Mr Dangote’s announcement immediately sent shock waves across the local cement sector, which is already contending with excess capacity and the influx of cheaper cement from Egypt, India, China and Pakistan.
Many commentators reacted by foretelling that Dangote Cement would intensify the price war in the cement business as it strives to grab a market share from local firms who are fighting to defend their stakes in the increasingly competitive environment.
Benson Musyoka, a Nairobi-based market analyst, said that he expected Dangote to complicate matters especially because the local production capacity was running ahead of consumption.
“The industry profitability is likely to fall, with average net profits of below 8 per cent due to heightened competition and falling prices,” he said.
A market share war that has intensified with the entry of National Cement, Mombasa Cement and Savannah Cement has already pushed down cement prices in the country to a 12-year low.
The price of a 50kg bag of cement in Nairobi has dropped to Sh650 from Sh740 in 2008 and 2009 – a decline of Sh90 – with analysts expecting the costs to come under pressure from increased cement capacities.
In 2012, local cement makers produced 4.6 million tonnes of the commodity against total consumption of 3.9 million – leaving the market with 700,000 tonnes (about 20 per cent) surplus including exports.
This means that if Mr Dangote had by then set up a factory with a two-million-tonne-a-year capacity, he would have controlled nearly 40 per cent of the market.
In order to prevent such a scenario, highly connected local and international businessmen are reportedly marshalling their forces for a ferocious battle against Mr Dangote, including calls for inhibitory legislation to disrupt the project.
EDITOR'S NOTE: Read the latest issue of Construction Business Review. Flip through the pages of the paper real-time or download a copy to read offline. Sign up for a FREE subscription to get the paper delivered to your inbox every month.