New Mozambique cement industry study: The rough diamond of South-Eastern Africa

The prospects for Mozambique may finally be looking bright as its resource sector has seen an unprecedented boom.

 

 

The start of coal mining in 2010 and the discovery of significant offshore gas fields have become major springboards for the Mozambican economy. However, the consolidation of the country's growth depends on its ability to exploit these huge opportunities without hiccups.

Mozambique's economy expanded 7.5 percent in 2012, concluding two decades of uninterrupted growth that followed the end of the country's civil war in 1992. The real GDP compound annual growth rate of 7.9 percent registered in the last twenty years is expected to stretch over the next five years, as well. In early 2013, severe floods destroyed crops and damaged infrastructure in southern Mozambique, which led financial institutions to lower their 2013 growth expectation for the country.

Notwithstanding positive long-term prospects, Mozambique is still severely constrained by infrastructure bottlenecks that limit the pace of development. Thus, most of the earmarked construction investments focus on the infrastructure segment with large funds pledged for railway modernization. Mozambique is dependent on Foreign Direct Investments (FDI), receiving more than US$5,200 million in 2012. Over the next three years, the amount is projected to exceed US$10 billion, on the basis of annual approval of around 300 projects.

Over the past years, Mozambique's cement industry has been slowly expanding under the aegis of Cimpor. But with a surge in economic activity and predicted impressive growth in cement demand glittering on the horizon, the government awarded a series of cement plant construction licenses. But even so, to date, only one new cement plant has started commercial operations since 2005.

Today, Mozambique is home to five production units, four of which owned by Brazil's InterCement (subsequent to its take-over of Cimpor's assets in the country). The combined output of these units reached 1.19 million tons in 2012, falling short of the 1.6 million tons of cement consumed domestically.

Even though the cement capacity of the Mozambican cement plants exceeds the country's cement consumption, Mozambique is still dependent on cement imports. Around 27 percent of the country's cement consumption since 2005 was covered by imports. Operational challenges, financial difficulties and production interruptions are just a few of the hurdles faced by the Mozambican cement producers.

The CW Group highlights another important aspect of Mozambique's cement sector - ÔÇ£only a fraction of the cement capacity can be produced with domestic clinker. This situation is causing increased dependency on imported clinker, with around 3.23 million tons of clinker imported by Mozambique between 2005 and 2012. Although Mozambique is known for its abundant availability of high-quality limestone, the deposits remain untapped as a result of high logistics costs as well as the limited clinker production capacity of the country.ÔÇØ

By 2017 the per capita cement consumption is estimated to cross 100 kg per inhabitant for the first time in its history. Large construction projects, combined with infrastructure and housing deficits, are regarded as the major drivers of the cement industry over the next five years. CW Group concludes: ÔÇ£under the base case scenario, cement consumption is projected to increase by a compound annual growth rate of 10.7 percent between 2012 and 2017. A more optimistic scenario, which assumes a smoother implementation for main construction projects given the presence of established and experienced international companies on the market, predicts a higher CAGR (13.6 percent) that could potentially push the cement demand beyond 3 million tons by the end of 2017.ÔÇØ