Mark Kapchanga
6 July 2009
Nairobi — Cement manufacturers in East Africa are grappling with cheap imports as some of them are threatened with closure.
The massive imports have had a major effect on Tanzania's cement industry, where two of the three companies have suspended production. The employees have since been sent on compulsory leave.
Unless urgent measures are taken, the situation could spread to other East African countries. In Tanzania, imports have grown from a mere two per cent to more than 20 per cent this year.
The region's cement producers association, East African Community Cement Producers' Association, says suspended duties should be restored if the sector is to survive the stiff competition from cheap imports.
The cost of cement production in EAC is twice that of the world's lowest producers.
Energy costs account for almost 45 per cent of the total variable costs incurred by cement manufacturers -- something that has forced them to go for alternative energy sources.
Bamburi Cement, for example, has started a bio-fuel project. It has already embarked on a massive tree planting mission that will fuel the proposed plant.
It is estimated that more than 3.6 million tonnes of cement are imported to Tanzania annually, contrary to the domestic demand which stands at 1.9 million tonnes.
Local producers' capacity is estimated at 1.8 million tonnes.
"We want the suspended duty of 35 per cent to be effected to restrict imports and dumping," said Steinar Hastad, commercial director of Tanzania Portland Cement Company.
Reports indicate that imported cement is sold at a retail price of Tsh12,400 ($11.8) per 50-kg bag, while locally manufactured cement sells at Tsh13,000 ($12.4) per 50-kg bag.
Dumping of cheap imports in East Africa could be a big blow to cement producers, especially at this time when majority of them are expanding their business territories.
Today, Tanzania Portland Cement is finalising its expansion project which would boost its production capacity to over 1.6 million tonnes.
Tanga Cement is also expected to double its capacity to 1.25 million tonnes a year before the end of the year.
Even before the impact of the external tariff reduction begins to be felt, the Common Market for Eastern and Southern Africa (Comesa) is pushing for 10 per cent CET.
"At that time they (EAC) made the decision that cement was a non-strategic commodity, but now we are having excess production", said the managing director of Bamburi Cement, Hussein Mansi.
Mombasa Cement, a subsidiary of Tororo Cement, is expected to raise new capacity to 700,000 tonnes.
Mr Mansi's sentiments on the import threat mirror the findings of a report commissioned by the nine regional producers -- including three Kenyan ones, Tanzania's Portland Cement, Tanga Cement and Mbeya Cement, Uganda's Hima Cement, Tororo Cement and Cimerwa Limited of Rwanda.
Kenya does not seem to have been hit hard by cheap imports from Egypt after the government banned them.
Egypt, a member of the Comesa free trade area, has been a constant threat to Kenyan producers owing to its heavily subsidised manufacturing and superior infrastructure.
Kenya is estimated to have 11 per cent growth in cement demand, Uganda 9 per cent and Tanzania 10 per cent.
If protected from cheap imports, the region is expected to produce nine million tonnes by the end of 2015, from the current 5.4 million tonnes.
Kenya is expected to be the main producer in East Africa, with a total production of 3.8 million tonnes in 2015 compared to the current production of 2.2 million tonnes.
Rwanda and Burundi are expected to double their level of production to 473,000 tonnes and 215,000 tonnes by 2015.
"Stiff internal competition is expected to increase, especially within the EAC market. This may lead to depreciation of prices per bag of cement," Mr Njoroge said.
Under the EAC Customs Union protocol 2005, cement was included in the sensitive product list.
Under the agreement, customs duty was to start at 55 per cent to 25 per cent common external tariff and 30 per cent suspended duty. Gradually, it was to go down by five percentage points every year. It was expected that by 2010, duty will be 30 per cent.
"A year ago, the government unilaterally removed suspended duty until further review of the demand-capacity situation," said the association's chairman, David Njoroge.
Mr Njoroge says the region's cement players cannot compete with countries like Egypt, China and India because of lack of government subsidies in the region.
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