Will The PPC-Afrisam Merger Become A Reality?

Local cement companies are under pressure as a contraction has resulted in too much capacity. The two biggest local players hope competition authorities will agree that this warrants their merger.

- Marcia Klein

The issue of whether local dominance of a sector of the South African economy is acceptable in order for an industry to be internationally competitive is going to be tested when the proposed merger of cement producers PPC and AfriSam gets to the competition authorities.

The merger will undoubtedly lead to a dominant player in the South African cement market, with market share of 55% to 60%.

But individually, PPC and AfriSam have been struggling to keep debt under control, keep costs down and compete against upstarts in South Africa, notably Sephaku (backed by Africa’s largest cement producer, Dangote) and Mamba (backed by Chinese investment) and multinationals (Dangote and Lafarge) in Africa.

As Kennedy Bungane, CEO of AfriSam shareholder Phembani says, they are sitting “at the doorstep of one of the world’s most attractive cement markets”, yet have not been in a position to take advantage of it.

Just a few years ago, cement was touted as Africa’s new oil or new gold, depending on who was saying it. It was expected to be at the core of Africa’s infrastructure boom – but infrastructure development has largely stalled. Now there are too many players, too little demand and too much production capacity.

Merger attempt – take two

PPC has announced that it and AfriSam are, for the second time in as many years, looking at a merger, prompted by current market circumstances.

The plan is to create a South African-owned cement producer that is “financially stronger, operationally more efficient and has deeper technical capability”.

Part of the problem has been the “domination of multinational and regional players”, which have made it difficult for them to compete.