Online Reporter
Martin Kadzere
Senior Business Reporter
Just two years after Fossil Mines acquired 76,45 percent stake in Lafarge Cement from global cement manufacturing giant Holcim, the business has crumbled under the weight of western sanctions.
The company, later rebranded Khaya Cement, has been unable to withstand the pressure after sanctions levelled against key shareholders, highlighting the precarious position of businesses linked to sanctioned individuals.
Zimbabwe has been buckling under the weight of Western sanctions, led by Britain and the USA since repossessing land from white former commercial farmers to resettle the landless black majority at the turn of the millennium.
The initial acquisition of Khayah Cement, a significant move for Fossil Mines, promised a new era for the Zimbabwean cement industry, heralding the first major and direct involvement of indigenous players in the sector.
However, the ambitions have effectively gone off rails due to the impact of the Western economic embargoes, forcing the majority shareholder to retreat.
As a result, the company has been placed under reconstruction after creditors approved the decision to seek a new investor to revitalise the business.
A journey through the decades
Lafarge’s history began in 1900 with the British-founded Associated Portland Cement Manufacturers Limited (APCM).
In 1954, it was incorporated in Zimbabwe as Salisbury Portland Cement, capitalising on the country’s rich limestone resources.
The company experienced significant growth during construction booms following World War II and the Federation of Rhodesia and Nyasaland.
After APCM became Blue Circle in 1978, Salisbury Portland Cement was listed on the Zimbabwe Stock Exchange in 1980 and changed its name to Circle Cement in 1983.
Circle Cement supplied cement for major infrastructure projects like the Kariba and Cabora Bassa dams.
In 2001, the parent company Blue Circle was acquired by Lafarge SA, leading to a name change to Lafarge Cement Zimbabwe in 2007 and a re-listing on the bourse.
Following the 2015 merger between Lafarge and Holcim, Lafarge Cement Zimbabwe became part of the global Lafarge Holcim group.
The beginning of the end
After Fossil Mines acquired its stake in the former Lafarge Zimbabwe in 2022, the US Office of Foreign Assets Control (OFAC) sanctioned Fossil-related businesses and individuals.
This has had a devastating impact.
Following the acquisition, Fossil Mines was supposed to receive three years of technical support from Lafarge, including plant maintenance, technical expertise, and equipment, ensuring smooth operations. This support was immediately cut off due to the sanctions. As a Western company Lafarge, a French company, takes compliance to OFAC conditions seriously.
Khayah Cement was also immediately cut off from financial and production system records, including plant maintenance history and even basic factory information like electrical cable layouts.
A cease-and-desist order was issued regarding the Lafarge brand. Typically, a key asset in a business takeover is brand goodwill, which helps during the transition.
Institutional memory was also compromised as senior management and technical executives resigned, likely fearing sanctions themselves.
In December last year, Khayah was placed under corporate rescue due to financial distress.
Financial distress was largely caused by the frequent breakdowns and mothballing of its kiln and the effect of sanctions on the ultimate beneficiary in its major shareholder.
Kiln produces clinker, which is the major raw material used in making cement.
Khayah then started importing clinker at a higher cost.
Compounding this challenge were cement imports allowed into the country during periods of shortages in the market, which continue long after permits have expired, which led to an influx of cheaper products.
Last week, corporate rescue practitioner Mr Bulisa Mbano of Grant Thornton, convened a creditors’ meeting where approval was given to bring in a new investor.
No investor has been identified and engaged as of today,” said Mr Mbano. “But creditors and members gave us the go-ahead to pursue potential investors into the business.
He said once bids have been received, “we will evaluate them and then invite the creditors for a round table discussion on the bids.”
The priority bidder will be engaged on their proposal, “with or without modifications.”
After this, the corporate rescue plan will be finalised for approval in a formal meeting of all creditors and members.
Living on the edge
Fossil’s decision to step aside demonstrates the vulnerability of businesses associated with sanctioned individuals.
While critics have long-propagated the narrative that sanctions against Zimbabwe were solely targeted at specific individuals and entities, with no bearing on the economy, the reality on the ground paints a different and far more complex picture.
The case of Khayah Cement, and others like it, clearly demonstrates that the impact of these measures extends far beyond the intended targets, rippling through the economy and affecting businesses, workers, and entire communities.
While proponents of sanctions often argue they are designed to avoid harming ordinary citizens, the evidence suggests otherwise.
The struggles of Khayah Cement, a company indirectly impacted due to its association with a sanctioned individual, illustrate how these measures can cripple businesses, leading to job losses, reduced production, and disruption of essential services.
Already, the sanctions have raised Zimbabwe’s risk profile as an investment destination, limited foreign direct investment, blocked access to long term and affordable global finance, slowed down economic growth, caused the collapse of many businesses, caused flight of capital out of Zimbabwe and perpetuated poverty across the country.
Some analysts say the cascading effect contradicts the narrative of targeted sanctions and reveals the broader, often unintended, consequences for the Zimbabwean economy and its people.
“The Khayah Cement situation is not an isolated incident; numerous other businesses with ties to sanctioned individuals have faced similar challenges,” development economist Tylon Nyakudya said.
