Economists have been extensively discussing the effect Dangote’s decision to slash their cement prices will have on the sector. While some are of the opinion that this is the right move, others have gone further to express the flip side foreseen, whose effect may be well felt in the long term.
Dangote Cement, the largest cement producer in Tanzania, slashed cement prices to 10,000/- per 50kg bag in a move seen to enhance competition in the local cement market.
Alhaj Sada Ladan-Baki, the group executive director of Dangote Cement said in a statement issued on Sunday that price reduction was in line with the company’s commitment to help in the development of infrastructure and boost the effort to reduce housing deficit in Tanzania.
“We recognise the need for a dramatic increase in the response to the huge infrastructure and housing deficit in the country, and one of the ways of addressing the issue is bringing the price of building materials down to much more affordable levels, especially cement which is within our own control, as part of our own contribution to the agenda of President John Magufuli’s administration addressing the housing and infrastructure in Tanzania,” he added.
He said the company had pegged the Dangote 32.5 cement grade at 10,000/- per 50 kg bag, while the higher 42.5 grade is to sell for 10,500/- per bag delivered in Dar-es-Salaam.
This step makes cement more affordable than it has ever been in Tanzania. The new prices represent more than 20 per cent discount on the prevailing market price of the product, which currently sells at 13,000/- in Dar-es-Salaam and higher prices across the country irrespective of the grade.
Prof Humphrey Moshi of the University of Dar es Salaam, gave a cautious welcome to the news about cement price reduction, saying it was good to consumers and the construction industry, at least in the short-term basis. He also cautioned over long-term effect that the move may be inimical to growth of the cement sub-sector. “All in all, it is a good move as it will help many people to erect permanent structures and stimulate the construction sector,”
Economists have commended price decline in the cement industry due to growing competition after the entry of new players. The price reduction would boost cement consumption as it would be more affordable to consumers. This would encourage more Tanzanians to have more permanent structures
On the flip side however, the price reduction is good news for consumers but not so good news for producers. Consumers who are price sensitive may shift to Dangote cement, depending on quality, which may have negative effects to other producers and long-term repercussions in the industry. As much as consumers are winners in competition, producers may have a hard time adjusting.
The Dangote Cement investment will certainly contribute to Tanzania’s on-going story of infrastructure development, job creation and broad economic development.
Dangote’s US$600m investment in Tanzania will further speed up infrastructural development and complement the government’s efforts in stimulating economic growth and creating jobs.
Dangote cement, the largest producers competes other producers including Tanzania Portland Cement, owned by a subsidiary of Germany’s Heidelberg Cement AG; Tanga Cement, majority owned by Afrisam Mauritius Investment Holdings Limited; and Mbeya Cement, owned by France’s Lafarge SA.
