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REVIEW OF THE BUSINESS IN 2016 Cement sales in Tanzania have primarily been driven by growth in the housing sector and government spending on infrastructure, especially road projects, new railways and airports. With a low cement per-capita consumption of 65 kg per annum, the potential for cement growth is high. However in recent months construction activity has been subdued primarily because of slowdown in the housing and commercial sectors. Infrastructure projects are expected to pick up in 2017. In February 2016, Tanzania’s cement market was transformed by the entry of Dangote Cement’s 3.0Mta factory in Mtwara, on the south coast of Tanzania. The factory is the largest in the country, but is also the furthest away from the key market of the capital, Dar es Salaam. Despite the distance, we quickly gained recognition in the capital and the increased capacity and competition in the market spurred a fall in prices that put other producers under pressure. With our focus on product quality and attractive pricing, our cement gained rapid acceptance in the Tanzanian market and we achieved 26% market share in the month of July 2016. Tanzania sold 0.6Mt of cement in 2016 and we are now building our distribution fleet to nearly 600 trucks so that we will be in a strong position to reach all markets across Tanzania in 2017. We will also develop jetty facilities that will enable us to move cement by ship to Dar es Salaam as well as offshore demand centres in the Indian ocean. As has been widely reported, a lack of agreement on gas pricing for most of the year meant the plant used temporary diesel generators to power its electrical needs. As a result of the high costs involved, the plant was below break-even for the year. However, after agreement on gas pricing we will significantly reduce our energy costs by using gas-fuelled generators as an interim solution. As there is insufficient grid power available in Mtwara, we will begin construction of a permanent coal-fired power station at the plant in 2017. Zambia’s cement industry has about 3.5Mta of capacity and our 1.5Mta plant at Ndola is the country’s largest factory, being based in the Copperbelt region near the border with the Democratic Republic of Congo. Our plant, which opened in 2015, has the advantage of being the country’s most modern and efficient. We have a fleet of nearly 370 trucks to enable deliveries across the country and is capable of selling high-quality 32.5 and 42.4-grade cements to meet a wide variety of building needs. Cement pricing averaged about $79 during the year and ended 2016 at the same price. Zambia increased sales to nearly 0.8Mt during 2016, and we estimate this gave us a market share of approximately 40%. Zambia Zambia’s economy continues to be affected by a downturn in copper mining, lower export revenues, high inflation, high unemployment and rising national debt. As a result, the Kwacha was under pressure against the US Dollar in 2016 but now appears to be stabilising. Following the serious drought in Zambia, electricity shortages are frequent and a braking influence on economic improvement across the country. The World Bank estimates Zambia’s GDP achieved 2.9% growth in 2016, which showed little improvement over 2015. However, GDP growth is expected to recover to about 4% over the next few years, according to the same World Bank estimates published in January 2017. The economy is being helped by increasing middle-class demand for household goods, consumer electronics and higher-quality foods. The country has an abundance of natural resources and there is a good commitment to investment in major infrastructure projects in transport and energy. Furthermore, after recent elections the country enjoys the political stability necessary for investment and a resumption of economic growth. 62 Annual Report 2016

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