THE country’s largest cement producer, PPC Zimbabwe, says production volumes have ramped up quite significantly, following the commissioning of its $85 million plant in Harare last year. Currently, the company is pursuing other strategies for exports to regional countries such as Botswana and Malawi mainly to meet its foreign currency requirements. PPC managing director Kelibone Masiyane (KM) speaks to NewsDay (ND) business reporter Mthandazo Nyoni on the company’s total investment in the country since 2009 and its future plans. Below are excerpts from the interview.
By Mthandazo Nyoni
ND: Last year, PPC Zimbabwe commissioned an $85 million plant in Harare that produces 700 000 tonnes of cement per year. Could you comment on the volumes, after the installation of this plant? Have you started realising the benefits?
KM: The Harare plant was commissioned in March 2017. Volumes have ramped up quite significantly and it is currently operating at 45-50% capacity. Promotional activities conducted in and around Harare have had a positive impact on sales volumes and growth projections. The company will continue with its aggressive marketing initiatives and drive to provide customers with technical support, in line with our promise to provide strength beyond the bag.
Benefits being realised include savings on transport costs, brand presence in the capital city, proximity to customers has improved service delivery and operational cost savings realised.
ND: During the commissioning you indicated that the plant is heavily automated and will lower production costs, allowing the company to export into the region. Have you started exporting into the region? If so, which countries?
KM: Yes, the Harare plant is highly automated and has significantly cut on production costs which are within our control. Unfortunately, our costs remain significantly high in the region due to drivers beyond our control, most significantly power and logistics costs. These make PPC Zimbabwe highly uncompetitive in the region.
The company is trying to pursue other strategies for export to regional countries such as Botswana and Malawi mainly to meet our foreign currency requirements. Exports have commenced although volumes have been lower than anticipated, due to high cost of production thereby reducing our ability to compete in the export markets.
ND: What capacity are you currently operating at as a company?
KM: PPC Zimbabwe has three factories, one clinker factory which supplies and two milling plants. The overall capacity utilisation stands at 50-60%.
ND: What is your staff complement?
KM: PPC Zimbabwe currently employs over 400 permanent employees across our three operations in Colleen Bawn, Bulawayo and Harare factories and boasts of a multi-skilled work force.
ND: How much have you invested in Zimbabwe since dollarisation in 2009?
KM: PPC Zimbabwe has invested over $118m in capital expenditure since the 2009 dollarisation on various equipment upgrades for example clinker loadout, cooler replacement, state-of-the-art palletiser at Bulawayo factory, an efficient bulk loading system just to name a few and most recent the Harare factory.
ND: What major challenges are you facing as a player in the cement industry in Zimbabwe?
KM: The liquidity constraints being experienced in the country have resulted in payments for offshore goods and services becoming delayed and difficult to make. PPC Zimbabwe procures a significant portion of its inputs from foreign suppliers. This presents significant concerns with regards to business continuity, as a result of the inability to settle foreign obligations.
Our input costs are high compared to the region. For example Zimbabwe imports packaging material, which is levied 30% duty whilst duties on cement are not being applied effectively. Zambia and South Africa produce packaging locally. The PPC Zimbabwe effective cost of electricity at $0,1450/kWh is quite high compared to regional average of $0,08. Maintenance costs are also high compared to the region.
The market for cement in Zimbabwe is being affected by imports from Zambia. It is clear that local cement producers have sufficient capacity to meet the current local demand and, therefore, there is no need for additional cement. In an effort to generate foreign currency to pay for foreign inputs, PPC Zimbabwe intends to export its cement to regional countries but the high cost of production has rendered PPC Zimbabwe uncompetitive in the target export markets. The cement industry is a highly specialised sector with very few players. The nature of factory equipment is all foreign and requires spare parts from Europe and South Africa. The company is having challenges in procuring spares and also remitting dividends to the ever supporting shareholders due to forex shortages.
ND: How do you think those challenges could be solved?
KM: We require urgent assistance with regards to the settlement of outstanding foreign obligations. PPC Zimbabwe has the required funds in its local bank accounts, however, it is failing to obtain the required foreign currency allocations from the banks to process the outstanding payments. We recommend that local input costs such as import tariffs be reduced, as this is the only sustainable long-term solution to viability concerns. We should also engage in deliberate efforts to make Zimbabwean cement competitive by addressing the high manufacturing cost base. A review of the law and possible amendment to prohibit, in totality, the import of cement and related products considering the fact that in most of the cases, there is little to zero percent duty being charged on the cement related imports.
The cessation of new import permits and managed withdrawal of existing permits. This approach has proved effective in the cessation of poultry imports. An increase in the export incentive could help to cushion against losses incurred on exports. Companies should be innovative in thinking out of the box to generate forex but the government too should play an active role and support industry.
ND: Going forward, what future plans do you have for Zimbabwe?
KM: We recently commissioned our Harare plant and our short-term focus is to ‘sweat’ that asset. PPC Zimbabwe’s installed capacity is 1,4 million tonnes per annum and Zimbabwe’s total installed capacity is 2,5 million tonnes per annum against a demand of 1,2 million tonnes per annum. Clearly, current capacity more than meets demand.
We will consider further investment in Zimbabwe in line with demand growth when our projections start to indicate demand will exceed capacity.
The timing for the Harare plant was appropriate in light of the recent changes in the political scene. PPC Zimbabwe is set to participate in nation building as the momentum builds up.
PPC Zimbabwe can foresee its vital role in infrastructure development. Efforts are evident by Government to commence national projects that had been moth balled or frozen.
ND: What is your 2018 outlook?
KM: As a company we are very optimistic in our outlook. The recent political changes have brought about some positivity in the economy, as the changes are being viewed as a new era for the country where focus for the country will likely shift from politics towards the economy.