Bricks and Mortar

The nation comes to the end of the year and is plagued by various energy deficits that slow down the national economic development agenda.

The situation is compounded by the shortage of builders cement in the domestic market, such that prices have rocketed from the recommended retail price of around K55,000 per 50kg pocket to a high of K75,000, and a general norm of K65,000.

This situation appears to be quite strange when we note that LaFarge in Chilanga has doubled its production capacity as a result of the plant upgrade which has been their pride and joy.

Where is the extra production going to if not into the domestic market?

The plant sells to the domestic market 2 to 3 days per week and sells to the export buyers on the remaining working days. Technically, this suggests that half the production goes into the domestic market whilst the other half is set aside for the export markets.

The plant upgrade therefore, is not targeted for the benefit of the Zambian market. It may be argued that business is business, irrespective of which markets the production goes to. And this is acceptable as long as there are no barriers to other investors entering the industry to fill up the shortfall demanded by the Zambian market.

At a management level, domestic distributors buying in bulk on a preferential price and quantity basis should be discouraged from opening retail outlets and engaging in insider trading within their own business group purely to maximize their profits by enjoying both distributor profits and retailer profits at a time when cement is selectively allocated and therefore removes the free market spirit. This may explain why cement is selling at K65,000 instead of K55,000 thereby costing the nation an additional 20 percent.

The current status is that there is an artificial shortage of cement in the country which delays projects, increases the cost of project completion, and escalates the costs of doing business in the construction sector.

Furthermore, construction pre-payments made by the real estate development promoters become more expensive when the funds are borrowed from the banks. Much working capital is eventually tied up in either pre-payments to the suppliers, or bulk purchases to cater for future cement needs. However one describes the cement supply business, it amounts to very poor use of resources, the cost of which is finally borne by the economy at large.

What is a possible way forward? The easy answer is to open up our borders and import as much cement into the country as industry and development demands. This route places the country at the development mercy of our neighbours, and ignores the opportunity that Zambia has to exploit our capacity to produce cement to build the entire region. The COMESA Customs Union will probably demand this open border policy in so far as cement is concerned.

The more difficult route is to take stock of what is happening in the domestic economy in respect to the current supply and demand of cement, and to assess the medium and long term cement requirements as a consequence of the national strategic development plans. The exercise can become the basis for developing a strategy for the cement industry in the country.

A quick look at the 2010 national budget, the Fifth National Development Plan, and the draft Sixth National Development Plan, gives us a clear message that construction is top of the agenda for both economic development and social services development throughout the country.

The 2009 budget recorded the construction sector has having the highest growth rate at around 10% during the budget year.

It is clear from public reports that mining is developing fairly rapidly with expansion programs, old mine rehabilitation programs, and new mining investments targeted over the next five years.

Manufacturing is poised to grow as the new Multi facility Economic Zones are developed and as the competition from the COMESA Customs Union begins to impact on the country.

Agriculture is booming as seen from the 2009 figures and the new investments in new farming blocks will demand more construction work for feeder roads, sheds, dams, ponds, and silos.

Tourism is earmarked to grow as Government invests in upgrading airstrips and airports around the country. We expect to see new lodges, guest houses and hotels mushrooming up around our game parks, lakes and rivers.

Government has an ambitious program to build new health centres and hospitals, schools, power stations, roads, and water works either directly or through subsidiary entities such as ZESCO and local councils.

Quite clearly, the nation has a challenge to fast track the production of cement to meet the nation’s aspirations for development.

In order to meaningfully encourage and facilitate rapid development in the cement production industry, Government may have to reconsider the stance of restricting foreign investment in this sector and open the doors to serious investors. There have been a handful of medium and large investors looking to develop cement production plants in the country but none of them has yet put a pocket of the product on the consumers table.

If Zambia is interested in maintaining and surpassing the current level of infrastructure development in the country, then some foresight and immediate action is required to create an enabling environment that promotes and supports competition in the cement production industry.

Published 3 November 2009