INTERNATIONAL REPORT

JULY 2011 ICR 69

T
he Mozambique economy
continued to perform well in 2010
growing at 6.5 per cent, above the
average for sub-Saharan Africa of 5.9 per
cent. High global food and fuel prices
caused the 2010 growth figure to come in
slightly below expectations. Inflation was
considerably higher than expected last
year with the average inflation rate at 12.7
per cent, while the national currency, the
metical (MZN), depreciated over the year
by 19 per cent against the US dollar.
However, YoY inflation has been
slowing since December, mainly due to
the strength of the metical. As at the end
of May 2011, it had gained more than 25
per cent against the dollar since August.
Inflation slowed to 12.77 per cent YoY in
April from 13.78 per cent in March and
15.23 per cent in February. Therefore, the
governments revised target of average
annual inflation for 2011 from eight
per cent to 9.5 per cent appears more
achievable.
Thanks to a strong performance in
farming, mining and banking, and a
revised budget that increases spending on
food subsidies, Mozambique has raised
its 2011 growth
forecast from 7.2
per cent to 7.4 per
cent. This is due to
better-than-expected
performance in
several sectors of the
economy, including
agriculture, mining,
financial services,
construction, and
transport and
communications,
Prime Minister Aires
Aly recently noted.
Mozambique
possesses a varied
but largely untapped
mineral resource base
which includes coal, natural gas, rare metal
minerals, gold and titanium, together with
non-metallic minerals such as marble and
gemstones. These reserves are attracting
huge foreign investment and, for example,
new player Beacon Hill, recently paid
US$42m for the assets of US company
Global Mineral and Metals in Moatize,
Tete province, which has estimated coal
reserves of 450Mt. In April, another British
company, Pan African Resources, was
awarded a gold mining license in Manica,
which is the historical gold mining centre
of Mozambique.
Acknowledging the impact of such
investments, the International Monetary
Fund (IMF) is forecasting GDP growth
of 7.2 per cent for this year. We expect
growth to accelerate to around 7.2 per
cent in 2011 and we also expect inflation
to continue to decline towards a single-
digit, at a medium of 9.5 per cent by the
end of the year.
IMozambique market expansion
by ICR Research
The Mozambique cement market holds much development potential
underpinned by projects for the rehabilitation of public infrastructure
and private investment in real estate, sea ports and mineral exploration
activities. Portuguese producer Cimpor is the dominant player in the local
sector and is presently undertaking capacity increases as it aims to meet
challenges and opportunites in this emerging market. However, with the
government keen to attract new investment, competition is set to increase.
Steady rises in cement consumption and production are expected over
the next two years in this resource-rich, southern African country
Last year, Cimpor Mozambiques main producer
managed to achieve its highest local sales to-date due to
increased imports and additional grinding capacity
INTERNATIONAL REPORT
70 ICR JULY 2011
Construction activity
The construction sector contributed
strongly to Mozambiques positive
economic performance growth in
2010, registering 18 per cent in the
first two quarters and 12 per cent in
the third quarter.
Since its civil war ended in 1992,
the government, in partnership with
international business and aid groups,
has been investing in the development
of Mozambiques generally inadequate
public infrastructure, especially in the
many areas heavily affected by the war.
Close to 50 per cent of government
spending comes from foreign aid and
billions of dollars have been spent
to build and repair roads, enlarge
harbours and rehabilitate railways.
However, natural disasters have slowed
post-civil war reconstruction. The 2000
and 2001 floods affected about a quarter
of the population and destroyed much of
its infrastructure. Furthermore, in 2002
a severe drought hit many central and
southern parts of the country, including
previously flood-stricken areas.
The government has continued to
implement its poverty reduction strategy
with a focus on improving infrastructure.
One of the latest significant investments
is the Nacala international airport,
Nampula province, which is the result of
converting a previous military airbase.
Construction is in the hands of Brazilian
company Odebrecht and the airport is
due to be ready at the beginning of 2012.
The project is the most recent of several
public airport infrastructure investments
including the reconfiguration of Maputo
international airport and the international
airports in Pemba and Vilanculos, the
latter two being important centres for
the tourism industry, a recent report
by the Economist Intelligence Unit (EIU)
highlighted.
