Cement is an intermediate component for making concrete, which is the component for building roads and buildings around the world. Therefore, cement prices and production are markers of the degree of economic development. A few years ago (I haven’t seen any more recent data), China produced more than half of the world’s cement as part of an ongoing modernization. Furthermore, cement is an interesting product as it exhibits both economies of scale and high transport costs. Therefore, there tends to be a relatively small number of producers in certain geographical areas. For all these reasons, Fabrizio Leone, Rocco MacChiavello, and Tristan Reed felt it was worth investigating “high and downward prices of African cement.” (American Economic Journal: Applied Economics 2025, 17(2): 1–40).
For those who don’t fully accelerate construction materials, cement is not the same as concrete. The author explains:
Portland cement (hereafter cement) is the most widely used type of hydraulic cement and hardens when combined with water. The main inputs to cement production are limestone, clay and gypsum. These are heated with ki to form a clinker. The clinker is ground into fine powder and the cement is complete. Cement is then the main input to ready-made mixed concrete, cement mixed with gravel, sand and water, and is delivered to the construction site.
The authors point out that efficient cement plants have high fixed costs, with capacity of around $150 million for every million tonnes. This means that larger plants tend to go out of business with lower prices per unit than smaller plants. Cement is heavy and transporting it on land is expensive. Summarizing these two factors, the cement market tends to be localized and concentrated, with several macrophytes dominating each regional market. (Economists call this a “natural monopoly,” which tends to cause the lack of local competition.) The exception is a port city that has access to water transport, as it is considerably cheaper than moving water cement on land.
The author provides evidence of three facts.
- Fact 1: The average price of cement in Africa was the highest on the continent in 2011, and the lowest consumption.
- Fact 2: The African economy has on average fewer cement companies and less production capacity than other continents.
- Fact 3: The average price of cement in Africa was higher than any other continent between 2011 and 2017, coinciding with entry and capacity installation.
The author is trying to unravel the reasons behind the expansion of cement capacity and falling prices in African countries. For example, is technology that pushed production costs down has improved? Bigger competition as cement companies pressure them to charge markup lower than cost? Is low prices a sign of anti-competitive or cartel-like behavior among a relatively small number of cement companies? Do regulatory barriers make it difficult to establish cement companies in many countries in Africa? Perhaps the government’s rules and corruption supported them was keeping cement prices high? They write:
Contrary to popular belief, our model estimates show that cement was not so expensive in Africa due to anticompetitive conduct or high entry barriers (e.g., due to corruption). Instead, the smaller size of many national markets has limited competition and allowed incumbents to maintain higher markups. Consistent with this view, Africa has experienced rapid entry and marginal costs during rapid economic growth. … Our findings impact public policy, particularly long-standing programs to reduce entry barriers and increase competition in low- and middle-income countries. … [O]Our results challenge the hypothesis that such policies can have a significant impact on markup and price in the cement industry.
In short, African cement is the story of the economic foundations of the product of a particular feature in a growing economy.
