No protection for local EA Cement industry yet

No protection for local EA Cement industry yet
Published: 22 June 2010

East African governments will only consider reinstating a higher common external tariff on cement imports after independently verifying that producers in the region have increased production capacity to meet demand at a sustainable scale.

This decision, Uganda Treasury officials told The EastAfrican, has been made in the context of an expected construction boom sparked by massive government projects to improve the region’s infrastructure and housing stock.

Cement firms facing pricing pressures from imports have been calling for EAC to increase tariffs to protect local producers.

But with the cement shortage that is likely to be experienced with the massive infrastructure construction projects budgeted by Uganda, Tanzania and Kenya over the next five years, consumers could end up hurting.

Though EAC producers have been complaining about imports as the economic slowdown in the region left them with excess capacity at a time when Asian exporters were facing a similar shift in demand, global trade competition has helped keep construction costs down.

If growth in Asia and the Middle East starts picking up and EAC producers have not increased capacity, increased demand from construction is likely to raise the price of cement in each of the national markets.

For a time, Uganda’s Hima Cement was relying on Bamburi Cement, its Kenyan parent company, to meet demand. The past three years has seen a massive increase in production capacity in the region to meet rising demand.

The East African Cement Producers Association (EACPA) stated in a submission to the region’s governments that its members have in this period spent over US$1bn to install extra capacity, leading to an increase in annual output from 6.4Mt two years ago to 10Mt today, well above the current combined regional demand of 7.1Mt.

EACPA reported, "In Uganda, Hima Cement is about to complete a new plant in Kasese that will increase its production capacity from 350,000t to 850,000t, while Tororo Cement recently announced that it will invest US$50m to double its capacity from 1Mt to 2.2Mt."

In February, the Central Bank of Kenya reported that total cement production had increased by 18 per cent, while consumption rose by only 4.8 per cent, indicating that supply was increasing faster than demand.

With Tanzania’s production increasing too, the producers declared they now had the capacity to supply East Africa and export a surplus to nearby markets like Sudan and DR Congo.

EACPA therefore asked the governments to reinstate the higher CET of 35 per cent. Under the Customs Union Protocol, the CET was progressively reduced from 55 per cent in 2005 to allow cement imports to fill supply deficits, but was originally not supposed to go below 35 per cent.

But in 2008, EAC governments dropped the tariff from 40 per cent to 25 per cent.