rivalries among firms–there are more than 20 cement factories in the industry which 15 is
operating. All are competing for price, quality and image. Competition among firms is stiff,
and the companies especially with limited efficiency and technology are struggling for
survival in the market.

 Bargaining power of supplier – Bargaining power of the suppliers regarding the main raw
materials like lime stone, gypsum and pumice are found in the local market and most of the
cement factories own the mining fields, but in the future it might be not as easy as current as
companies are staring to pay for raw materials. However, spare parts, components, fuel,
packing materials and main utilities are mostly owned by few or at times with sole suppliers
where most of the time the suppliers do have a strong bargaining powers.
 Bargaining power of buyers–cement products from the more than 15 companies gave more
 flexibility for the buyers to opt what type and brand of cement products to purchase. The
bargaining power of the buyer in industry is high, due to surge in supply.
 Threat for substitute products – cement as such does not have perfect substitute. The
enterprise has also identified the key success factors which are all relevant to the whole
country cement industry; the threat for substitute product is low.

2. SWOT analysis (Stands for company’s strength and weakness internally and opportunity and
threats externally)

Ethiopian cement market SWOT analysis

Source: (the African development bank group, 2018)

 Marketing intermediaries

In Ethiopia, the powers of intermediaries are influencing the cement industry in many ways.
Companies are suffering shortage of foreign currency to import spare parts. Cement companies like
Habesha cement Share Company took seven years to collect share for initial capital because of in
efficient financial intermediaries. Cement price hikes due to the negative influence of the marketing
intermediaries (whole sales and retailors) without uneconomic ways affects the cement market in the
industry (the reporter Ethiopia, 2017 &March 2018).

The disadvantage of distributing cement through large dealer is that negotiation power for
discounts/incentives would be shifted to the distributors. Any strain in the relationship between the
producer and major dealers would lead to huge loss of sale. This could delay supply of cement to
customers and involve high inventory costs.

Refer: Cement factories / plants and cement product producers, distributors and supplier companies and
businesses in Ethiopia | AddisBiz.com (አዲስ ቢዝ) - Ethiopian Business Directory and Portal

Mini- Cement Plant in Ethiopia (feasibility study conducted 8 years before)

The plant with a capacity of 60,000 tons per annum

The plant will create employment opportunities for 71 persons.

The total investment requirement is estimated at 4,566190.47$, out of which 3,809523.81$ is

required for plant and machinery.

Steps of cement manufacturing process:

The production of cement in manufacturing is completed in five Steps:

1. Raw materials Preparation-Limestone crushing:

Process introduction: Limestone is the main raw material in cement production, and most factories are
located near the limestone by blasting or use the loader to the mining of raw materials limestone,
transported to the crusher into fragments. The main raw material: limestone, clay, iron, are show in fig
2.1

Fig.2.1. Limestone, Clay, Iron

 Fig 2.2.Crushing of raw material

2. Raw material grinding -Limestone, clay, iron and other raw materials:

Use the of ball mill or vertical mill raw material is ground to a powder, and then by conveyor
transport for storage and further material mixed

Fig.2.3.Grinding of raw material

3. Calcining clinker-raw material powder after homogenization:

The homogenized material enters the preheating decomposition system, decomposition rate of 95%,
into the rotary kiln, clinker. List of equipment and processes are Preheated, Decomposition furnace,
Rotary kiln, Ball mill, Cooler, Clinker conveyor belt, Belt conveyor, Dust collecting equipment etc.
 Fig.2.4.Kiln and Clinker unit

4. Cement grinding-Clinker gypsum, mix materials:

The Clinker and gypsum is mixed in a ball mill cement grinding into a qualified drug cement. The use
of the powder selecting machine can conveniently adjust cement drug, to achieve energy saving
production the equipment used in this department such as Ball mill, Powder selecting machine, Bucket
elevator, Air chute, FU chain conveyor, Dust collector etc.

Fig.2.5. Grinding Clinker and gypsum mix

5. Cement storage, packaging Finished:

The use of packaging machines and automatic loading machine can achieve the shipment of bagged
cement factory, use bulk cement equipment can realize bulk cement canning factory, the main
Equipment are Conveying equipment, Dust collecting equipment, Belt conveyor, Elevator Air chute,
Spiral screw etc.
 Fig.2.6. Cement Storage

Plant Capacity

According to the market studied, the demand gap for cement product begins with 200,000 tonnes for the
year 2004, and will reach to 1,300,000 tonnes by the year 2010. Mini-Cement Plants (MCPs) can be
established with varying production capacities. The technology of VSK-based cement production is
available with capacities of 20, 30, 50,100, 200 and max 300 tonnes per day for MCPs. Although the
demand gap of cement in the region is, by-far, lower than that of the average national figure, it is
proposed that an MCP of 200 tonnes per day capacity shall be established. Such a plant will operate 24
hours a day, and for 300 days a year, producing a total of 60,000 tonnes of cement.

Production Programmer

The anticipated mini-cement plant will start its operation at 75 % in the first year, 85 % in the second
year, and at 100 % in the third year and then after. The detail is shown in Table 2.6 below.

Table 3 Production programmer

Year 1 2 3-10

Capacity utilization (%) 75 85 100

 Cement (Tones) 45,000 51,000 60,000

Materials and inputs

The details of raw materials requirement for cement production is shown in below

Table 4 Raw materials requirement and cost ($)

Sr. Qty. Unit Cost Total Cost

No. Description (Tones)

1 Limestone, (72-76)% 61,00 2.381 145238.1

2 Clay, (6-10)% 10,00 0.047619 476.19
3 Sandstone, (8-12)% 6,500 3.095 20119.04
4 Pumice, (2-4)% 3,210 3.057142 9813.42857
5 Gypsum, (4-5)% 2,400 5.7142857 13714.28571
Grand Total Cost - - 18,9361.04 $

1. AUXILIARYMATERIALS

Three-ply paper bag is required for packing cement. Addis Ababa Cement Plant is engaged in
the production of this bag, and procurement can be processed locally. A total of 1.2 million sacks
of 50kg each is required. The annual expenditure on paper bags is estimated at 285714.2857$.

