Reduced duty on imported cement worries manufacturers

Corporate News

Imported cement on sale in Kigali. The commodity has also been struck off the list of sensitive items that need protection until local firms can compete. PHOTO | FILE |  NATION MEDIA GROUP

By CHRISTABEL LIGAMI

In Summary

• The commodity has also been struck off the list of sensitive items that need protection until local firms can compete.
• Cement manufacturers fear the latest move is opening a window to cheaper cement imports that are likely to leave them staring at idle capacity and losses. 

The duty on cement imported into East Africa has been lowered from 35 per cent to 25 per cent, heralding good news for the construction sector. But manufacturers warn that the resultant price crash could send them out of business and lead to massive job losses.  

According to a gazette notice of the EAC released last month, apart from the reduction in the common external tariff (CET), cement has also been removed from the list of sensitive products that require protection until domestic industries can compete.

Decisions on the CET are made by the East African Council of Ministers.

Despite the current 35 per cent duty on cement from non-EAC countries, imports are still largely cheaper than the locally produced commodity. Cement manufacturers fear the latest move is opening a window to cheaper cement imports that are likely to leave them staring at idle capacity and losses. 

“This will only create unnecessary competition from manufacturers outside the region, leading to an influx of cheap cement imports,” said Ronald Ndegwa, Savannah Cement chief executive.

READ: Building boom to spur cement firms’ share rally at NSE

Mr Ndegwa said that the costly business regime in East Africa will render the local firms uncompetitive against rivals who operate in “subsidised economies.” 

Electricity, which on average makes up 40 per cent of the direct cost of cement manufacturing, is four times cheaper in Asian countries.

“Until the cost of production in the region comes down, we still feel that it is unfair to remove cement from the sensitive items list it is likely to put the ongoing industry expansion plans in jeopardy,” said Mr Ndegwa.  

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Dumping

Pradeep Paunrana, the managing director of Athi River Mining Ltd said that the reduced tariff would encourage dumping of cement from Pakistan and the Middle East in the region. 

“We are currently producing seven million tonnes of cement and the demand is about four million tonnes. This is why we need more protection from external competition,” said  Mr Paunrana, adding that the regional demand for cement in 2014 was 11.4 million tonnes against an installed capacity of 16 million tonnes. 

A bag of cement in Kenya costs between Ksh560 ($8) and Ksh700 ($8.5). Uganda’s average price was Ush32,000 ($12) as at December last year. A 50-kilogramme bag of imported cement in Tanzania retails at Tsh12,500 ($7.8) while locally produced brands are selling at between Tsh13,000 ($8) and Tsh15,000 ($9.3).

This year, the East African region is expected to produce about 12.9 million tonnes against a demand of 11 million tonnes, leaving a surplus of nearly two million tonnes or 15 per cent of production.