East African Business Council (EABC) has asked East African Community (EAC) governments to treat cement as a sensitive product to protect the domestic industry from cheap imports.
The local cement industry is currently faced with high production costs resulting from high energy and labour costs, poor distribution network especially railway transport and inadequate ancillary industries for spare parts and consumables.
The Executive Director of East African Business Council Charles Mbogori said the influx of cheap cement imports from countries with lower production costs will in the long run have negative impact on the local industry.
Although EAC Common External Tariff (CET) is classified in three tariff bands of 0 percent for raw materials, 10 percent for intermediate goods and 25 percent for finished products, goods considered sensitive often attract a higher tariff.
Cement was considered a sensitive product with tariff set at 55 percent in 2005 which was to reduce at a rate of 5 percent year capping it at 35percent in 2009.
At the onset, cement producers negotiated the CET for cement and agreed that cement was to be considered a sensitive product due to its capital intensive investment requirement.
However, in June 2008, the sensitive status accorded to the cement sector was removed, with import duty being reduced from 40 percent to 25 percent under the EAC CET.
“This was done without consultation with the industry stakeholders,” Mbogori said. “Such unilateral decisions and lack of commitment by partner states of EAC to live up to and uphold the Common External Tariff (CET) is tantamount to deliberate creation of unpredictable policy environment in the region.”
“All stakeholders should be fully involved in any review in the spirit of the Customs Union Protocol given the social and economic impact of any changes,” he said.
The reduction of import tariff on cement has led to an influx of cheap cement imports from low cost cement producers such as India, China, and Pakistan sold at 50 percent to 60 percent less the domestic market price since producers in these countries enjoy lower production costs.
For instance cement producers in Egypt enjoy subsidy on natural gas used in cement production while producer in India and China enjoy diesel price subsidy.
Even as East African cement producers are grappling with increased influx of cheap cement imports, Uganda wants the tariff reviewed further from the current 25 percent to 0 percent.
The Ugandan Minister of Finance Hon. Syda Mbumba recently petitioned her regional counterparts at EAC extra-ordinary meeting for Finance ministers on September 9, 2009 for the reduction of CET on cement to 0% to mitigate the effects of high cement prices on the construction sector.
However, according to East African Cement Producers Association (EACPA), the local industry has capacity to meet local demand.
The current production capacity for cement in East Africa is 9.5 million metric tonnes against a demand of 6 million metric tonnes.
“EACPA has assured us that the region has enough capacity to meet the regional demand but cannot fully utilize its installed capacity due to unfair competition from imported cheap and sometimes sub-standard cement,” he said.
EABC therefore recommends that cement should be treated as a sensitive product and CET reverted to the agreed 35 percent or $50 per tonne whichever is higher as per the Customs Union Protocol agreement.
The caveat $50 per tone is meant to protect the industry from unfair competition caused specifically by the current world economic crisis that has led to availability of cheap cement in Asia and Middle East.
Mbogori said the high price cement in East Africa was a result of high energy costs, poor infrastructure and long distances that between cement manufacturing plants and consumers.
“EAC governments should look for alternative sources of cheaper energy so as to make the industry competitive,” he said.