Thursday, August 16, 2007

Bamburi/EAPC merger

Lafarge is a large and clever company.It has stakes in its Kenyan competitors' Athi River Mining(15%),East Africa Portland Cement (41%).Its main regional company is Bamburi Cement(63% stake).For a while,the Government has been eager to stop its ownership of competitors.It has been proposing the sale of the Lafarge stakes in EAPC and ARM, especially EAPC since only 6.3% is listed on the NSE contrary to listing requirements that 25% of a company should be listed.
Regionally Lafarge have other holdings in the region i.e.Mbeya Cement-Tanzania(62% Lafarge held) and Hima Cement-Uganda(71% Lafarge held through Bamburi).
The industry
Right now there is a construction boom in the Middle-East so Eyptians are selling their cement to their brothers in the Gulf,at the same time the high freight rates and Port efficiencies make it expensive to import cement to East Africa.For now the two factors are saving the hides of our local cement producers.
At the same time local cement demand is rising installed capacity in Kenya is at 3.3million tonnes(actual capacity is probaly 2.5-3.0 million tonnes),Annual cement demand excluding what we send to Sudan,Rwanda and Uganda is at 1.8million tonnes and rising at 10% per year.
Eastern Africa
Cement demand is rising all over the region DRC,Rwanda,South sudan, Uganda and Tanzania are all consuming more cement.So unless, we have more factories we will have a supply constraint sooner rather than later.Unless,the boom in China and the Gulf explodes and we have a glut coming our way.

The issue
The Government of Kenya wants to introduce more competition in the Kenyan cement market by forcing Lafarge to sell its stakes in EAPC and ARM.On the other hand,Lafarge sees the Eastern african region as a growing economic area and doesnt want to sell the stakes.

The Proposition
Lafarge offers to merge Bamburi and EAPC and add Mbeya and Hima Cement to the deal to create a super East african cement company to fight external competition.(think of it as an East African Breweries for cement).
win-win for both parties i.e. Lafarge consolidates its holdings in the region and Government gets a large stake in a succesful East African Cement company.

Other players
The other players in the region such as ARM,Tororo Cement and Tanga may have to consolidate in order to achieve the size and scale necesary to compete with the new entity(if it happens)

My take
We should take the offer but ask Lafarge to add their other companies likePortland Cement-Malawi and Chilanga Cement -Zambia(which owns a stake in Mbeya Cement Tanzania) to the deal.
A new company comprising of Lafarge's major interests in Kenya,Tanzania,Uganda,Zambia and Malawi would be of the size and scope necessary to face any competition and satisfy regional cement demand.


patriotic kenyan said...

A small axe to the Safaricom IPO
I am not the daughter of a Big Man. Neither am I married to a Big Man — or even to the son of a Big Man.

I had the good fortune to have essentially middle-class parents who worked hard to give my siblings and me a good basic education. And I had the good fortune to have a mother whose citizenship made it possible for me to attend university, courtesy of the student loans system of her country.

The student loans covered fees and accommodation. But my parents couldn’t afford to send us much money — getting $100 on birthdays and at Christmas was like getting a windfall. So I worked to supplement the student loans, from the time I left Kenya at the age of 16.

Of course, I now recognise that, despite not being associated with a big man’s family, in comparison with the majority of people in Kenya, I am not only fortunate, I am actually extremely privileged.

But, despite that recognition, having worked since the age of 16, I also know the value of my money. I have worked for what I have. This is why, for instance, I get apoplectic with rage about corruption.

Under Kenya’s ridiculously constructed tax brackets, I fall into the same top tax bracket as Kenya’s Big Men. And I get nothing for it, having to pay privately for everything—including security where I live and medical insurance. But, my privileges taken into account, I certainly wouldn’t mind paying the amounts of tax that I do pay if I felt the money went to help those with fewer privileges, not to pay the obscene salaries of those who cannot be bothered to assure the House of a quorum sufficient to pass even 10 Bills a year — or to build the “bigness” of the Big Men.

The other night, some friends and I calculated the share of Safaricom’s reported Ksh17 billion ($253.7 million) profit that would have gone to Mobitelea — the company that, according to the Public Investments Committee, is irregularly in possession of no less than five per cent of the mobile phone company’s shares, meaning that there are apparently no records of Mobitelea having paid for that shareholding.

MEANING THAT MY TAX MONEY, which went into building and sustaining Telkom and Safaricom, was essentially given away. Meaning that, coming back to our calculation, the alleged owners of Mobitelea — the son of a Big Man and the son-in-law of another Big Man under the former regime and a Big Man in this regime — earned themselves no less than Ksh850,000,000 ($12.6 million) last year alone. From doing nothing at all, except live off the profits of having stolen from us. Ksh850 million off my back (and your’s as well). Again, I am incapacitated with rage.

And yet, the Treasury insists that Safaricom’s initial public offer will proceed, regardless of the outcomes of the PIC debate within the House or any court cases that might ensue.


FRANKLY, DESPITE OUR NEWFOUND fascination with IPOs, I don’t think a single one of us should put a single shilling forward. Those of us who do work hard and honestly deserve better. If shares in Safaricom could essentially be given away to Big Men, their sons and sons-in laws, then they can be given away to us. Why should we pay for them? They’re our property in the first place, which the government was meant to hold in trust for us. If it breached that trust for three of us, then it should share the love with all of us.

It might not seem like it, but there are, in fact, victims of corruption. Those victims are you and me — every single Kenyan who dutifully pays his or her taxes. I’m furious. I’m ready for a tax boycott — the residential associations led the way and it’s time to scale up their efforts. We need to say to hell with that IPO until the issues raised by the PIC have been satisfactorily dealt with. We need to be the “small axes” that Robert Nestor Marley talked about and cut down all those “big trees.”

L. Muthoni Wanyeki is a political scientist based in Nairobi

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