Kampala, March 20 2010: The cement manufacturing sector in East Africa is asking the East African members states to reinstate the 35 percent Common External Tariff (CET) or add a further charge of $50/t whichever is higher (versus the 35%) to save the industry from imminent collapse because of escalating imports of subsidized and dumped cement from Asia and the Far East.
The East Africa Cement Producers Association (EACPA) says Uganda alone stands to lose Ugx131 Billion which is 2 percent of the country’s total export revenue and tax revenues of between Ugx80 -100 Billion if the situation is not checked. Also at risk are existing investments of Ugx900 Billion and new investments of over Ugx400 Billion which are intended to increase the country’s capacity to be self sufficient in cement production.
EACPA Chairman David Njoroge said the CET on imported cement was reduced in 2008 from 40 percent to 25 percent by EA member states due to challenges caused by mechanical breakdowns in two cement factories in Kenya. “Because of this measure, the local cement industries in EAC are facing stiff challenge from subsidized and dumped imports mainly from Pakistan, Turkey and China”.
He said that over 2,200 people and another 17,000 who are directly and indirectly employed by the subsector in Uganda stand to lose their livelihood while social investment of over Ugx3Billion per annum is also at risk.
EACPA says that the global financial crisis which was at its peak last year has played a big part in reducing cement demand in Asia and the Far East and cement producers in this region are consequently looking for new markets to offload their excess capacity. “As we are trying to increase our capacity in Uganda and the region, it instructive to note that for example a 1% collapse of demand in China is equal to 16 Million Tons (MT) of Cement which compares to a total EAC market of 6 MT. China can therefore easily take over the entire market” said Njoroge.
China has installed capacity of 1600 MT, India 218 MT, Saudi Arabia 45 MT, Egypt 40 MT while East Africa combined has only 9 MT. The EAC region with its small size factories (average 0.7 MT per annum) has the lowest economies of scale of all the key producers of cement.
Apart from the collapse of demand in key Exporting markets which has exacerbated dumping in local markets, the high cost of production for the local industries means that local cement are severely disadvantaged compared to low cost producers in Asia and Middle East.
“In East Africa, energy costs account for up to 50 percent of production costs while in countries like Egypt, India and China, where production costs are inherently lower, the costs of key inputs in the industries like power and fuel are also subsidized by government” said Njoroge.
For example thermal energy costs in Egypt are 7.2 USD/TON compare to 37.5 USD/TON for Uganda and Kenya. Electricity costs in Egypt and China are 3 US cents per Kilowatt/hour compared to 10 US cents for Uganda, 19 US cents for Kenya and 7 US cents for Tanzania. Therefore, cement producers in the EAC region are severely handicapped by these high energy costs in addition to having to import most spare parts from abroad with consequent foreign currency implications.
The EACPA is therefore seeking the intervention of Governments in the region to restore CET of 35 percent on imported Cement or a surcharge of USD 50 per ton whichever is higher to help protect the local industry from collapse. The EACPA is also advocating for the government to take additional anti dumping measures in consultation with the subsector.
The threat to the industry comes at a time when the cement subsector in the region is working aggressively to increase production capacity. In Uganda Hima Cement is about to complete a new plant in Kasese that will increase its production capacity from 350,000 MT to 830,000 MT while Tororo Cement recently announced that it will invest $50 million to double its capacity from 1 million MT to 2.2 million MT. When this capacity is fully installed, it is expected that Uganda will fully satisfy its local demand for cement as well as adequately supply the regional market.