Transport infrastructure remains fairly
basic and in April this year, the World
Bank Board of Executive Directors
approved an International Development
Association (IDA) credit equivalent to
US$41m in additional financing to support
the implementation of the governments
Roads and Bridges Management and
Maintenance Program. The IDA credit
supplements the initial IDA funding of
US$100m which covered the period
2007-11. This second phase of the
project is supporting improved access
of the population to all-season roads
through maintenance, rehabilitation and
upgrading of the classified road network.
Mozambiques classified road network
consists of 29,349km of roads, of which
5814km (or just under 20 per cent) are
paved. This project has been supporting
the implementation of the governments
own road strategy by helping to close
the financing gap which previously had
delayed the needed expansion and
maintenance of the road network. It is
essential to improve efficiency in the
management and maintenance of the
road network because failing to do so
will increase future rehabilitation and
upgrading costs, according to Young Kim,
World Banks acting country manager for
Mozambique.
In terms of housing, the Mozambican
government announced plans in
March to build 100,000 social houses
by 2014. The government will also
provide 300,000 plots of land to
sustainable communities. The minister
noted that preparation of a plan of
action was to be concluded soon,
outlining the budget and mechanisms
to allow citizens easier access to
housing. Sources of domestic funding
have been identified involving the
banking sector, which is expected to
focus on young people, state workers,
and armed forces workers with
conditions to access funding packages.
Cement consumption gains
Domestic cement consumption growth
has been steady over the past few
years and continual gains are forecast
in the medium term. After registering
an 11.1 per cent advance in 2009 to
1Mt, demand saw a further double-digit
increase of 10 per cent last year to 1.1Mt
the fifth consecutive year of increase
and a reflection of the solid growth taking
place. Private sector consumption has now
risen to 65 per cent of demand with the
public sector the balance. For 2011 and
2012, Cimpor sees demand climbing to
1.2Mt and 1.3Mt, respectively and up to
1.44Mt by 2013.
There are three main demand hubs in
Mozambique. The capital Maputo is by far
the largest and is located in the southern
region. With an overall population of 6
milion the south is considered the financial
and political centre. Demand in this region
area was 680,000t in 2010 and per capita
consumption stood at 121kg, representing
62 per cent of overall demand. This
translated to an annual growth of eight
per cent last year.
Beira located in the centre as well
as inland surrounds represent 23 per
cent of consumption. This central region
has a population of nine million and
encompasses the the Beira seaport which
acts as a gateway to the landlocked
African nations of Zimbabwe, Zambia and
Malawi. Consumption in this region last
year was 250,000t at 27kg per capita,
translating to YoY growth of 11-12 per
cent.
The northern region represents 15
per cent of demand with the main areas
being from Nampula to Nacala. With a
population of seven million, consumption
in the northern region was 160,000t
Figure 1: 2010 breakdown of Mozambique consumption
by region (tonnes). Main consumption hub for each
region shown in brackets
(Maputo)
(Beira)
(Nampula
to Nacala)
Source: Cimpor industry presentation (March 2011)
Mozambiques classified road
network consists of 29,349km of
roads, of which 5814km (or just
under 20 per cent) are paved. This
project has been supporting the
implementation of the Governments
own road strategy by helping to close
the financing gap which previously
had delayed the needed expansion
and maintenance of the road
network.
Young Kim, World Bank, acting
Country Manager for Mozambique.
INTERNATIONAL REPORT
72 ICR JULY 2011
last year up 7-8 per cent YoY. Per capita
consumption in the area is around 22kg.
Existing production base
The Mozambican production base is
currently dominated by Cimpor which
owns 82 per cent of the countrys
sole cement producer, Cimentos de
Moambique. Having raised its market
share from 77.4 per cent in 2009 to an
estimated 81.1 per cent, Cimpor is likely to
reap the most benefits from the improving
demand scenario. As such, it has initated
a number of capacity increases, which
include the installation of a new kiln and
additional grinding capabilities.
Cimentos de Moambiques total
capacity currently stands at 1.3Mta.
The companys sole integrated plant is
located in Matola, 15km from Maputo,
with a 2000tpd clinker line with a 0.7Mta
cement capacity. The company is in the
final stages of doubling capacity at the
Matola works through the installation of a
0.6Mta grinding mill which is scheduled to
be operational in July 2011.
