IN THE BAG

Mozambique 2016 | INDUSTRY | VIP INTERVIEW

TBY talks to Jorge Reis, CEO of Cimentos de Moçambique, on challenges in the cement sector and investing for growth.

How do you assess the contribution of Cimentos de Moçambique to the local economy?

We employee about 1,200 people, half of whom are directly employed and the other half indirectly. Last year, our production stood at around 1.5 million tons of cement and clinker, somewhat below our total production capacity. There are a number of factors, namely the reliability of the electricity supply, railroad service, and other crucial supplies. The company's good relation with the Mozambican government allows it to search for timely and useful solutions for the problems encountered. However, the issue of electricity is universal and a considerable problem. For example, in January there was a blackout in the north for 28 days, so two plants stopped production. Sometimes it is not the lack of electricity, but its quality of output. If there is an unstable flow, we have to stop our machines, as the engines could catch on fire.

How can these challenges be overcome in the medium term?

Investment in the industry sector is paramount, from the both state and private sector. For example in terms of electricity infrastructure, there are a lot of private companies interested in building power plants here in Mozambique, but the government should be practical and work to help investors. Without electricity, industry cannot stabilize, which greatly affects the cost of production of cement. Although our plants are capable of working for 24 hours, if there is no electricity for two hours, we have to stop for four hours because it takes time to power down and then restart the plant. The lack of reliable electricity affects us in terms of availability and maintenance problems. Another example is the problems we, as well as other industrial companies, face in the logistics area. Although we are the only clinker producer in Mozambique we also need to import it. If the ships are destined for the central region of Mozambique (via Beira Port), the ships must sometimes first anchor in Nacala, or Maputo, as they cannot go to Beira since it lacks the capacity. Given the lack of port capacity for the country's imports and exports, sometimes ships have to dock for several days to discharge. These examples take their toll on cement production costs, while leading to higher national cement prices.

Cimentos de Moçambique has recently announced plans to invest $250 million in a new integrated cement plant in Nacala. What is the strategy behind this step?

That is part of our vision for Mozambique, and our view is supported by figures from the rest of the world. We consider economic estimates that imply that profits from gas will rise, while the population will grow and GDP per capita will double. Considering not only the country's needs for infrastructure, but also the lack of housing, if people have more money in their pockets, they will buy more cement. In Mozambique, 80% of the cement we sell is used directly by individuals to improve their residences. That is the main market we are working in; not for big companies or construction, but for people who buy cement for home use. We believe in the potential of Mozambique. Presently we have a around 60% market share in Mozambique, and although in the coming years there may be some newcomers, we believe Cimentos de Moçambique will sustain this figure. For that we are improving our portfolio with our new plant in Nacala, making a number of management measures, not only on the commercial side, but also on production. Regarding the Nacala investment, we have a number of competitive advantages for that location, namely the present grinding operation on the location, the limestone reserves, which is critical, the land, and the commercial implantations and know-how.

What is your assessment of the regulatory environment in the construction industry?

Presently and historically our main competitor imported cement; however, some of the materials imported are not suitable for construction and some of the cement does not even meet the minimum requirements of the law. Moreover, compliance with existing regualtion is poor. Cimentos de Moçambique believes it is of the upmost importance to have a strong industrial sector, and this is something we are working to create together with the Mozambican Association of Cement Suppliers. We are combining forces to work hand in hand with the government to increase competition and product quality. We are working on different fronts, but doing that here is not easy. It is a step-by-step process.

What is your global vision?

Cimentos de Moçambique is a member of InterCement. InterCement is one of the largest and most profitable international cement producers in the world, with a diversified geographic footprint in Mozambique, Brazil, Argentina, Paraguay, Portugal, Egypt, Cape Verde, and South Africa. Although Cimentos de Moçambique is a part of one of the largest cement companies in the world, for us it is important to maintain high levels of profitability because, without that, it would be impossible to achieve our investment objectives. Without profitability, we could not invest. It is important for us to be profitable to increase our operations, build more plants, pay more taxes, and pay our employees better.