PART TWO: How the Indians came to build Kenya
PART THREE: History of Cement Industry in Kenya
PART FIVE: The Rise of the National Construction Corporation in Kenya
PART SIX: The Fall of the National Construction Corporation
As early as 1926, concrete blocks were the most preferred building materials, especially for permanent walling. The local native African labourers were perceived to be best placed to provide labour with concrete blocks. In a document, a stakeholder in the colonial government is quoted saying: “We found that the native can be more easily used with concrete block construction than with any other form of construction and the work come out very much cheaper.” Equally preferred were bricks. In the 1920s, the cost of bricks was approximately between 80 and 100 shillings for every 1000 pieces.
However, it is worth noting that buildings such as the High Court of Kenya and Kipande House – which served as a warehouse for the railways and later a central bank in the Kenya Colony, and now a branch of the Kenya Commercial Bank – were “built with huge boulders and large rocks, like fortresses, very imposing and impenetrable.”
And when the Norfolk Hotel opened on December 25, 1904, it was one of the few buildings “built of stone, with a tiled roof.” And in August of the same year, Anglicans in Nairobi built the St Stephen’s church which was “built of corrugated iron on a cement base at a cost of 12,500 rupees.”
During and after the World War II, there was a surge in price and demand for building stone, thanks to the building and construction boom in Nairobi. Building stones became popular around Nairobi where extensive rock deposits occur. This is evident from the quarries that dot various locations around the city such the Njiru, Ndarugu and Ngong quarries. The stones vary in hardness and colour both within a quarry and across different quarries. The use of building stones in buildings is associated with social status in some places in Kenya.
In the Lake Victoria region, away from Nairobi, timber was used in construction before it was affected by borers, which led to an “increasing tendency for buildings…to be built of stone, concrete or cast aggregate blocks.”
The Kenya-Uganda Railway construction and maintenance also brought to the fore the challenges faced in obtaining construction materials. In the 1920’s, the management of the railway line said that they could not “get sufficient supplies of local timber,” and this made the railway management company to delve into the logging business. Reason? They got “no response whatever to our calls for tender” to supply timber.
There was also a challenge in the cost of cement used in construction in the 1920s in the Kenya Colony. The Director of Public Works at the time, H.L. Sikes summarised the nature of cement production, supply and costs on December 2, 1926. He was quoted saying:
“In India, for instance, the cost of cement is something like Sh 18 per tonne. In Nairobi, the cost is about Sh 180 per tonne. The cost of cement in Nairobi is about three times the FOB cost in England. The cost of cement in Nairobi is nearly double the landed cost at Mombasa.”
As a result of the high cost of imported materials such as cement contributed to the high costs of construction in Kenya in the 1920s. The other reason was that, even at this point, the Kenya Colony still relied on imported artisan labour. The government of the day had also not invested in the training and development of skilled artisans.
From the above statement by the Director of Public Works, it is also evident that the high cost of freight contributed to high construction cost. The Railway Council was in charge of the freight rates charged on imported building materials. In the year 1927, the Colonial administration had to intervene and this resulted in the reduction of the rates imposed on imported corrugated iron and cement. This move was driven by what the government of the day referred to as the “heavy building programme” that was in place.
The evolution of Kenya’s cement industry will best show how building materials’ availability has shaped the growth and evolution of the construction industry.
CEMENT INDUSTRY IN KENYA
“…considerable number of years ago other (limestone) deposits on the coast, from which it was proposed to develop for cement manufacture were sterilised because the British government would not give the promoters of the scheme any protection against the competition of dumping of Japanese cement.” – East African Standard, September 6, 1951
The level of consumption of cement is a key indicator of the performance of the building and construction sector. Political activities in the nation determine the degree and level of investment in the sector which, in turn, affects the quantity of cement utilised in the building and construction activities in the economy.
The British Colonial government in Kenya heavily relied on imported cement for most of its construction. At the time, the Japanese cement was much cheaper, giving rise to stiff competition. It is well known that Japan was a serious rival of the British when it came to the control of goods imported into the East African market. By 1938, Britain “had lost its dominance over the East African market in terms of volume of imports in several manufactured goods, such as cement.” The British used to refer to the shipping in of the Japanese cement as “dumping of cement from abroad.” Consequently, the British set up the East African Portland Cement (EAPC) in 1933 in Athi River. This was a clinker mill that used to crush imported clinker. World War II resulted in a drop of cement imports from Japan due to the disruptions arising from the war.
In the period preceding the World War II, the British government was not committed to setting up cement processing plants in the Kenya Colony. The main reason that was given was that the cement consumption by the settlers was low. As earlier highlighted, after the World War II, there was a significant growth in the demand for cement. In 1945, for example, records placed the demand for cement in the Kenya Colony at 25,000 tonnes. This is said to have grown to 123,000 tonnes by 1950.