The companys 0.24Mta Dondo
grinding plant is situated in the central
region, some 30km from Beira. Approval
was granted by authorities in 2009 to
turn this back into an integrated unit
and therefore a 1500tpd kiln is being
constructed and is set for completion in
2013. An additional 0.45Mta mill is also
being constructed at the Dondo site,
scheduled to be finished in 2012.
In the north of the country Cimpor now
operates two grinding plants. Its original
Nacala facility has a capacity of 0.12Mta.
Furthermore in October 2010, Cimpor
acquired a 51 per cent stake in CINAC,
a company with a cement grinding plant
also in Nacala. CINAC has an installed
grinding capacity of 0.24Mta and several
limestone quarries.
After Cimpor completes its announced
optimisation and expansion projects, by
2013, the company will have a clinker
capacity of 0.6Mta and a cement capacity
of 2.3Mta. Clinker production this year is
expected to increase to 0.32Mta against
0.23Mta last year.
In terms of Cimentos de Moambiques
recent market peformance, last year
cement and clinker sales advanced 13.7
per cent to 884,000t despite the company
experiencing operational problems at the
Maputo plant. This sales volume the
highest ever recorded by the company
was achieved due to increased cement
and clinker imports as well as utilising the
additional grinding capacity at Nacala.
Consolidated turnover in 2010 totalled
E88.1m, up 8.8 per cent YoY. Cash costs,
which were up 11 per cent to E76.6m
were heavily influenced by Matolas
operational problems. Clinker production
was also interrupted for 45 days due to a
fire in the transformer station. As well as
having to increase clinker imports at much
costlier prices compared to producing
volumes domestically, the company was
also affected by a significant rise in gas
prices, which is the main fuel used at
Matola, as well as rising electricity prices.
Operating investments amounted to
E15.6m, 29.6 per cent more than in 2009.
Notable investments are the new cement
mill at Matola, purchase and installation of
a gearbox for a raw material mill and the
modernisation of the transfomer stations
at Matola, as well as the replacement of
the bagging lines at all the plants.
New market entrants
There has been a distinct absence of new
greenfield investment in the Mozambican
cement market, but with the government
keen to attract new entrants a stream of
proposed projects have been hitting the
headlines.
The southern region is expected to see
the largest concentration of investments.
Three Chinese companies plan to build
plants in Maputo that will start operating
as early as next year. Magude is the
location chosen by Africa Great Wall
T A N Z A N I A Z A I R E
Z A M B I A
B O T S W A N A
S O U T H
A F R I C A
SWAZILAND
Z I M B A B W E
MOZAMBI QUE
MALAWI
MADAGASCAR
Comoros Islands
I N D I A N
O C E A N
M
o
z
a
m
b
i
q
u
e

C
h
a
n
n
e
l

Pretoria
Mbabane
Maputo
Lilongwe
Lusaka
Harare
Chipata
Tete
Antananarivo Beira
Kasama
Mbala
Gaborone
Quelimane
Dondo
Nacala
Boane District
Figure 4: Mozambiques production base (2011)
Existing integrated plant
Existing grinding plant
Figure 2: Mozambique consumption vs production, 2008A-2012F
Source: ICR Research / industry sources
INTERNATIONAL REPORT
JULY 2011 ICR 73
Cement Manufacturer for a 0.5Mta
cement plant. The China International
Funds plant near Salamanga, south of
Maputo is already under construction
and estimated production stands at
0.8Mta/1.5Mta. A third unit, owned by
GS Cimento, will have capacity to produce
0.5Mt of cement and will be located in the
Boane industrial park next to the Mozal
aluminium factory.
Mozambique press also reported in
December last year that South Africas
PPC plans to invest in a 0.6Mta plant
in Southern Mozambique and that
environmental-impact surveys were being
undertaken. However, no plans have been
confirmed.
