Emerging markets lead cement consumption
Global cement consumption has more than doubled over the last 15 years, reaching an estimated 3.2 billion t in 2010. This impressive growth stems from emerging markets, which now account for an estimated 90% of cement consumption worldwide against 65% twenty years ago. Industry analysts predict that global cement consumption will continue to grow steadily and peak at around 5 billion t by 2030 – 50. During this period, China’s consumption, headed towards 2 billion t by 2012, may decrease to below 1.4 billion t, and India’s may be reaching close to 800 million t. Next to these two giants, the Middle East and African markets, which consumed about 365 million t of cement in 2010, continue to represent strong growth opportunities.
Cement consumption in emerging markets comes mainly from residential building (over 60 – 70%). Residential demand is further driven by high population growth and increasing urbanisation rates. Bridging large housing shortages and implementing affordable housing solutions and financing are key challenges for most African and Middle Eastern countries. For example, sub-Saharan Africa, which has a young population growing at a rate of 2.5% pa and only a 40% urbanisation rate, is expected to add 10 cities of more than three million inhabitants, tripling their current population over the next five years. In developing countries with low GDP and consumption per capita, the compound annual growth rate for cement consumption is strongly correlated to the country’s GDP growth rate, typically at a beta ratio higher than 1.4. That is, cement consumption in many of these countries is increasing at an average rate of over 7 – 8% per year.
Developmental impact in emerging markets
IFC invests in the building materials sector in order to increase the availability of competitive local products that are critical to the development of a thriving construction sector. This links directly to the developing country’s ability to add the physical infrastructure and affordable housing it needs for poverty reduction and economic growth. In turn, better infrastructure drives GDP growth, creates jobs and SME linkages, and encourages additional foreign investment.
IFC investments contribute to the local production of cement, thus reducing the need for costly imports and foreign exchange outflows. This also typically enhances competition and helps lower prices for consumers that vary considerably across countries.
IFC’s world-class sustainability standards are also helping client companies reduce their environmental footprints, enhance their social responsibility efforts, and improve governance, all of which contribute to a strong triple bottom line. Indeed, there is a strong business case for sustainability in emerging countries, where politics and authorisations can be volatile, and where manufacturing companies often bear the brunt of harsh criticism from activists concerned about the social and environmental aspects of greenfield or expansion projects.
Development Institutions are willing to take considerable risks, including making early investments in post-conflict countries. IFC has recently invested in cement projects in Bosnia and Herzegovina, Liberia, Sierra Leone, Angola, and Yemen, and is currently considering new investments in Iraq, Afghanistan, Timor, and Mozambique. For example, IFC and syndication partners financed 50% of the US$250 million project cost of a Saudi-owned cement firm, Arabian Yemen Cement Company, as it embarked on an ambitious 1.5 million tpa greenfield cement plant project in Yemen, where the business risks are perceived as high and the local political and business situation is still very volatile.
Investment in the cement sector
IFC has invested over US$3.5 billion in the cement sector, building an in-depth industry knowledge. It operates from over 100 offices in 86 countries, bringing its unique global and regional expertise to its clients and their needs. Client companies tend to be successful: IFC’s historical average annual equity return in the cement sector is around 19%.
Reducing cement’s carbon footprint
Currently, there is no viable alternative to cement, although promising research and development could result in the future commercialisation of low-carbon cementitious alternatives. Increasingly cautious and thus selective about climate change mitigation and the energy efficiency of new projects, IFC systematically analyses the CO2 footprints of its projects and promotes best practices and technologies, benchmarking, and mitigating action to reduce CO2 emissions.
IFC has developed a set of criteria barring inefficient technologies (e.g., wet, vertical shafts, and long-dry kilns) and promoting specific actions to limit the carbon emissions of its projects to a maximum of 650 – 750 kg of CO2/t of cement (including emissions from electricity). Two key actions consist in maximising the use of blended cement, depending on local regulations and specificities, and reducing thermal and power energy consumption, targeting for example a fuel consumption of 2900 to 3300 J per t of clinker. IFC also encourages installing vertical roller mills, roller presses, and waste heat recovery systems for co-generation, and the use of renewable and alternative fuels wherever they are locally available (e.g. biomass, tyres, municipal waste, solar energy, wind farms).
In conclusion, the strong impact of cement on development, the expected growth of demand for cement in developing countries, and associated long-term capital needs make cement a key industry for IFC, especially in lower income or riskier countries of the Middle East and Africa. IFC is committed to provide leadership in improving corporate governance and environmental and social performance standards, including promoting the necessary mitigation actions to limit CO2 emissions associated with cement production.
This is an abridged version of the full article that was published in the November 2011 issue of WORLD CEMENT. To read more download the issue now (subscribers only).
Read the article online at: https://www.worldcement.com/africa-middle-east/31102011/ifcs_role_in_the_middle_east_and_africa/