Traders court politicians to back duty-free cement

Traders court politicians to back duty-free cement
Published: 15 December 2009

Against a backdrop of a biting cement deficit in East Africa, a clique of traders have their guns pointed at the industry with the intent of shipping in cheap imports.

With the help of politicians, they argue the region is facing a major deficit that is hampering the full potential of the building and construction industry thus slowing down economic growth.

The importers also say cement manufactured in the region is expensive and allowing imports could drastically reduce the cost of construction, particularly for the common mwananchi.

According to industry statistics from the East African Cement Producers Association (EACPA), the region is facing a deficit of 700,000tpa as the six cement manufacturers have a production capacity of 5.5Mta against a demand of 6.2Mt.

The importers contend that if duty is scrapped, the cost of a 50kg bag of cement that costs Sh700 could reduce by as much as 60 per cent. The radical proposal, however, spells doom for the survival of the region’s established cement manufacturers.

The resolute traders have taken a proposal by Ugandan Minister of Finance Syda Mbumba to zero rate cement importation as a timely blessing and are engaging politicians in protracted lobbying to have it fully implemented.

Extraordinary meeting
In September, Mbumba petitioned his regional counterparts at a East Africa Community Extra-Ordinary Meeting for Finance to reduce the common external tariff (CET) on cement downwards to mitigate the effects of high cement prices on the construction sector.

According to the CET, import duty on cement is capped at 25 per cent after it was reduced from 40 per cent last year. Now Uganda, and Rwanda want it abolished.

Local cement manufacturers have come out strongly against the proposal arguing duty-free imports will kill the industry.

"The pressure coming from politicians that duty on cement importation be removed is linked to importers," said Athi River Mining Managing Director Pradeep Paunrana, who is also the EACPA spokesman.

More worrying for cement manufacturers is the understanding that numerous local and some multinational construction companies operating in the region are silently in favour of the move.
Though most are reluctant to come out openly, the feeling among construction companies is that sourcing for cheap cement in countries like Egypt, India, Pakistan and China would translate to more profits. Pakistan, in particular, has become a favourite region’s source for cheap imports. Indeed one Pakistani company, Lucky Cement Ltd, boosts of a well-established export market in East Africa that accounts for about nine per cent of exports.

The industry is also recommending that cement be treated as a sensitive product that requires special protection and CET reverted to the agreed 35 per cent as per the Customs Union Protocol agreement.
"There is no doubt local manufacturers are facing unfair competition because their costs of production are high," noted Oundo.

Electricity, which accounts for about 40 per cent of the production cost, is expensive in the region where it costs an average of 10 US cents compared to three US cents in China and Egypt.

Although the region is experiencing a cement deficit, by 2013 it is projected there will be a surplus of about three million tonnes a year. This is because producers are expanding their capacity, while two other producers have entered the industry.