While on a visit to Kenya last September, Mr Dangote said that he was preparing to build a Sh34.6 billion two-million-tonne-a-year cement plant in Kitui as he seeks to expand his business across East Africa.
The announcement caused ripples across the Kenyan cement industry, which is already contending with excess capacity and the inflow of bargain-priced cement from India, China, Egypt and Pakistan.
Many observers have reacted by forecasting that Dangote Cement will escalate the price war in the Kenya cement business as it strives to grab a market share from local players who are fighting to protect their stakes in the highly competitive environment.
Nairobi-based market analyst Benson Musyoka was quoted by the Construction Business Review as saying that he expected Dangote to complicate issues particularly because the local production capacity is running ahead of consumption.
“The Industry profitability is likely to fall, with average net profits of below 8 per cent due to heightened competition and falling prices,” he said.
The price of a 50kg bag of cement in Nairobi has fallen to Sh650 from Sh740 in 2008 and 2009 – a declination of Sh90 – with experts expecting the prices to come under pressure from increased cement capacities.
The newspaper recently reported that highly connected local and international businessmen were marshalling their forces for a ferocious battle against Dangote, including calls for inhibitory legislation and other measures to disrupt the project.
“The stakes are so high that, soon after Dangote’s announcement, the President of the world’s largest cement firm Lafarge – which owns 58.6 per cent of Bamburi Cement – was forced to make a hurried trip to Kenya to meet President Kenyatta over the matter,” the newspaper said.
In 2012, local cement makers produced 4.6 million tonnes of the commodity – meaning that if Dangote had by then established a factory with a two-million-tonne-a-year capacity he would have controlled nearly 40 per cent of the market.