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Operational Review REVIEW OF THE BUSINESS IN 2016 South Africa’s cement market is experiencing little growth, reflecting the country’s economy. Consumption in 2016 is estimated at 12.6 Mt, or about 230kg per capita. As one of the country’s newest and most modern producers, Dangote Cement South Africa increased sales by 3.8% during the year, despite the entry of a new manufacturer in January. The bagged market performed better than the bulk market because of a slowdown in large construction projects. Sales were particularly strong in the key rural inland markets where we have a strong footprint of large and small retailers. Demand around the major cities were lower due to a lack of confidence in the formal sector. The main retail channels are large home improvement chains and builders’ merchants in the case of cement. We are strongest in Limpopo province, Kwa-Zulu Natal, Mpumalanga and North West Province, which are predominantly rural. Our distribution to these markets is completely outsourced. Cement prices were under pressure during the first half of the year and we were able to achieve an average of 5% higher pricing for bagged cement from July 2016. However, with two producers delaying their price increase to the third quarter, our increase was not sustained in all markets, resulting in a lower effective price increase by the end of the year. Nonetheless we believe cement pricing has begun to stabilise because all South African producers have implemented total or selective increases across all markets, thereby helping to reverse recent price cuts. The average price was about $59 in 2016. Cement imports declined significantly in 2016 after new duties were imposed to prevent dumping by foreign exporters. We estimate total imports to have been 430kt for the full year, which is significantly lower than the 820kt imported in 2015. This has obviously created opportunities for substitution with local cement. During the year, our South African operation continued to focus on an optimisation programme to improve logistics, sales and plant efficiency. Tanzania Tanzania has been one of the few countries in Africa to average GDP growth of more 7% over the last fifteen years. Tanzania’s GDP is expected to grow at 7.1% in 2017 to 2019, according to World Bank estimates. The country was in a period of transition in 2016 following the general election. The new government has outlined ambitious plans to improve public sector efficiency and boost living standards. However, with tight monetary policies in place, the reality was that government spending on announced infrastructure projects and other major reforms was relatively muted. Annual Report 2016 61

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