National Cement, a Kenyan cement producer, has announced that it has acquired a majority stake in Cimerwa, Rwanda’s only cement manufacturer. The deal, worth $85 million, gives National Cement a 69% share of Cimerwa, which has an annual production capacity of 600,000 tonnes.
The acquisition is part of National Cement’s expansion strategy in the East African region, where it faces stiff competition from other cement makers such as Bamburi, ARM and LafargeHolcim. National Cement’s managing director, Narendra Raval, said that the company aims to increase Cimerwa’s output to 1.2 million tonnes per year by investing in new technology and equipment.
By taking over Cimerwa, National Cement will gain access to the Rwandan market, which has a high demand for cement due to its ambitious infrastructure and housing projects. Rwanda also offers a strategic location for exporting cement to neighbouring countries such as Burundi, DR Congo and Tanzania.
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Cimerwa, which was established in 1984 as a joint venture between the Rwandan government and China, has been struggling to meet the growing demand for cement in Rwanda and neighboring countries. The company has also faced challenges such as high production costs, power shortages and environmental issues.
In 2012, the government sold a 51% stake in Cimerwa to PPC, a South African cement firm, hoping to improve its performance and profitability. However, PPC decided to exit the Rwandan market last year, citing poor returns and governance issues.
The sale of Cimerwa to National Cement has been welcomed by the Rwandan government, which retains a 16.5% stake in the company. The Minister of Trade and Industry, Soraya Hakuziyaremye, said that the deal will boost the local cement industry and create more jobs and opportunities for Rwandans. She also expressed confidence that National Cement will adhere to the environmental and social standards required by the Rwandan law.
National Cement is one of the leading cement producers in Kenya, with a market share of about 20%. The company operates a state-of-the-art plant in Athi River, which has a production capacity of 1.8 million tonnes per year. The company also has a plant in Uganda, which produces 750,000 tonnes per year. National Cement is owned by Devki Group, a conglomerate that also has interests in steel, roofing and aviation.
Benefits of the acquisition
One of the main advantages of the acquisition is that it will increase the production capacity and market share of Cimerwa, which currently operates at 60% of its installed capacity of 600,000 tonnes per year.
National Cement has pledged to invest $30 million to upgrade and expand Cimerwa’s plant, which will boost its output to 1 million tonnes per year by 2025. This will enable Cimerwa to meet the growing demand for cement in Rwanda and the region, especially for infrastructure and housing projects.
Another benefit of the acquisition is that it will enhance the competitiveness and efficiency of Cimerwa, which has been struggling with high production costs and low profitability. National Cement has a proven track record of operating successful cement plants in Kenya and Uganda, with lower costs and higher margins than Cimerwa.
By leveraging its expertise and economies of scale, National Cement can help Cimerwa reduce its operational expenses and improve its product quality and customer service.
A third benefit of the acquisition is that it will strengthen the bilateral trade and investment relations between Rwanda and Kenya, two of the largest economies in East Africa. The deal will create synergies and opportunities for cross-border collaboration in the cement sector, as well as other sectors such as energy, transport, tourism and agriculture.
The deal will also contribute to the regional integration agenda of the East African Community (EAC), which aims to promote free movement of goods, services, capital and people among its six member states.
Challenges of the acquisition
However, the acquisition also poses some challenges that need to be addressed by both parties. One of the main challenges is to ensure that the deal complies with the regulatory requirements and safeguards of both countries, especially in terms of competition law, environmental protection, labor rights and corporate governance. The deal will also need to secure the approval of Cimerwa’s minority shareholders, who may have different expectations and interests than National Cement.
Another challenge is to manage the potential risks and uncertainties that may arise from external factors, such as political instability, security threats, currency fluctuations, trade barriers and natural disasters. These factors can affect the performance and profitability of Cimerwa, as well as its ability to access raw materials, energy, transport and markets. Therefore, National Cement will need to adopt a proactive and flexible approach to mitigate these risks and cope with these uncertainties.
A third challenge is to balance the interests and needs of various stakeholders, such as customers, suppliers, employees, communities and governments. The acquisition will inevitably bring some changes to Cimerwa’s operations and culture, which may generate some resistance or dissatisfaction among some stakeholders.
Therefore, National Cement will need to engage in effective communication and consultation with all stakeholders, to ensure that they understand and support the vision and goals of the acquisition, and that they benefit from its outcomes.
The acquisition of Cimerwa by National Cement is a significant development for the cement industry and the economy of Rwanda. It has the potential to create value for both companies and their stakeholders, as well as to foster regional integration and cooperation.
However, it also entails some challenges and risks that need to be carefully managed and overcome. The success of the acquisition will depend on how well National Cement can execute its strategy and deliver on its promises, while respecting the laws and norms of both countries. If done right, the acquisition can be a win-win situation for all parties involved.