PPC has $60m stuck in Zimbabwe, but cement sales are booming

Cement producer PPC Africa says it has $60 million stuck in Zimbabwe, but the company has seen “robust growth” in the country’s construction market and is forecasting further growth ahead.

PPC is the largest cement producer in Zimbabwe, with total capacity of 1.4 million tonnes from its plants in Bulawayo, Colleen Bawn in Gwanda, and at its new $82 million Harare factory.

Reporting its six months’ results to September, PPC says the political environment has stabilised in Zimbabwe since elections, but liquidity shortages remain.

PPC Zimbabwe sold 28% more cement than it did in the same period last year. PPC says this is due to major construction projects, such as the Gwayi Shangani Dam, good harvests, and strong demand for private housing as Zimbabweans hedge against rising inflation.

Zimbabwe’s operations accounted for R1 billion of group revenue, making it the biggest market in PPC’s rest of Africa market segment.
But, like other foreign investors in Zimbabwe, PPC is struggling to repatriate its earnings.

“We will do everything in our power to get some of the money out in a legitimate way,” said CEO Johan Claassen. “We’ve been a very good citizen in Zimbabwe for about 18 years, through the ups and the downs, so I think we’ve got a strong case.”

Unable to take its money out, PPC is now looking at ways of deploying cash back into the business in Zimbabwe, as a way of entrenching its position in the market. The strategy, PPC reveals, may include the acquisition of new investments in downstream businesses.

PPC has secured strategic raw materials using PPC Zimbabwe’s local earnings, and accelerated capital expenditure funded from local cash resources.

The company gives a surprisingly upbeat assessment of Zimbabwe’s environment after the July elections. “The political landscape has improved in Zimbabwe post elections,” PPC says.

PPC sees further growth from more infrastructure spend, and a rush by locals to build houses.

Zimbabwe’s revenue contribution, which is up by 31% over the period, is over twice that from Rwanda, which accounted for R402 million, and more than four times what the company got from the DRC.

There would be a slowdown in South African cement demand, “however, we should benefit from a steady performance in Zimbabwe, improved output from Cimerwa [in Rwanda] and stable political environments in Ethiopia, while the DRC elections are a key milestone to unlock latent infrastructure demand,” he said.

In July, the market faced serious cement shortages after PPC and other cement producers ran out of foreign currency for essential inputs and spares. Production at PPC was hurt by a kiln breakdown at its Colleen Bawn plant in July. This has resulted in a backlog of clinker, the main ingredient. PPC was able to secure clinker from its South Africa unit.

The shortages came just as cement demand rose due to a boom in construction, which was on the back of more infrastructure projects and home building.

[Read our report on why Zim suffered cement shortages]

In September, PPC’s competitor, Lafarge, reported a 41% increase in cement volumes in the half year to June, which it attributed to increased road construction and home building, especially outside Harare.

Companies in construction, such as Turnall and Masimba Holdings, have reported strong volumes over the past year and expect further growth, with strong order books into 2019.

[Click here to read our report on Zim’s unlikely construction boom]