Tanzanian construction sector vibrant despite crunch

Tanzanian construction sector vibrant despite crunch
Published: 31 December 2009

The construction industry in Tanzania has remained vibrant, despite the regional economic downturn. However, the Contractors Registration Board (CRB) says that the performance recorded during the year would have been much better were it not for the crisis that slowed the overall growth of the economy. Registrar Boniface Muhegi has told local news sources that the number of projects registered in 2009 was the highest in the last three years.
While CRB is satisfied with the overall sectoral performance, cement producers say all has not been well for them and 2009 was relatively not a good year. The cement companies say that they have benefited little from the sustained boom in the construction industry during the crisis.

In its Medium Term Plan and Budget Framework for 2009 to 2012, Treasury projects building and construction activities to increase slightly and grow by 11.5 per cent this year from the growth rate of 11.3 per cent recorded in 2008. It says that the construction sub-activity will be buoyed by increased investment in infrastructure, especially roads, bridges, water supply projects, commercial and residential buildings and other land developments.

Bank of Tanzania (BoT) figures show that cement production, which is a good indicator for buoyant construction activities, increased by 13.5 per cent in the first half of 2009 compared to 8.8 per cent during the same period in 2008.

The import bills during the two periods were US$533.5 million (about Sh693.55 billion) and US$589.7 million (about Sh766.61 billion) respectively. The value of the building and construction capital goods imports increased to US$58.4 million in October from the US$42.2 million that was recorded in September.

Cement producers say 2009 was a difficult year for them because of increased costs of production and the threat of the future survival of the industry from external unfair competition.  The high costs emanated from the continued unreliable supply of electricity, the power rationing in the third quarter of the year, poor and expensive transportation and high prices of raw materials in the world market.

It was however the influx of cheap cement in the region from mostly Asian countries that worsen the operations of the three cement companies in the country. After investing heavily in the industry, including the recent $1.1 billion capital injections to increase capacities, the combined output of the three companies is now 3Mt.

"Although there are many construction projects going on in the country, unfortunately most of the cement that is used is imported," the managing director of Twiga Cement, Mr Lessoine Pascal, said. He said the global crisis has made many countries in Asia such as Pakistan to shield their economies with rescue packages and strategies, which has involved subsidising various industries including cement. Consequently, production costs of cement in these countries have been lowered compared to producing the commodity in Tanzania, which is a major market for them.
"Throughout the economic crisis period, Tanzania has allowed importation of large quantities of cheap cement from these which sell at relatively lower prices leading to local producers to suffer a lot,"Mr Pascal said. He said that unless the government reinstates the suspended import duty of 35 per cent on the commodity, which was introduced in 2004 when the country was experiencing cement shortages, local producers faces imminent doom.

Customs Union Protocol: As a measure to protect local industries and a way of promoting industrialisation in the region, cement was included in the list of sensitive products under the EAC Customs Union Protocol of 2005. Under the arrangement, the custom duty on cement was to start at 55 per cent, which comprised 25 per cent common external tariff and 30 per cent suspended duty. The taxation would gradually go down at a rate of five per cent annually to reach 35 per cent in 2010. It is this market protection shield that prompted the cement companies to embark on investment drives worth billions of shillings that are now being threatened by cheap imports following the suspension of the agreed CET rate in July 2008.

The East Africa Cement Producers Association (EACPA) says the cement industry scenario in the region is gloomy with its members recording unprecedented lower sales and increasing idle stocks. "Since the removal of the suspended duty, the influx of imported cement in the region has increased tremendously going up year in year out. It has shot up from 2000t in 2006 to about 18,000t today," the secretary of EACPA Tanzania Chapter, Mr Harpreet Duggal, told The Citizen recently.

The cement companies say the issue of inadequate supply is currently irrelevant since cement production has increased from 1.7Mt in 2007 to3Mt, which is above the national demand by one million tonnes. The managing director of Tanga Cement, Mr Juerg Fluehmann recently said that for example, his factory alone by last month increased its installed capacity to 1.25Mt annually from around 500,000t. He, however, noted that the company would not utilise the full capacity until the government addressed the issue of unfair competition from imports.

"We are not asking for favours but we are asking for the levelling of the playing field because the government cannot immediately improve infrastructure or subsidise fuel and power for us, let it reinstate the suspended duty to 35 per cent or charge US$50 per every tonne imported,’ he concluded.