An analysis of the ownership of Ohorongo Cement's prospective buyer - West China Cement Limited - shows that this company, and Whale Rock, which owns Cheetah Cement, are under one fold, which, if approved, could deal a fatal blow for competition in the sector.

Market watchers are worried that if the takeover goes ahead, this will mark the end of competition in the cement sector and the potential for preferential contractual agreements and bidding advantages will become the norm.

The ownership structure shows that the prospective buyers of Ohorongo Cement, West China Cement and Whale Rock, which owns Cheetah Cement, are owned by the same group and are managed by a father and son.

Whale Rock Cement, a joint venture between China's Asia-Africa Business Management and Whale Rock Cement, was registered as a Namibian cement manufacturer in 2004.

Documents seen by The Namibian show that Zhang Zheng Tao is the chief executive officer and shareholder in China's Asia-Africa Business Management and his father, Zhang Jimin is the founder and chairman of West China Cement. Jimin is also the chairman of China's Asia-Africa Business Management.

Chinese companies are said to jealously guard their "China buys from China" principle, and might see Ohorongo going out of business if this strategy continues being employed in the construction sector.

This speculation is supported by import and export data from the Namibia Statistics Agency, which shows that despite high local production and demand levels, the country has been consistently importing cement, specifically from China.

Ohorongo Cement has also expressed concern on the over-supply through importation of cement despite huge local production.

Economist Omu Kakujaha-Matundu weighed in that the country needs more investments (local and foreign) to foster growth from the ongoing slump, however, these investments should not infringe on the competitiveness of a certain sector.

He said the proposed investment in the cement sector is welcome as long as it does not lessen the competition among the players as it will disadvantage consumers and the entire economy.

Sectors that are not competitive enough can lead to consumers and the economy getting raw deals as stakeholder firms that are barely competing can charge more and invest less, which in the end leads to a less productive economy and exploited customers.

INVESTMENT

Economist Klaus Schade also expressed a similar view that competition is vital for both the producer and consumer since it forces companies to be innovative in terms of the products and services offered and in providing consumers with a wider choice.

"It has, however, to be ensured that competition takes place on a level playing field," said Schade.

He called on the Namibia Competition Commission (NaCC) to ensure that there is no collusion between the two companies, but that market forces prevail.

"Otherwise, the consumer might face higher than expected prices," Schade added.

Furthermore, Schade stated that if NaCC does not prevent potential collusion between producers and specific customers, it could result in preferential contractual arrangements and hence a competitive advantage.

Not only is the future prospect of cement being put in limbo if the takeover is allowed, currently the country has two cement producing companies that are importing cement from China despite the large local production potential.

Despite huge local cement production and an additional cement factory, the country imported cement valued at about N$147 million for five years ending in 2018.

Of the N$147 million, 80% was from China.

On exports, for the past five years Botswana took up most of the local cement, importing N$90 million worth of cement, followed by DRC at N$78 million, while Angola and Zambia imported cement valued at N$26 million and N$24 million, respectively.

Local media in 2018 reported that Whale Rock Cement, through the Cheetah Cement brand, had imported 40 000 tonnes of cement clinker.

Cement clinker is one of the main ingredients in cement manufacturing.

Whale Rock allegedly bypassed the value chain requirement, which stipulates that a company that sets up a cement plant in the country must set up a full production chain of manufacturing cement in order to add value and protect domestic capacity.

This requirement was put in place because Namibia has abundant limestone, which is needed in the production of cement clinker, and it does not make sense that a finished product has to be imported from China.

Approached for comment, Ohorongo Cement's managing director, Hans-Wilhelm Schütte had said he did not like to talk about competitors, but lamented that what was happening in the cement industry in Namibia was not good.

Nevertheless, he said it was very important for companies in the industry to follow the objective of the 'Growth at Home' strategy to create value.

"We have our own people producing (cement). By importing, we don't achieve the objective. We have a huge challenge and it's not good," he said, adding that Namibia seems to be going in the same direction as South Africa in terms of the oversupply of cement.

COMPETITION AUTHORITY

According Jowetha Andima, the economist in the mergers and acquisition department at the NaCC, the commission has not approved the proposed merger since it has not received a merger notification.

Asked about the threat to competition in the cement sector, she said they were also not aware of the ownership structure of West China Cement that wants to take over Ohorongo Cement and Asian-African Business Management that owns majority shares in Cheetah Cement.

Section 43 (3) of the Competition Act states that "no person, either individually or jointly or in concert with any other person, may implement a proposed merger to which Chapter 4 of the act applies, unless that merger is approved by the commission.

Further, section 44 (1) states that each undertaking involved in a proposed merger must notify the commission of the proposal in the prescribed manner. Given the above, the commission has not yet received a merger notification related to the proposed takeover.

"The commission has not approved the cited merger since it has not received a merger notification," Andima said.

West China Cement gave Schwenk Zement two months to convince the commission on the takeover.

Copyright The Namibian. Distributed by AllAfrica Global Media (allAfrica.com)., source News Service English