The British cement suppliers found it difficult meeting the surging demand across the British Empire. Some of the leading cement suppliers attributed the sharp shortage to “delays in getting machinery and plant.” The low supply and high demand drove the price of cement upwards, resulting in high cost of construction. This led to a serious crisis in the colony’s construction sector.
On July 16, 1951, a representative of the Kenya Association of Building and Civil Engineering Contractors (KABCEC) was quoted in reference to the cement crisis on 1950. He said that some contractors “may cease operation to save their dwindling capital if supplies of cement are not made available in the right places at the right time.”
By the year 1951, a total of four firms had expressed interests in setting up cement production plants in Kenya. These included:
Kenya Kyanite – Owned by Charles Markham. Intended to set up production plant in Kisumu
Industrial Cement – A South African company that wanted to set up cement production plant in Sultan Hamud. East African Portland Cement (EAPC) hijacked the government’s plan to issue Industrial Cement a licence to set up the plant
Amalgamated Roadstone Company – A British company that initially supplied granite to large concrete producers
East African Portland Cement Company (EAPCC) – To be discussed below
East African Portland Cement (EAPC)
Between 1933 and 1958, EAPC used to grind imported clinker. The production of cement from the locally available limestone deposits began in 1958. Unlike Bamburi, EAPC used to transport limestone from Sultan Hamud – where South Africa’s Industrial Cement had planned to set up their plant – by rail. This made it more costly to transport limestone from the quarries to the plant, hence the higher overall cost of production. Just as a sidenote: Hans Reichtel noted in his paper, cement is “vulnerable to expensive transport” because it is a “relatively low-priced commodity and its raw materials are found rather frequently.”
Just as a sidenote on the transport factor: Hans Reichtel noted in his paper, cement is “vulnerable to expensive transport” because it is a “relatively low-priced commodity and its raw materials are found rather frequently.”
EAPC, unlike Bamburi, enjoyed the closeness to Nairobi and the White Highlands, which were the main markets of cement produced. The climate around Athi River was also ideal and favourable for the production of cement. The proximity of the cement plant to Nairobi also meant that it was easily connected to the power grid at a lower cost than Bamburi. Also, the River Athi was a source of water for the plant. Gypsum was also acquired from deposits in Garissa and this was transported by road.
EAPC was formed as a partnership of key stakeholders in cement industry, who were of British origin. The partnership that gave birth to EAPC consisted of the following:
- 20% stake was held by three leading cement distributors: Baumann, Smith Mackenzie and Africa Mercantile Marine Company
- 40% stake was held by a British cement supplier: Tunnel Cement Holding
- 40% stake was held by a cement supplier: Associated Portland Cement Company
In the post-war era, EAPCC was unable to meet the surging demand for cement by the settler community in the Kenya Colony.
Under the leadership of Reginald Gilbert Vernon, EAPCC was keen on seeking concessions from the colonial government. For example, EAPC wanted preferential railway rates for cement transported via the railway. EAPC also sought tariff protection and government’s commitment to buy large quantities of cement for its projects. The government was not able to meet all these requests and demands tabled by the leadership of EAPC.
It is also in 1951 when a bill was passed permitting the construction of a cement production plant in Bamburi near Mombasa. The company was called British Portland Cement Company Limited until September 1966 when it was renamed Bamburi Portland Cement Company Limited. (Read more about the early years at Bamburi Cement here)
However, the Bamburi Residents Association protested the move to set up the plant in Bamburi, citing “noise or other nuisance” that came with the operation of the plant at the proposed site. In a swift rejoinder, the colonial government crafted a law that “protected the company from being sued.”
The construction of the Bamburi Portland Cement Company Limited production plant proceeded and production started in 1955. Again, the government passed a law that made it difficult to “dump cement from abroad” in Kenya. Additionally, a duty was imposed on imported cement, making it expensive. All these were in a bid to protect the local cement industry.
Cementia Holdings A.G. was a Swiss company and for it to do business in Kenya in 1951, it had to team up with Amalgamated Roadstone Corporation, a British company “when it came to dealing with the Kenyan administration.” The partnership with the British also came in handy for Bamburi later during their expansion program when the Commonwealth Development Corporation (now CDC) advanced the company a £1.8 million loan. The British government also provided a guarantee for a further £850,000 loan from a British company, Baring Brothers and Company. The contractor who also built the Bamburi plant was Howlem Limited – a British Company.
