ARUSHA - East African Business Council has asked EAC governments to support local cement manufacturers if the industry is to compete favourably with imported cement.
The local cement industry is currently grappling with increased competition from imported cement from countries that enjoy lower production costs as well as subsidies since EAC finance ministers reduced Common External Tariff (CET) on cement from 40 per cent to 25 per cent.
“The EAC cement sector is not able to effectively compete with the low cost producers like Pakistan, China, and India because of the high production costs; not to mention the rail and road transport inefficiencies,” Ms Agatha Nderitu, the Executive Director of East African Business Council said.
Pakistan government recently granted cement manufacturers a generous subsidy on inland transportation of cement for export in what East African Cement Producers believe is likely to hurt the local market.
The Pakistan government will give all cement manufacturers 35 per cent subsidy on inland transportation expenses to the sea with an aim of boosting the country’s cement exports. According to a recent report from JS Research, a Pakistan-based research institution, East Africa is one of the strategic markets for Pakistan cement owing to its close proximity as well as the construction boom in the region.
The report further projects 10 to 11 million tonnes of cement to be exported in2010-11 as a result of inland freight subsidy.
Under EAC customs union protocol 2005, cement was considered a sensitive product and the CET was set at 55% gradually reducing by 5% every year capping it at 35%. Based on this policy, the industry mobilised investments amounting to $1.1 Billion in capacity expansion in the region based, according to East African Cement Producers Association (EACPA).
However in 2008 during pre-budget meeting, the council of ministers dropped the CET on cement from 40 percent to 25 percent. “This abrupt change of policy adversely affected the industry because this opened doors for cheap imported cement into the region,” Ms Nderitu said.
“There is need to make the policy environment predictable in order to encourage new and expanded investment to ensure that the EAC Community realises the benefits of the integration for the EAC businesses,” Ms Nderitu said.
During the transition period EAC governments were expected to address the high cost of production especially energy and transport. However production costs have since worsened.
EACPA Chairman Mr. David Njoroge said transport and electricity costs in East Africa are three to five times higher than in countries such as Egypt, Pakistan, and India.
“Whereas we recognize the efforts being made by governments to improve the physical infrastructure, we are not yet at the level in terms of costs to compete with the low cost producers in Asia and Middle East,” Mr Njoroge said.
“This situation has been worsened by the global economic slowdown that has led to excess capacities in these low cost producing countries in addition to increasing subsidies being doled out to the cement exporters there,” Mr Njoroge said.
Ms Nderitu said, “East African governments should create a conducive business environment for local manufacturers through lowering production costs or create a level playing field by protecting vulnerable industries through higher tariffs,”
Cement manufacturers under the umbrella body EACPA through EABC have requested the East African governments to reinstate CET on cement to 35 percent or $50 per ton whichever is higher.
“We request restoration of the sensitive status of cement in the EAC schedule of sensitive products and application of a CET of 35 percent or $50 (whichever is higher) be imposed per every tonne of cement imported from outside the region,” Mr Njoroge said.
“This will create a level playing field for the local industry to compete.” He also appealed to the partner states to invoke additional anti-dumping and countervailing measures to limit dumping of subsidized cement in the region.