Global specialty chemicals firm Sika AG continued its expansion into growth markets that it started in earnest in 2015 with the opening in February of its concrete admixture production plant in Ethiopia.
“The new factory in Ethiopia is part of the systematic implementation of our Africa strategy,” said Paul Schuler, regional manager for Europe, Middle East and Africa.
“We are playing a pioneering role in setting up local production and this will bring us significant competitive advantage,” he said in a statement.
The opening of the Ethiopia concrete admixture production facility comes a year after the company expanded its production capacity in Africa by opening new factories in Nigeria and Ivory Coast in 2015.
The new admixture production plant precedes the 2015 establishment of a national subsidiary in Ethiopia, the same year a similar one was launched in Tanzania.
Schuler said Sika, which produces the Sika umbrella brand and some 838 Sika product trademarks such as Sikaflex, Sika viscocrete, Sikabond and Sikaflex would ensure the Ethiopian market benefits from “local product formulations that are perfectly adapted to the raw materials and local requirements, as well as from shorter delivery times.”
In its 2015 annual report, Sika, which develops and markets a wide range of admixtures and additives, predicted a rising demand for the products fuelled by a projected increase in “performance requirements placed on concrete and mortar, especially in urban areas and for infrastructure construction.”
In Ethiopia, the concrete admixtures market is likely to be driven in coming days by the increasing rate of urbanization and fast-growing construction sector.
Ethiopia, Sika said, has huge potential because of being “the second biggest economy in sub-Saharan Africa in population terms and fourth biggest in terms of economic output with construction sector set to grow more strongly than other countries in the sub-Saharan region.”
The World Bank estimates Ethiopia urban population will more than double from the 15.2 million in 2012 to 42.3 million in 2037, with analysts estimating the country’s urban population growth rate to be 5.4 percent.
The bank estimates that 70 to 80 percent of the urban population in Ethiopia lives in areas considered slums that lack “durability, adequate space, access to safe water and sanitation or security of tenure.” This has created opportunities for construction of housing to accommodate the growing urban population.
“Ethiopia could be 30 percent urban by as early as 2028 with a tripling of urban population to 42 million by 2032,” the bank said in its ‘Ethiopia Urbanisation Review’ report for 2013.
Opening of the Ethiopia plant is one of the major investment decisions by Sika in the African market after the January 2015, acquisition of the Mozambican company Duro-moza, which manufactures and sells mortar and tile adhesives. Sika said in a statement at the time the “transaction will accelerate Sika Mozambique’s development and market penetration.”
As part of its strategy to expand in Africa and the rest of the world, Sika says some of the businesses it plans to acquire “are usually unable to market their systems worldwide sooner or later proves a barrier to growth, and by acquiring such companies, the Sika Group, as a global player, is able to leverage their full potential.”
Separately, Kansai Plascon Africa Ltd. (KPAL), a subsidiary of Japanese giant Kansai Paints, has announced its acquisition of the entire stake in Sadolin Paints Company Ltd, a leading manufacturer and marketer in Kenya, Tanzania, Uganda, Zanzibar and Uganda.
“The completion of the transaction is subject to regulatory approvals and other customary conditions,” said KPAL in a statement.
“As part of the transaction, the parties have also agreed to separately to investigate the acquisition of Sadolin Paints’ operations in Rwanda,” said KPAL.
Despite Kansai Paints saying in its 2016 annual report that business in Africa deteriorated because of the economic slump in South Africa and neighbouring countries, its African subsidiary said the acquisition of Sadolin Paints “will reinforce KPAL’s leading position in Africa and its presence in East Africa.” The region has a population of about 285 million representing an estimated 24 percent and 9 percent of the total African population and GDP respectively.
Kansai Paints manufactures and markets a wide range of coatings including decorative, industrial, protective and automotive and has a research and development facility in South Africa.
The acquisition comes at a time when Kansai’s performance in the African market appeared sluggish according to the Japanese company’s 2016 annual report.
“Despite continuing sales promotion efforts, sales fell slightly on a local currency basis at a time of weakness in the economies of South Africa and neighboring countries,” the company said in February.
“Investment in sales promotion and other factors put pressure on profits, and substantial currency conversion effects contributed to weak business results,” Kansai said. The company’s sales in Africa for 2015 dropped by 26 percent compared to 2014, to slightly more than $257 million. Kansai estimates the ordinary loss, including goodwill amortization for 2015 at $5.2 million.
Despite Kansai’s decline in earnings in the African market, the company’s entry into East Africa seem to have been timed to coincide with an ongoing infrastructure construction boom in the region. With the recent oil and gas discoveries in Kenya, Uganda and Tanzania, analysts project investment in related infrastructure to be between $60 billion and $70 billion.
Kenya’s construction industry for example has reported good growth in recent times contributing an estimated $2.86 billion to the country’s gross domestic product in 2014, 13.1 percent higher than 2013 according to global research and consultancy firm Oxford Business Group.
“The construction industry’s substantial jump in 2014 made it the best-performing sector that year, owing primarily to an injection of funds for major road works, railway projects and road rehabilitation,” the group said early last year.
With the entry of Kansai Plascon Africa Ltd. into East Africa and the launch of a concrete admixture production plant in Ethiopia, consumers in the region are expected to access a variety of quality coatings and paints products to feed the increasing construction industry at competitive prices.