The East African Business Council (EABC) has requested governments in the region to support local cement manufacturers if the industry is to compete favourably with imported products.
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 Tariffs (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,” an EABC statement quotes the Council’s Executive Director, Agatha Nderitu, as saying.
EABC’s request comes after the Pakistan government recently granted cement manufacturers a generous subsidy on inland transportation of cement for export.
East African cement producers believe this is likely to hurt the local market.
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 US$1.1bn 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% to 25%.
“This abrupt change of policy adversely affected the industry because this opened doors for cheap imported cement into the region,” Nderitu adds.
“There is a need to make the policy environment predictable in order to encourage new and expanded investments to ensure that the EAC Community realises the benefits of the integration for the EAC businesses.”
EACPA Chairman, 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 the Middle East,” Njoroge says.
For Nderitu, East African governments should create a conducive business environment for local manufacturers by lowering production costs or create a level playing field by protecting vulnerable industries through higher tariffs.
Cement manufacturers have requested East African governments to reinstate CET on cement to 35% or $50 per ton, whichever is higher. Njoroge argues that this will create a level playing field for the local industry to compete.
He also appeals the partner states to invoke additional anti-dumping and countervailing measures to limit dumping of subsidized cement in the region.