Harare - Zimbabwe’s economic slowdown has hit the construction industry, with PPC saying yesterday that “in-country liquidity constraints” had led to a cooling in cement demand.
PPC is one of three major cement manufacturers in Zimbabwe; the others are Lafarge and Sino-Zimbabwe, a joint venture between Chinese and Zimbabwean investors. Despite the slowdown in demand, analysts said the country’s infrastructural deficit presented immense opportunities for cement makers.
This explains why PPC is investing R130 million expanding its mill in the country.
Other Zimbabwe expansion plans included “construction of a 100 tons an hour cement mill” capable of producing 700 000 tons a year, Ketso Gordhan, the chief executive of PPC, which has a majority interest in PPC Zimbabwe, said yesterday.
“All companies are facing problems. There is a slowing down of business for everyone,” economic analyst Johannes Kwangwari said. “But for cement, it’s an important component for the construction industry and it will rebound. There is strong upside potential given the infrastructure gap and room for more individual housing projects.”
Gordhan said the cement manufacturer was planning “to construct a $200m (R2 billion) clinker plant on the border with Mozambique and a cement mill in Tete, between Mozambique and Malawi, adding: “In-country liquidity constraints have led to a slowdown in local demand.”
Zimbabwe is facing economic problems that have seen it remain in deflation for the greater part of this year.
The World Bank says growth failures in mining, a sector that had been earmarked by the government to help sustain efforts to revive the economy, will persist owing to low mineral prices.
Although government statistics say the economy will rebound to grow by 6 percent this year, the World Bank says the country will manage a modest 3.1 percent growth.
PPC said the liquidity constraints and economic difficulties had resulted in limited growth in cement prices on the local market. However, this had been offset by exports to countries in the region where the company enjoyed favourable selling prices.
As part of efforts to efficiently manage operations, it would retire two “less efficient” mills at its Bulawayo plant. “(The new) modern efficient mill in Harare gives a competitive advantage and a phased capital expenditure approach reduces risk.”
PPC has adopted a strategy to expand into the rest of Africa and officials say it is focused and well positioned to significantly boost revenues coming from outside the South Africa operation by 40 percent in the next three years. During its first half to the end of March, the rest of Africa operations contributed 26 percent to group sales volumes.
Although the company admitted that trading conditions in most of its operating geographies were tough, it was “optimistic that cement demand will improve” in the outlook period.
In the Democratic Republic of Congo (DRC), the company is investing $280m to build a plant in the west of the country that will produce 1 million tons a year. PPC is also revamping its operations in Algeria, Ethiopia and Rwanda.
PPC will assume 69 percent ownership of the DRC project while a local partner, the Barnet Group, will own 21 percent. The International Finance Corporation will own 10 percent of the project, which has reached plant construction stage.
“Improvements in export sales and the consolidation of sales from our Rwanda operation and newly acquired Safika Cement Holdings were partly offset by declining sales volumes in South Africa and Botswana,” Gordhan said.
Group sales volumes jumped 9 percent in the interim period to R4.16bn, with headline earnings up 50 percent to R504m.
The shares fell 4.86 percent to R31.35 yesterday.