Recently, Kenya ARM Cement released its semi-annual report, and its performance seems to indicate that the growth cycle of Kenya's cement industry is over. In the first half of 2017, ARM Cement's cement sales revenue was only US $52 million, down 20% from the same period last year. The company's financial situation since 2015 has also been extremely poor. Fortunately, in 2016, CDC Group of the United Kingdom extended an olive branch in time for the company to repay its loan, and CDC even considered investing in upgrading ARM's Ati River Cement Plant to enhance its cement grinding capacity.
Figure 1: Cement output of Kenya in the first half of 2006-2017 (10,000 tons)
Source: Kenya National Bureau of Statistics, China Cement Research Institute
Figure 2: Cement output of Kenya in the first five months of 2012-2017 (10,000 tons)
Source: Kenya National Bureau of Statistics, China Cement Research Institute
Unfortunately, the cement market in Kenya appears to have peaked at this stage in 2016. According to the data released by Kenya National Bureau of Statistics, Kenya's cement production reached the peak of this growth cycle of 3.31 million tons in the first half of 2016, and by 2017, the cement production in the first half of the year had dropped to 3.18 million tons, a decrease of 3.92% compared with the same period last year. Its cement consumption fell from 2.56 million tons in the first five months of 2016 to 2.45 million tons in the same period of 2017. During the same period, investment in construction projects approved by Nairobi City Council in the first five months fell by 12% to $1.2 billion, with both residential and non-residential projects declining, with residential projects declining more significantly. The country's major infrastructure project, the Mombasa-Nairobi railway project, has come to an end at the end of 2016, and the track laying work has been completed.
Bamburi Cement similarly showed a decline in revenue and earnings in the first half of 2017. Its sales fell 8% to $170 million and its earnings fell 36% to $18 million. Banburi Cement attributed this to the low level of investment in the contracting market and the private sector, which led to the sluggish housing market. In addition, the delay of some infrastructure projects and the dry climate were also important reasons for the contraction of the whole market. The dry climate also led to an increase in the company's energy consumption costs, affecting the company's earnings. However, Bamburi Cement has achieved good performance in the cement market of Uganda, a neighboring country of Kenya.
Some analysis shows that due to the Kenya National Congress held in August 2017, the market is worried about the possible political turmoil, which will lead to uncertainty in infrastructure investment, thus affecting the construction market in Kenya. Thankfully, these fears turned out to be misplaced, but the tragedy of the 2007 national elections, which resulted in the deaths of nearly 1,000 people, is still remembered by the public. Kenya will hold a second national election after the first round of the 2017 election was ruled invalid after the intervention of the Supreme Court of Kenya. However, with the extension of the election period, Kenya's construction and cement market will face greater pressure.
& emsp; & emsp; Recently Dale, Kenya & amp; Blair Investment Bank (Dyer Blair Investment Bank also published an analysis of the cement market in Kenya and Ethiopia. The report points out that the current price of building materials is too high to suppress further growth in the market. Blair believes that lower construction costs and more affordable home ownership may be an important means to end the current downturn in housing market demand and further stimulate the growth of cement consumption.
As more cement production capacity comes online in Kenya and neighboring Uganda and Ethiopia, Kenya's cement market will face the dilemma of how to balance the current cement market capacity and medium and long-term population growth. The current low level of cement consumption per capita means that the cement market in Kenya still has great potential, but if this demand does not emerge in the short term, cement producers in Kenya will face high energy costs and incentive competition. With the completion of Kenya's national elections, the development of Kenya's construction and cement industry will gradually become clear, but the cement industry, which has been booming in recent years, has begun to decline.
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