Why Cimerwa's high output won't excite constructors

A large part of modern Kigali city has been constructed with imported cement but 203km away in Rusizi district, located in Rwanda’s Western Province, Cimerwa, the country’s only cement producer says it’s plotting a possible end to that import burden. The first hint was dropped by the central bank governor John Rwangombwa in August when he said cement imports declined in volume by 4.2 per cent, a development he attributes to 0.9 per cent increase in local production in the first six months of 2014. Sam Rusaga, Cimerwa’s Commercial Director corroborated that statistic when he revealed to The Sunday Times this week the figures behind that slight gain against cement imports. “Our output has increased from 85,000 tons in 2013 to 110,000 tons today which might have contributed to slight gain against cement imports,” says Rusaga. Nonetheless, the output from Cimerwa is still far from satisfying local demand which Trade Minister Francois Kanimba estimates to be close to 400, 000 tons a year. But to some industry players such as Dan Karinganire, a procurement officer for a major construction firm, the more plausible reason for the drop in cement imports during the first half of this year is explained by a slowdown in the rate at which the construction sector grew since second quarter of 2013. Indeed, Central Bank statistics indicate that in the first quarter of 2013, the construction sector grew by 21 per cent but slowed to 16 per cent in the second quarter, 9 per cent in the third quarter and stagnated in the last quarter. It’s a trend that might also have contributed to the country’s lowest growth in almost a decade. In the first quarter of 2014, the construction sector recovered recording an 8 per cent growth, a trend which is most likely to continue as the general economy rejuvenates. “This will certainly see the industry seeking more cement imports again,” opines Karinganire. Those projections would mean that the import decline recorded in the first half of this year is likely to be short-lived if the sector indeed recovers its former double digit growth rate. New Cimerwa cement plant When that happens, Cimerwa’s Sam Rusaga tells The Sunday Times that his company will be ready to single handedly satisfy local demand explaining that in the first half of next year, they plan to open a new plant with a capacity of 600, 000 tons,. “That capacity is just enough to settle the entire local demand,” says Rusaga. Does this development excite players in the construction sector? “I don’t think so,” says Eng Fred Rwihunda, the president of the Institute of Engineers, Rwanda. According to Rwihunda, a new plant with more output will not stop cement imports adding that the local monopoly must find ways to lower its cement prices as well as improve its quality if it’s to be competitive enough against regional cement imports. “Otherwise at the moment, big project investors prefer to import from Kenya, Uganda and Tanzania whose cement is relatively inexpensive and of higher quality to suit most of the projects ongoing in Rwanda,” explains the engineer. In Uganda for example, a bag of cement is bought at an equivalent of Rwf5, 000 and after taxation and all transport costs, sells for between Rwf9, 000 to 10, 000 once in Rwanda compared to a bag of Cimerwa which sells at Rwf11, 500 or Rwf12, 000. Cimerwa’s Rusaga calls that dumping and that ‘cheap cement imports are hurting the local manufacturer’s competitiveness on the market. “There is too much cement-dumping from the region. A lot of cheap and sub-standard cement is imported to Rwanda which makes it hard for Cimerwa to sell at its desirable price,” cries Rusaga. If Rusaga’s lamentations are anything to go by, then it would mean that local property developers are deliberately going for ‘cheap and substandard cement imports’ which could even compromise on the strength of structures being constructed. But Engineer Rwihunda denies the charges instead putting the blame on Cimerwa. “On the contrary, most projects today need high quality cement of 42.5 per cent which Cimerwa hasn’t been producing until recently, but even then, their cement is far more expensive than that imported which makes it hard for it to compete,” notes Rwihunda. Engineers also say if cement prices could be reduced, this would reduce the general cost of construction by at least 30 per cent because cement is the biggest factor in construction. Until that is addressed, regional companies like Hima Cement will continue referring to Rwanda as a “core market for us,” according to Daniel Pettersson, Hima country manager. Pettersson tells The Sunday Times that if it weren’t for limited lime deposits in Rwanda, they wouldn’t have hesitated to exploit that ‘very attractive prospect.’ He also dismisses claims that they are dumping cheap cement here saying, “Rwanda is a core market for us and thus we cannot be doing that.” Hima says they supply 200, 000 tons of cement to Rwanda every year and had already sent in 107,000 tons in the first six months of 2014. Cimerwa’s new plant is unlikely to bite into Hima’s cake in Rwanda at least in the short run because experts say that Rwanda’s current lime reserves will only last a decade if Cimerwa’s new plant was to consistently produce at its installed capacity of 600, 000 tons a year. But Minister Kanimba is hopeful. “With a new plant and better energy options such as peat, Cimerwa will enjoy better economies of scale which will slightly reduce their costs and improve their competitiveness against regional players.”

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Why Cimerwa's high output won't excite constructors