Massive foreign dumping depresses the market for local product

In July 2008, the East African countries abolished Duty on cement imports in their respective national budgets in a bid to meet the region’s growing demand for the building material, probably quite unaware of the detrimental effects the move would have on the sector.

Cement players in Kenya, Uganda, Tanzania, Burundi and Rwanda now urge the governments to move with speed to protect them from marauding foreign investors from, especially, Middle East and Pakistan which are now reportedly capitalising on the opportunity to monopolise East Africa’s once- lucrative cement market by a deliberate dumping, particularly in Tanzania.

According to the East African Cement Producers Association (EACPA), the Pakistani Government extends heavy subsidies to its cement sector, a move that has made their products cheap on the market. In Pakistani, says EACPA, it costs between $11 and $17 to transport one tonne of cement from the Asian country to East Africa, with the government footing 35 per cent of the total cost.

With Pakistani's Free on Board prices ranging between $50 and $56 depending on the location of the cement plant, the government subsidy amounts to between eight and 11 per cent discount per tonne. Cement players say the subsidy is “quite substantial”.

“This subsidy is expected to increase Pakistani's export earnings by $322 million at the expense of other economies in East Africa,” the EACPA says, adding: “Besides increasing imports, the subsidy also envisages reducing the competitive pressure within Pakistan and allows for a price recovery after the drastic drop in prices.”

Pakistani has an installed capacity of around 44 million tonnes of cement against the local demand of 20 million. The local sector remains with an exportable surplus of over 13 million tonnes of cement after exporting to Afghanistan and India by the land route. The surplus is exported to the Middle East and Africa, especially East Africa, where current annual demand for cement stands at 7.1 million tones.

As a result of the risk posed to the industry, the association is demanding the 35 per cent tariff for imported cement products be restored. EACPA chairman David Njoroge says there should be a $50 per tonne charge to supplement the 35 per cent tariff but the higher of the two should be charged.

Says a grim-faced Njoroge: “The specific rate has been proposed to counter dumping and subsidies by the exporting countries as well as the under-invoicing of cement at the ports of entry. To avert the imminent collapse of the seven cement manufacturing plants in East Africa, which employ more than 5,000 people, the Community must intervene and restore sanity in the sector.”

EACPA also wants Uganda's request to import Duty- free cement products from Asia revoked. Njoroge says since the establishment of the EAC Customs Union protocol in January 2005, cement has been classified as a sensitive product with a Duty rate of 55 per cent: 25 per cent Common External Tariff (CET) and Suspended Duty of 30 per cent. The partner states also agreed that the CET on cement should be reduced by five per cent each year for the subsequent four years to stabilise at a target rate of 35 per cent by 2009.

The tariff was designed to safeguard the cement industry in the region from the threat of dumping by low-cost producers. It would also cushion local cement prices from subsidies given to importers by their respective governments.

“The EACPA is deeply concerned at these developments and is worried about the survival of the cement industry in the EAC if the partner states do not take corrective action,” MrNjoroge said.

Economists argue that the influx of cheap cement imports will in the long run have a negative impact on the local industry. They argue that the local cement industry is faced with high production costs resulting from high energy and labour costs and a poor distribution network.

Although the EAC Common External Tariff is in three tariff bands — zero per cent for raw materials, 10 per cent for intermediate goods and 25 per cent for finished products — goods considered sensitive, like cement, often attract a higher tariff.

At the establishment of the EAC in 2004, cement producers negotiated the CET and agreed that cement was to be considered a sensitive product due to its capital intensive investment requirements.

EACPA says Tanzania is one of the worst-hit countries in the region, having received substantial subsidised cement imports from Asia, Pakistan in particular, flooding its local market sometimes at prices below those charged on locally produced cement.

“Some factories have been forced to cut down production. Some have stopped production, sending workers on leave. The local cement companies and the national economy in general will come down crumbling unless this situation changes,” says EACPA.

But even with the challenge of dumping, the sector stills seems lucrative to players with the recent entry of the world’s largest cement producer, the Sanghi Group of India, which has won a tender to extract limestone in West Pokot. Its subsidiary, Cemtech Limited, is already on the ground to establish an ultra-modern cement plant. The landmark mining rights were wholly granted to the cement giant on October 31, 2008, by the Industrialisation Ministry and the County Council of Pokot

According to the Sanghi Group director in charge of Africa investments, Mr Rajesh Kumar Rawal, the proposed plant will look at various grades of lime, marble stone production and “investigate the possibility of exploring for further limestone, volcanic ash and gypsum deposits” in the surrounding areas.

“We expect to produce more than 600,000 tonnes of cement per annum in the initial phase. We will then expand to over one million tonnes in subsequent phases. However, this will be subject to availability of additional limestone usable for cement manufacturing,” Rawal said