The Bamburi cement plant was put up through a partnership that comprised of:
Cementia Holdings AG – An established Swiss cement company that had lost most of its plants in Europe during the World War II. Cementia shifted its focus on expanding globally in “three possible countries: Ireland, Australia and Kenya.” In fact, the management of Cementia Holdings estimated that the production of cement in Kenya would have been lower in Kenya than in Australia and Ireland
Amalgamated Roadstone Corporation – A British quarrying firm that had wanted to “diversify its interests and production areas.”
John Hughes – A local capitalist and a minority shareholder
The plant was constructed under the supervision of Dr Felix Mandl, an engineer, who came to Kenya in 1950 from Cementia Holding A.G. Zurich “to study the possibility of cement manufacture.” Dr Mandl had been tasked to conduct “extensive feasibility studies for each potential area”, that is Ireland, Australia and Kenya. Of the three, he concluded that Kenya would be the most viable place due to the relatively lower costs of production. He placed the cost of setting up the cement plant at Bamburi at about £600,000.
He served, first, as the Managing Director and then later as the Chairman of Bamburi over 34 years until 1985 when he retired.
Dr Mandl chose Kenya for the following reasons:
Kenya had an unlimited supply of limestone from the coral coast. There were large limestone deposits of “Pleistocene coral limestone and…Jurassic shales.” The location of the plant at the centre of these deposits meant that the cost of transporting raw materials to the plant was kept at a minimum. The plant was also close to the gypsum deposits in Malindi.
The plant’s proximity to the port – This enabled Bamburi to export its cement to Mauritius and Reunion Islands in the Indian Ocean. Bamburi also owned 2 cement ships that transported cement to these two islands, keeping transport costs to a minimum. While EAPC focused on the local Kenyan market, Bamburi served the export market within the region, creating associate firms in markets in Mauritius and Reunion which were equipped with storage facilities and cement bagging equipment.
The plant’s proximity to good infrastructure facilities – Access to good roads and reliable sea transport provided a low-cost alternative for Bamburi to transport its cement in bulk to its export market within the Indian Ocean.
The Bamburi cement plant was so pivotal in the industry that the government pledged to construct a railway branch that would have specifically catered to the plant. This would have offered a direct link to the port. In 1952, however, there was the declaration of the state of emergency. This resulted in the diversion of the funds meant for the railway project to the war against the Mau Mau movement. Consequently, Bamburi Cement had to rely on road transport to ferry cement to the port.
In the quest to have a control of the market share, Bamburi made a request to the colonial government that “no other cement plant would be established in East Africa” over the 10 year period between 1955 and 1965. This would have automatically made Bamburi a monopoly. Their request was turned down by the government.
Kenyanization Policy and Cement Industry in Kenya
The cement industry in Kenya was not spared from the Kenyanization policy. Until 1971, the cement producing companies in Kenya used to distribute their cement. This meant that their profit margins were high and this also cut “out the role of middlemen in the marketing of the product.”
In the spirit of Kenyanization, there was pressure from the business class in Kenya on the government “to allow the compulsory distribution of important commodities through appointed agents of the Kenya National Trading Corporation.” The government effectively enforced this, “thus allowing the indigenous bourgeoisie share the profits of the cement trade.”
In fact, Swainson documents that the pressure piled on the government came from the Nairobi Chamber of Commerce which wanted the “Ministry of Commerce to make citizens the sole distributors of manufactured goods produced by foreign-owned firms in Kenya.” The pressure mounted on the government yielded fruits in 1975 when “an amendment to the Trades Licensing Act was passed making compulsory, the distribution of all goods manufactured in Kenya by foreign firms through KNTC-appointed citizen agents.”
When it comes to distribution of cement in Kenya, the role of Kenya National Trading Corporation (KNTC) can not go unnoticed. Formed in 1965, the state corporation was supposed to take over the import and export side of business, including cement. Nicola Swainson describes how the parastatal was abused in 1974:
“The five cement distributors for Nairobi included firms owned by chairman of Lonrho, a prominent MP and businessman, and the brother of the chairman of KNTC”
The Kenyanization policy also required that the government had to hold a direct share in the major industries in Kenya. EAPC had to sell 51% of its shares to the Government of Kenya in 1971. This meant that Swainson further notes, both Cementia and Associated Portland Cement held onto the remaining 49% but controlled “84% of Bamburi Portland Cement Company’s equity.”
Lafarge in Kenya’s Cement Industry
Before Lafarge took significant control of Kenya’s leading cement producing companies, there was the Associated Portland Cement Company, a British company that was one of the world’s largest companies back then.
The Associated Portland Cement Manufacturers (APCM) was a British company incorporated in the year 1900 when 24 British cement companies merged giving rise to 35 cement plants in total. It was later renamed Blue Circle Industries (BCI) in 1978 after a thorough audit that was carried out by McKinsey & Company in 1965 and in 1976. The recommendations made by McKinsey & Company were effected from 1977, just a year ahead of the rebranding that also saw the cement producer restructure the entire organisation.
