Dangote Cement’s brand new $500 million Cement Plant in Ethiopia risks being ensnared in the civil war stirring in the country as rebels opened a new front against Federal forces in Oromia region where the cement plant is located, MoneyCentral’s analysis shows.
Ethiopian operations are the largest by revenues for Dangote Cement in its Pan African segment of operations and second largest after Nigeria.
A leader from the Oromo Liberation Army (OLA), an ethnic Oromo armed group fighting the Ethiopian government alongside Tigray rebels was reported by AFP to have said “its fighters were near the capital and preparing a new attack, promising an end to the conflict ‘very soon”.
“What I am sure of is that it will end very soon,” OLA military chief Jaal Marroo told AFP on Sunday, adding: “We are preparing to launch another attack.”
The Dangote cement plant, the largest in Ethiopia, is located in the Oromia regional state, less than 90km from the capital, Addis Ababa.
The armed group (OLA) which are based there, announced in August that they had formed an alliance with the Tigray People’s Liberation Front (TPLF), which has been fighting government forces in the north of the country since November 2020.
Oromia region is the largest in Ethiopia and completely encloses Addis Ababa.
Dangote Cement Ethiopia
The Dangote Cement plant Ethiopia built at a cost of $500million was commissioned in May 2015. With rich limestone reserves of about 223 million tons, it is the largest cement plant in Ethiopia capable of producing high-quality 32.5 and 42.5-grade cements to meet market needs, and at competitive costs.
It has a production capacity of 5,000 tons per day and 2.5million metric tons per annum, while its crushers for minerals such as limestone, coal and gypsum have a capacity of 1,400 tons, 200 tons and 200 tons each per hour.
The plant which is 99.97 percent owned by the Dangote Group has 2 cement mills with 150 tons capacity per hour and 6 packers with 120 tons’ capacity per hour per line.
The plant has two conveyor belts covering a distance of 5km from the crusher with capacity of 1600 tons per hour while the Clinker has storage capacity of 80,000 tones
Before the war Ethiopia’s strong economy which expanded a record 7.4% in 2019 and its flourishing construction industry as the country builds houses and major infrastructure projects under its Growth & Transformation Plan was a major attraction for Dangote Cement and other foreign investors.
Although Ethiopia’s market is estimated at more than 9 million tons, per-capita consumption lags behind many African countries at about 84 kg/person, suggesting growth potential as the country modernizes.
Ethiopia’s total installed capacity as at 2019 was 15 million tons per annum capacity, of which Dangote had a 26 percent market share. The company derives its power supply (40mega megawatts) from the national grid which the plant runs strictly on, although the kiln runs on coal.
The company has a 132KV transmission line that is dedicated to the plant. Major risks to the plant include disconnection from the grid due to damage to power lines from the fighting, inability to get coal supplies through to power the Kiln, actual damage to the plant itself from firefights or sabotage from either side of the war, and inability to securely supply the rest of Ethiopia due to blockades and inability of the worker to get to and from work in a safe manner, among others.
Revenue from Ethiopian operations for Dangote Cement came in at N53.9 billion as at Full Year (January – December) 2019.
Insecurity flares up again in Oromia
This is not the first time that Dangote Cement’s Ethiopia operations will be affected by insecurity in its region of operations, Oromia.
In 2018, the country manager of Dangote cement, Deep Kamara was killed along with two other individuals in an attack by unknown assailants.
Also during the 2016 – 2017 protests by the Oromo people, protesters attacked and vandalized Dangote’s cement factory along with several vehicles and machinery. There have also been a series of other attacks from the local community on Dangote’s assets over some unresolved labor issues related to the private employment agencies hired by the company.
A reconciliation ceremony was however organised in September 2017, which was attended by hundreds of locals.
In 2017, Dangote threatened to shut its operations in Ethiopia if the authorities in Oromia did not reverse an order to cement makers to deliver control of some parts of their businesses to local young people.
Tony Watima, a Kenyan economist who studies Ethiopian politics said then that the Dangote Group failed to properly investigate the socio-political dynamics of Ethiopia before venturing there.
“Dangote’s Ethiopian troubles are a pointer to what happens when you use a top-down approach of inducing senior government officials to initiate a project and fail to properly engage the community. Everyone knows the Oromia region is an anti-government region. Dangote should have done better due diligence,” he says.
Some foreign investors flee
There were Press reports on Tuesday said that Safaricom had evacuated some of its staff from Ethiopia. Other counties including the United States, Denmark and Italy have also advised their citizens to evacuate the country.
READ ALSO: Dangote Seeks More Loans To Salvage Refinery Project
The Safaricom-led consortium won the only telecom license that has been issued in Ethiopia this year after it bid $850mn. A few months ago, the Ethiopian authority confirmed that the telco will be able to offer mobile money services in the country.
Following the initial announcement, the Safaricom-led consortium signaled that the plan was to spend $8bn in capex over the next ten years.
“Some of the risks and uncertainties we highlighted previously included the aggressive capital expenditure plan, political unrest in Ethiopia, competitive intensity, and the local purchasing power in Ethiopia,” analysts at Tellimer Research said in a note to clients.
Reputation risk
Dangote Cement may also find itself facing reputation risk as well as possibility of offending the eventual winners of the war, similar to cement firm LafargeHolcim’s embarrassing situation in Syria.
In 2018, French authorities began formal investigations of a LafargeHolcim subsidiary over claims it funded a terrorist group in Syria.
The subsidiary was also accused of complicity in crimes against humanity and endangering lives in Syria. Lafarge had admitted paying groups in the country in order to keep a cement factory operating in Northern Syria as violence mounted after 2011.
An internal investigation in 2017, found evidence the factory provided funding to local armed groups in order to stay open. The investigation concluded that those in charge of the Jalabiya plant had taken “unacceptable” measures in order to keep the plant open and protect employees.
Various armed factions “controlled or sought to control” the area, it said.
At the time, Syria was subject to EU sanctions imposed on President Bashar al-Assad’s government, which lost control of large swathes of the country to various armed groups.
Shares hold up for now
Dangote Cement shares are holding up well for now, despite the risk the firm faces in Ethiopia which is its second-largest market by Revenues (as at 2019).
Dangote Cement shares are up 14.33 percent year to date, outperforming the NGX all share index which has risen by 8.59 percent in the same time period.
This is probably because Nigerian operations for Dangote Cement are still the major drivers of growth and profitability.
For the nine months period that ended in September 2021, Dangote Cement revenues came in at N1.022 trillion, led by Nigerian operations at N729.6 billion or 71.3 percent of the total and revenues from Pan Africa operations at N297.86 billion, making up just 28.7 percent.
Contributions to Earnings before interest, taxes, depreciation, amortisation & impairment (EBITDA), from Nigerian operations was even more concentrated at N459.22 billion or 89.2 percent of the total, while Pan African operations EBITDA was N66.96 billion, data from the firm’s latest financial statement seen by MoneyCentral shows.
Source: Moneycentral