2. UTILITIES

VSKs of MCPs do require energy in the range of 1000-1100 kcal of heat per kg of clinker.
Similarly, consumption of electrical power in MCPs is in the order of 120 units per ton of cement
as compared to large cement plants which lies in the range of 100-110 units per ton. Consequently,
electricity and fuel oil are highly required. Water is also essential for human consumption and for
production process. Annual requirement of utilities is shown in table below.

Table 5 Annual utilities requirement and cost

 Sr. Description Qty Cost ('000 $)
1 Electricity, kWh 7,200,000 162.5143
2 Water, m3 50,000 3.57143
3 Fuel oil, litres 6,200,000 738.1
Total Cost 904.181

Machinery and Equipment

The list of machinery and equipment required is provided in Table 6. The total investment
cost of these machinery and equipment is estimated at 3,809,523.81 $, of which
3,571,428.571 $ is required in foreign currency.

Table 6 Machinery and equipment requirement and cost

Land, Building and Civil works

2
The site area of 10,000 m is required for the plant under consideration. Of this, an area of
2
about 1,500 m will be covered by production buildings, including auxiliary buildings. At
2
the rate of 95.24 $ per m , the investment cost for buildings will be 142857.143 $. The cost

of l and leasing, at the rate of 0.09524 $ per m2and for 70 years land holding, will be
66666.667 $. Thus ,the total cost of land, building and civil works assuming that the total
land lease cost will be paid in advances 209523.81$.

Manpower and training requirement

The envisaged mini-cement plant requires 71 employees. The man power requirement and
corresponding labor cost including employees 'benefits is shown in Table 2.10.
Table 7 Manpower requirement and annual labor cost

Sr. Req. Salary, $

Monthly Annual
No. Description No.
A. Administration
1 General Manager 1 95.24 1142.9
2 Secretary 1 24 285.72
3 Administrative&Finance 1 57.143 685.7144
4 Accountant 1 35.714 428.6
5 Clerks 3 16.67 600
6 Storekeeper 1 28.572 342.9
7 Personnel Officer 1 35.7143 428.6
8 Purchaser 1 35.7143 428.6
9 General Services 10 16.67 2000
10 Guards 6 12 857.143
Sub–total 26 7200.1774
B. Production & Technical
1 Production 1 85.7143 21600
2 Supervisors 3 57.143 2057.14
3 Instrumentation Engineer 1 57.143 685.714
4 Mechanical Engineer 1 57.143 685.7143
5 Electrical Engineer 1 57.143 685.7143
6 Foreman 3 42.86 73.47
7 Technicians (shift) 6 28.56 2057.14
8 Operators(skilled) 15 28.56 5142.86
9 Unskilled Workers 10 9.524 1142.86
10 Chemist 1 47.62 571.43
11 Laboratory Technicians 3 23.81 857.143
Sub–total 45 16457.143
Total 71 23657.143
Employees' Benefit 5914.3
Grand Total 29571.43
Financial analysis
The financial analysis of the Mini-Cement Plant project is based on the data presented in
the previous chapters and the following assumptions:-

1. Total initial investment cost

The total initial investment cost of the project including working capital is estimated at
4566190.5 $, of which 88 per cent will be required in foreign currency. The major break
down of the total initial investment cost is shown in Table 2.11

Table 9 Initial investment cost

Sr. Cost Items Total(000 $)

1 Land lease value 66.67
2. Building and Civil Work 142.86
3. Plant Machinery and Equipment 3809.524
4. Office Furniture and Equipment 3.572
5. Vehicle 17.857
6. Pre-production Expenditure 252.6
7 Working Capital 273.38
Total Investment cost 4566.43
Foreign currency share 88.39%
 2. Production cost

The annual production cost at full operation capacity is estimated at 1852380.96 $

(see Table2.12). The material and utility cost accounts for 65.1 per cent while
repair and maintenance take 1.3 percent of the production cost.

Table 10 Annual production cost at full capacity ('000 $)

Items Cos %
Raw Material and Inputs 189.333 10.88
Utilities 904.143 51.95
Maintenance and repair 23.81 1.37
Labour direct 16.457 0.95
Factory overheads 0.9524 0.05
Administration Cost 7.2 0.41
Total Operating Costs 1252.57 71.97
Depreciation 392.79 22.57
Cost of Finance 205.64 11.82
Total Production Cost 1740.35 100.0

3. Profitability

According to the projected income statement, the project will start generating profit in
the 1 year of operation. Important ratios such as profit to total sales ,net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total investment)
show an increasing trend during the lifetime of the project. The income statement and the other
indicators of profitability show that the project is viable.

4. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operates at full
capacity (year 3) is estimated by using income statement projection.

5. Pay-Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project's initial investment will be fully recovered within 6years.

6. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 16% and the net present
value at 8.5% discount rate is 1510476.2 $.

7. Economic benefits

The project can create employment for 71 persons. In addition to supply of the domestic needs,
the project will generate 180952.4 $ per annum in terms of tax revenue when it starts to operate
at full capacity. Moreover, the Regional Government can collect employment, income tax and
sales tax revenue. The establishment of such factory will have a foreign exchange saving effect
to the country by substituting the current import