Construction on the expansion in Lusaka, the capital, will start in the second-half of the year and be complete in 2018, Emmanuel Rigaux, chief executive officer of the Lafarge SA unit, said in an April 1 interview. The work will double Lafarge’s Lusaka plant, adding 1 million metric tons of capacity.
Dangote Cement Plc was due to start production at its $400 million Zambia plant last month, challenging Lafarge’s dominance for the first time since it was founded in 1949 to supply cement for the world’s biggest dam at Kariba. The Dangote plant will produce 1.5 million tons a year, more than Lafarge’s two existing factories combined. Even so, the expansions won’t cause a glut, mainly because of demand from the neighboring Democratic Republic of Congo, Rigaux said.
“The growth there is massive, in fact it’s even higher than in Zambia,” he said. The DRC “has one of the lowest cement consumption per capita and one of the highest growth rates in the world,” he said. “It’s a perfect combination.”
A spokesman for Lagos-based Dangote, Africa’s largest producer of the building material by sales, didn’t respond to an e-mail seeking comment.
Lafarge Zambia, 75 percent-owned by its Paris-based parent, produced 1.2 million tons of cement in the country last year. Shares in the company have gained 8 percent in the past 12 months in Lusaka trading.
Price Wars
The market may not be able to absorb the additional volumes of cement, said Brian Chintu, who helps manage almost 800 million kwacha in assets, including Lafarge Zambia stock, as head of investments at Madison Asset Management Co. in Lusaka.
“We’re going to see some price wars,” Chintu said by phone. “We’re going to see pressure for Lafarge to reduce their prices. We anticipate reduced profit margins for Lafarge. Definitely there is a risk of getting an oversupply.”
Zambian economic growth is slowing as the government grapples with a budget deficit that helped push the kwacha to a record low last month. The DRC has overtaken its neighbor as Africa’s biggest copper producer. The International Monetary Fund estimates 2014 growth of 5.5 percent in Zambia, the slowest pace in 12 years.
Economic expansion at that pace would still translate to 10 percent growth in the Zambian construction industry, Rigaux said. While commercial and retail development may have peaked in Lusaka, spending on infrastructure in other provinces is continuing, he said.
Kariba Repairs
Hydropower projects in the DRC and Zambia are adding to increased demand in the region, Rigaux said. The company is in talks to supply the $660 million Busanga hydropower power project in Katanga. Zambia and Zimbabwe are repairing the Kariba dam wall as part of a $294 million project agreed to in February.
The economy in the DRC, whose Katanga copper-mining province borders Zambia to the north, is expanding faster and grew by 9 percent last year, according to IMF estimates.
Lafarge can probably serve a population as big as 13 million in DRC’s Katanga and Kasai-Occidental provinces, where the company expects construction to increase as rising incomes prompt the building of shops and malls, according to Rigaux.
“Retail is just starting in the DRC,” he said. “Where Zambia was five years ago is where the DRC is today.”
While the company exports cement to the DRC from its plant in Ndola, in Zambia’s Copperbelt province, it plans a facility near Lubumbashi, the capital of Katanga, Rigaux said.
A grinding station to process material from the Ndola plant should cost a minimum of 25 million euros and may start producing in 2019, after which Lafarge may build a full cement plant, he said.