Dreamers Of The Savannah. How Kenya’s Fastest Growing Cement Factory Was Built From Scratch14th Mar, 2017
The Savannah dreamers stood on the edge of the Kitengela-Namanga highway in the Export Processing Zone armed with a proposal for a cement factory.
They had formed their company and acquired the necessary approvals to operate out of the prime property on the edge of the bustling Kitengela Town.
But how they were going to finance their multi-billion shilling dream stretched their minds just as the rolling savannah of the Maasailand on which they stood stretched in every direction.
The dilemma was mind-boggling; not just to the founders of the company but for the few local and multi-national banks that they approached. The banks declined. One, after the other unable; to really buy into the dream.
That was until they knocked on KCB Bank’s door.
The bank considered the proposal in all of its multi-billion shilling proportion and returned the verdict. Kenya’s largest bank by asset base was willing to finance it.
“So many banks were approached when this cement making factory was only a field. They would decline for one or two reasons but KCB Bank saw the dream and said ‘We are willing to risk and invest with you,” says Savannah Cement Finance Manager, Samson Shivina who was part of the pioneering team. “Since then, they have been our solid partners having believed in our dream.”
And with that pivotal decision from KCB Bank, the Savannah Cement dream could finally start turning into reality.
“They gave us a $20 million Letter of Credit Asset Based Finance facility. They also gave us working capital to enable us start off our operations. Currently the size of partnership we have with them are two; Ksh1.1 billion in the Kenya shilling denominated facilities and the dollar-denominated facility is $40 million,” said Shivina.
Today, the facilities that Savannah enjoys from KCB Bank adds up to a staggering Ksh5.2 billion. KCB Bank also covers the insurance for the clinker that Savannah imports. Clinker is a key ingredient in cement making.
But the entry into a market already dominated by five other giant players – one of which has been around for nearly a century was tough; Savannah faced price wars and other competition tactics like extending credit facilities to distributors in order to make it much harder for the newcomers to win any share of the market.
This meant that Savannah had to stretch itself to keep up – and the firm says that KCB Bank’s partnership is what enabled them to make it through the rough patch as it introduced its products to the market.
“We found ourselves with a huge debt book because all the money had been spent into putting up the facilities. KCB Bank has always extended us the flexibility required. For us to be able to get to where we are, it is all because of KCB Bank giving us a listening ear and continuing to do so. That’s why we really treasure this relationship,” said the Savannah finance chief.
The tough market environment also drove Savannah to work out the most efficient way of producing cement that they could muster – which drove them to even re-examine early in the business just how efficient their systems were.
“Recently we underwent a very big exercise of shutting down the plant and replacing key components like the rollers, the weigh-feeders. It was a significant 10-day shutdown just to increase our efficiency,” said Mr. Shivina.
It paid off. Before the shutdown, the factory was doing between 100-105 tonnes an hour but afterwards, the capacity shot to 135-145 tonnes an hour.
The cement maker is now shifting focus to extensive marketing to get the product moving as they enhance production and technology with an eye to the future and the region.
The new technology also brought in another advantage.
“It reduces dust and actually makes us a very green company operating in a dust-free environment. We have invested in dust-arresting technology which makes us even more efficient because what escapes as dust in other plants is actually escaped cement. We don’t lose that here and when you look around the facility, it’s actually dust-free,” added Ronald Ndegwa, Savannah Cement MD.
It’s really been a journey of nearly a decade since the first moves were made.
The cement maker was incorporated in 2007 as Catic Cement initially.
Later on, it evolved into Savannah through various changes of business names.
After take-off, the construction of the plant was completed and operations began in July 2012.
The installed capacity at the time was 1.2 million metric tonnes a year.
The company was established as an EPZ company. Under the law governing EPZ operators, Savannah could only sell 20 per cent of its production within Kenya and 80% was to be exported.
“What that meant was that the only country that we could access at that time was South Sudan. When we began, almost 90 per cent of our production was going to South Sudan. We actually grew the market because no one else was focusing on our north westerly neighbor,” said Mr Ndegwa.