In the central region, aside from
Cimpors plans for its Dondo works, a
company called Consolidated General
Minerals (CGM) formerly China
Goldmines plc plans a clinker grinding
and cement packing plant in the port of
Beira. The company is in discussions with
private Italian cement producer Calme
SpA, to build and operate the plant which
will have a design capacity of 110tph at
a cost of around US$24m. Meanwhile,
Mozambique Cement & Development
Company has also asked the Ministry for
Mining Resources for a licence to survey
limestone in the district of Buzi, Sofala
province, with the view to constructing
a 0.5Mta factory. Also, two new 0.5Mta
milling stations at Inhaming and Tete
are on the cards. There are even more
speculative projects but the market cannot
be expected to support all of them.
S&S Cimentos LdA (a company of the
ARJ Group), earlier this year, contracted
Polysius for two grinding plants. The first
will be constructed in Maputo and the
second in the seaport of Nacala. Both
will have a rated throughput of 700tpd.
Each new plant will be equipped with a
two-compartment separator mill and two
cement silos with a storage capacity of
1000t each.
Prices
Earlier in 2011, there were reports of the
Mozambique government imposing price
controls on Cimentos de Moambique,
which was selling 50kg bags of cement at
US$8, with resellers almost doubling the
price. However, Minister for Industry and
Trade, Armando Inroga said in a recent
interview that he expects cement prices
to fall as of 2013, as a result of the new
plants coming on-stream.
Trade
Currently there are no exports from
Mozambique but with additonal volumes
coming on-stream new markets are
expected to be explored. Cimpor has
already stated that it plans to search for
and utilise new trading opportunities. In
the central region imports are forecast
to be reduced and occasional exports to
neighbouring landlocked countries may
begin. CGM has also earmarked exports to
Zimbabwe, Zambia, Malawi and Katanga
Province, Democratic Republic of Congo,
following completion of its proposed
grinding plant. In terms of exports from
the southern area, open borders from
2012 will improve trade access to South
Africa, Cimpor has noted.
Imports currently stand at around 0.8Mt
and mainly arrive from China and Pakistan
as well as South Africa. With Cimpor
expecting increases in clinker production,
it predicts clinker imports of around
290,000t and 50,000t of cement.
Outlook
Political stability and growth in GDP
are expected in the near-term. The
World Bank has said that Mozambiques
economy would grow by about 10 per
cent a year if it can maintain policy
stability and exploit its massive untapped
coal reserves effectively.
In the coming years, Mozambique will
achieve a 10 per cent rate of economic
growth annually if it continues to pursue
good policies and strategies, Justin Yifu
Lin, a senior vice president at the World
Bank recently noted. Mozambique
has great potential for growth and has
a comparable advantage in agriculture,
labour and mineral resources and you
need an implementation policy which is
desirable, he added. However, analysts
have warned corruption, mass poverty and
political instability could undermine the
economy.
Cement consumption is expected to
continue to increase at a high rate. The
market continues to enjoy steady annual
growth, and is forecast to grow at around
8-10 per cent per annum between
2011-13. Cimentos de Moambiques
new cement line at Dondo will become
operational in 2013 and will allow the
company to remain the dominant player
in the market, although low-cost imports
will be attracted by the strong market
conditions. Cimpor expects to maintain
a market share of at least 75 per cent
in 2011, based on a market volume of
1.2Mt.
However, infrastructure limitations
(including electricity, railway, road
networks) will continue to put a restraint
on future development.
Longer-term, new capacity volumes are
expected to outpace growth in demand
and it is forecast that by 2013 cement
capacity could triple to 4Mta. According
to Cimpor, the northern region already has
an installed capacity above demand. The
southern region will soon follow suit but
has the added pressure of current foreign
suppliers possibly continuing to push
cement into Mozambique. The central
region is also expected to have a supply-
demand imbalance by the end of next
year. _________________________I
Table 1: Cimentos de Moambique results (2010 vs 2009)
2010 2009 Change %
Installed capacity
1
(000t) 732 685 6.8
Installed clinker capacity utilisation
2
(%)

39.2 47.7 -8.5 p.p.
Cement and clinker sales (000t) 884 777 13.7
Estimated market share (5) 81.1 77.4 1 p.p.
[1] Cement production capacity with own clinker
[2] Clinker production/installed capacity (clinker) Source: Cimpor Annual Report 2010
Cimentos de Moambiques new
cement line at Dondo will become
operational in 2013 and will
allow the company to remain the
dominant player in the market,
although low cost imports will be
attracted by the strong market.