Page 18 - ITA Journal 3-2018

Market information
A spotlight on East Africa
Large parts of East Africa are a very promising operating territory in terms of growth and the least dependent on commodities such as gold or oil. Countries like Tan- zania, Kenya, Rwanda and Ethio- pia are the frontier growth of the continent. The region is projected to attain the highest regional economic growth at 6.3% over the 2018 period. Ethiopia is pro- jected to be the fastest growing economy in Africa at 8.5% accord- ing to the World Economic Forum.
Aside of the macroeconomic aspects, a mixture of factors can be attributed to East Africa’s growth. Policies are promoting local production of various goods and investments are boosting dif- ferent industrial sectors. Regional economic integration equally boosts growth. The East African Community (EAC), with member states such as Kenya, Rwanda and Tanzania, is largely seen as the most integrated economic block on the continent.
The vast infrastructure de cit is a constraint on the growth of the region. Yet, the desire to invest and develop infrastructure is an opportunity to leapfrog this con- straint and sustain the growth with new and more ef cient tech- nologies.
Steel production in East Africa
The steel industry of East Africa is yet heavily dependent on imported raw materials and molten scrap metals. Even though local deposits of iron ore and coal have been identi ed in several locations, the region is yet to attract enough commercial inter- est to exploit them. This interest however is expected to gradually increase with the growth of the local steel production.
Over the past few years, growth in production of steel was outpaced by growth in the demand of steel. The consequences are growing opportunities for new plants and expansion projects to cater to this gap in the market.
The largest two markets for steel in East Africa are Kenya and Ethi- opia. In Kenya, the East African community’s economic hub, demand of steel stands at approx- imately 1.8 million tons per year. This demand is a result of steel exports and multiple local con- struction projects such as the ambitious housing projects ini- tiated by The National Housing Corporation (NHC) to construct 500,000 housing units across the country in only 5 years. However, the installed production capacity of steel in Kenya is only about 1.4 million tons, of which 57% is being utilised.
The local market is currently centred around long products due to the rise of construction and transport projects. The local com- panies Athi Steel, Apex, Dekvi and Tononoka are the largest produc- ers in this segment.
Ethiopia on the other side dis- tinguishes itself with low elec- tricity and labour cost. Multiple big construction projects present
opportunities for the steel sector. Ethiopia’s demand of steel is about 1.1 million tons per year with an installed production capacity of about 1.2 million tons per year and about 42% capacity utilisa- tion – an indication of producers preparing for the rapidly growing demand.
The biggest companies in the steel market in Ethiopia are Habesha, Steel RMI, East steel and Aarti. Alem Steel, through their subsidi- ary Osaka steel, is the only organ- isation operating a rolling mill for at products such as sheets.
In addition to national players, dominant regional groups in the East African steel industry are SAFAL group, who has the strong- est presence in the region, fol- lowed by MMI Steel and Athi Steel.
Presently, the market in East Africa is mainly focused on long and at products. This is however likely to change, as broad demand growth creates larger markets for other products as well. The imports of pipes and tubes into Kenya and Ethiopia are for example already rising at more than 9% (in weight) per year since 2008. In future, market demand – and production – is likely to diversify in terms of the variety of products.
Previously, companies in the region tended to acquire low to medium price level equipment due to the risk factor of capital invest- ments. This leads the markets to be mainly dominated by relatively cheap Indian and Chinese made equipment. Nevertheless, more than half of all companies in the East African steel industry seek to renewtheirequipmentinthenext 5 years, many targeting higher quality machinery. As the environ-
ITAtube Journal No3/October 2018
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