Cement is an intermediate ingredient for making concrete, which in turn is an ingredient for construction of roads and buildings all around the world. The price of cement and the quantity produced is thus a marker for the extent of economic development. A few years ago (I haven’t seen more recent data), China was producing more than half of the cement in the world as part of its ongoing modernization. Moreover, cement is an interesting product, because it exhibits both economies of scale and high transportation costs–so that there tend to be relatively few producers in a given geographic area. For all of these reasons, Fabrizio Leone, Rocco Macchiavello, and Tristan Reed found it worthwhile to investigate “The High and Falling Price of Cement in Africa” (American Economic Journal: Applied Economics 2025, 17(2): 1–40).
For those not fully up to speed on their construction materials, cement is not the same as concrete. The authors explain:
Portland cement (hereafter cement) is the most widely used type of hydraulic cement, which hardens when combined with water. The main inputs to cement production are limestone, clay, and gypsum, which are heated in a kiln to form clinker. Clinker is ground into a fine powder, which is finished cement. In turn, cement is a major input to ready-mix concrete, which is cement mixed with gravel, sand, and water, and delivered to a construction site.
The authors point out that an efficient cement plant has high fixed costs: about $150 million for every million tons of capacity. That is, a larger plant will have a lower per-unit price than a smaller plant, and thus will tend to drive the smaller plant out of business. Cement is heavy, and transporting it by land is costly. Put these two factors together, and markets for cement tend to be localized and concentrated, with a few larger-sized plants dominating each local market. (Economists call this a “natural monopoly,” in which the physical characteristics of the product itself tend to create a lack of local competition.) The exception is a port city with access to water transportation, because moving cement by water is considerably cheaper than moving it over land, so it is possible for such a city to receive cement from competing suppliers.
The authors provide evidence for three facts:
- Fact 1: The average price of cement in Africa was the highest of any continent in 2011, and consumption was the lowest.
- Fact 2: African economies have on average fewer cement firms and less production capacity than other continents.
- Fact 3: The average price of cement in Africa fell by more than in any other continent between 2011 and 2017, coinciding with entry and capacity installation.
The authors seek to disentangle the reasons behind expansion of cement capacity and falling prices across nations of Africa. For example, is it improved technology pushing down costs of production? Greater competition so that cement firms are pressured to charge lower markups above cost? Are the lower prices a sign of anticompetitive or cartel-like behavior among the relatively few cement companies? Have regulatory barriers make it harder to start a cement company in many countries of Africa? opmperhaps supported by government rules or corruption, had been keeping cement prices high? They write:
Contrary to common belief, our model estimates show that cement was not more expensive in Africa due to anti-competitive conduct or high entry barriers (e.g., due to corruption). Instead, the small size of many national markets limited competition and enabled incumbents to sustain higher markups. Consistently with this view, rapid entry and a decline in marginal cost occurred in Africa at a time of rapid economic growth. … Our findings have implications for public policy, specifically the long standing program to reduce entry barriers and increase competition in low- and middle-income countries. … [O]our results challenge the hypothesis that in the cement industry such policies could have a substantial impact on markups and prices.
In short, cement in Africa is a story of economic fundamentals for a product of particular characteristics in a growing economy.
