Lucky's African venture

News on where in Africa would Lucky Cement set up its planned capacity is still a big hush hush in the market. Apparently, company officials haven't decided yet, as their plans to set up the plant is still, reportedly, at a nascent stage.
But given the rapidly changing dynamics, Lucky must think fast and act even faster. Many of the big world cement players including Lafarge, Holcim, Cemex and Italecemnti have already established their presence in northern and Sub-Sahara African countries.
As a part of their market expansion strategy, Lucky's global peers have so far set up plants in the underdeveloped sub-Saharan countries like Sudan and Ethiopia. Others who have chosen to acquire majority stakes in local cement firms have eyed the politically stable developing countries in northern part of the continent including Egypt, Libya and Algeria. And this is where the real opportunity lies.
In the future, cement makers in North African countries would enjoy an advantageous position than their rivals in sub-Saharan and South African counties mainly due to three reasons.
First, massive capacity expansion in the neighbourly GCC countries especially U.A.E, Qatar and Saudi Arabia would trigger regional price wars - making the market highly competitive for Sub-Sahara African countries. According to consensus estimates, cement capacity is expected to increase by 39 percent, 27 percent and 114 percent in Arabia, UAE and Qatar respectively by the end of 2011.
Second, northern Africa offers the opportunity to tap the European market where the cost of CO2 emissions will act as dampener for their local cement industry - creating room for import from North Africa due to inexpensive sea route. This geographical positioning, of course, is neither enjoyed by South African players nor by those in sub-Sahara. Third, the region's reliance on oil income and population growth signals a boom market ahead for construction industry.
Lucky - which mainly sells cement in east Africa at present - is not the only one eyeing the market. Its Indian rival, Binani Cement, has already acquired nearly 50 percent stake in clinker manufacturing plant in Shandong, China -- to capitalise on economies of scale -- with sole intension to export low cost cement to East Africa through sea route.
Although, Lucky is eying viable options it has not started any sort of feasibility work at the moment. Considering that it takes about 20 to 24 months to set up a cement manufacturing plant, the firm's managers should make a quick decision - an acquisition instead of setting up a new plant cannot be ruled out, given the small window of opportunity.
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