Savannah then found that operating under the EPZ was quite restrictive because of the obvious constraints in reaching placed by the law.
They then applied for the requisite approval to access the local market to the Ministry of Trade which was granted in the first quarter of 2013. They also got the necessary approvals from the Kenya Revenue Authority.
From the second quarter of 2013, Savannah became fully active in the local market while keeping the other eye on the export market – largely the South Sudan market.
Currently, Kenya’s sixth cement maker is commanding 13 percent of the local market and still remains the leading cement provider to the South Sudan Market.
When it was initially incorporated it was three companies that came up to form Savannah. Two of them were Chinese – one controlling 40 per cent and the other 20 per cent while the remaining 40 per cent was Kenyan owned.
At the end of 2014, the Kenyan shareholding changed to 100 per cent with the exit of the Chinese shareholders. “We were founded on quality and that is what has enabled us to penetrate the market. That’s what gives us an edge, not pricing. We’re able to command the market share we have because of quality assurance,” said Mr Ndegwa.
The demand for quality is driven by Savannah’s own policy, requirement for monthly testing by the Kenya Bureau of Standards and critically by the projects in which Savannah is supplying.
“The SGR contractor is very strict about quality and we’re one of the first two who were able to meet the strict quality demands at the very start. As it were, we were struggling with capacity at that time and we were only able to supply some of the camps and not the main project,” says Mr Ndegwa.
But Savannah has since stepped up its abilities and is supplying the Outer Ring Road project and will majorly supply the Nairobi-Naivasha leg of the SGR. Other key projects that Savannah has supplied include the construction of Garden City Mall – currently the largest mall in East Africa and Nairobi’s first integrated living, working and shopping community and the defining University of Nairobi Towers. Savannah is also the sole supplier of cement for the construction of Karuma Dam, the largest dam in East and Central Africa.
“All these projects are a test of quality. Project contractors are not mostly concerned about price as they are about quality. It’s quality that drives the demand for projects. We never compromise on quality and that was our entry strategy into the market,” says Mr Ndegwa.
At the Ksh14 billion Outer Ring Road expansion project, Savannah Cement is supplying up to 2,500 tons of cement every month for the dual carriage road project that is designed to ease traffic congestion in the city’s Eastlands area. The contractor is Sinohydro Corporation.
Sinohydro Corporation’s Chief Engineer Mr. Zhou Chong said that the Chinese firm settled on Savannah Cement because of quality assurance.
“We have had consistent quality and efficient service delivery. This means that we can also be assured of consistent quality of our products and work because cement is a very key ingredient,” said Mr. Zhou when the Savannah team toured the project recently.
Currently, Savannah is producing about one million tonnes per year and is in the process of acquiring a clinkerization plant, itself a heavy capital investment project which, the cement maker says, will cost anywhere between $250 million and $300 million in the next three years and boost production capacity.
Further, the installation of the second grinding plant next year is expected to double the firm’s production capacity to 2.4million tons annually up from the current 1.2million tons.
“We’re still looking to partner with KCB Bank to increase our capacity. Naturally, it is KCB Bank that we would like to work with and the relationship will grow further into insurance and other things,” said Ndegwa. “We want to be the preferred cement supplier within East Africa in the next five years.”
“Once our clinkerization plant is up and running, exposure to foreign exchange fluctuations will be eliminated. We will become much more competitive in the entire region,” said Ndegwa. “We’re going to be much more efficient because of bringing in the latest technology and learning from the mistakes of others.”
The investment is driven by the growth in the infrastructure projects in the region and the home builders market as well – which are driven by the growth of the regional economies. The projection for Kenyan demand for cement in 2015 was about 5.9 million metric tonnes but the actually market size was 6.43 million metric tonnes.
“The future looks bright for the industry and we feel we’re in the right industry. We’re looking at rising our market share from 13 per cent to the twenties in the next five years. We’re quite upbeat because we have made a mark in a very short time. We’re very confident that we’re going to achieve much more,” says Mr. Ndegwa.
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