In Kenya, Amalgamated Roadstone Corporation sold its stake in Bamburi to Associated Portland Cement in 1963. Associated Portland Cement effectively held 40% in Bamburi and 42% of EAPC. In 1964, Associated Portland Cement bought 39% stake it had in EAPC from Tunnel Cement. This meant that it held 80% of EAPC. Both Amalgamated Roadstone and Tunnel Cement sold off their shares due to what Nicola Swainson cited as a bleak future for the two companies in the cement business.
Lafarge was founded in the year 1833 in the French region of Ardéche by Joseph-Auguste Pavin de Lafarge. It has grown steadily over the years, surviving through a series of mergers and acquisition that has seen it become the leading cement producing company in the world.
The entry of Lafarge in Kenya since 2001 has transformed the cement production industry in a definitive manner. Since it holds or held a controlling stake in the leading cement companies in Kenya, it has put it on a collision course with a number of stakeholders in Kenya.
As of 2006, Lafarge controlled a significant stake in the leading Kenyan cement production companies. In Bamburi, it had a 73% stake, in EAPCC Lafarge held 41% and in ARM, it held 15%. Due to such levels of control, Lafarge has been thought to have the “capacity to unduly influence the market to the potential detriment of competitors and consumers of cement.”
Lafarge in Bamburi Cement
Until recently Lafarge held its shares in Bamburi Cement indirectly through Bamcem Holding Limited. The shareholders of Bamcem Holdings Limited, a company registered in the Channel Islands, include Cementia (40%, and it entirely owned by Lafarge), Costal (20%) and Association International Cement (40%).
As we saw earlier, Cementia was one of the three entities that led to the formation of Bamburi Cement Limited. Later, Cementia partnered with Blue Circle Industries after the latter bout a 37% stake in Bamburi. In 1989, Lafarge acquired Cementia and, effectively, Lafarge became a partner in Bamburi with Blue Circle Industries.
In the year 2001, Lafarge bought out Blue Circle Industries and consequently became the controlling shareholder of Bamburi Cement Limited. As of 2008, Lafarge held a controlling stake in Bamburi through three companies: Fincem Holdings Limited (29.3%), Kencem Holding Limited (29.3%) and Bamcem Holding Limited (13.78%).
Lafarge in Athi River Mining (ARM)
In 2001, Lafarge (through Bamburi Cement) lent ARM money through a bond, making it the major shareholder of ARM. That is, ARM signed a deal with Bamburi to supply clinker to the latter. In the deal, LaFarge was required to buy a Kshs 189 million convertible bond, which was converted into shares. This translated into a 19% stake held by Lafarge through Bamburi, which it later sold through the Nairobi Securities Exchange (NSE).
Lafarge in East African Portland Cement
It is said that Lafarge assumed a majority shareholder in EAPC due to “government’s failure to take up its rights when the company launched a rights issue.”
Around 1990, the management of EAPC sought a loan from the Overseas Economic Co-operation Fund (OECF) of Japan to the tune of Japanese Yen 7.674 billion (KShs 1.115 billion) which was to go into the expansion of the EAPC plant – after the decision to replace the plant that was arrived at in 1986. It was until 1994 when EAPC got a USD 65 million loans from the Japanese OECF. Prior to this, Blue Circle Industries and Cementia had been approached to finance the expansion programme but they declined.
The government, after guaranteeing the loan from the Japanese, attempted to seek a “strategic partner” in two organisations: The Commonwealth Development Corporation (CDC) and Pretoria Portland Cement Company – a process which stalled.
By 1989, EAPC had become a parastatal, with the Government of Kenya holding a 52% stake. Blue Circle Industries of the UK owned 14%, Cement Holdings Limited of Switzerland owned another 14% and the remaining 20% was held by the public through the stock exchange.
In 2006, there was a push to have LaFarge shed off its shares in EAPCC and ARM on the grounds of “monopolistic behaviour and concentration of economic power.” As of 2008, Lafarge held its stake in EAPC through Cementia-Lafarge (14.6%), BCI-Lafarge (14.6%) and through nominees (12.5%).
Unlike Bamburi, EAPC has experienced “management rows, logistical issues and poor marketing strategies” that saw the “decline in market share.”
In the Sixth Edition of The Global Cement Report, it was said that EAPC “has been the object of political meddling and has failed, at times, to fulfil its potential.” In reference to a government probe into the affairs of the company, the probe “reported on a long catalogue of abuse and mismanagement.”
Feature Photo Credit: Construction Review Online