Business Daily (Nairobi)
George Omondi
9 November 2009
Cement manufacturers in the region face an uphill task convincing governments to throw another blanket of protection around their businesses as landlocked countries add their voices to calls by consumers to allow in more imports.
The countries are presenting a firm call, saying they are frustrated by the high cost of the commodity.
While the East African Business Council (EABC) is campaigning to have cement included in the region's list of sensitive products which need to be protected from cheap imports, countries are increasingly coming under pressure to do something about the escalating costs.
"EAC governments should either look for alternative sources of cheaper energy to make the industry competitive or increase import duty on cement to protect it," Mr Charles Mbogori, the EABC's executive director said in a statement to the Business Daily.
EAC Common External Tariff (CET) is classified in three tariff bands of 0 per cent for raw materials, 10 per cent for intermediate goods and 25 per cent for finished products.
But goods considered sensitive often attract a higher tariff of over 25 per cent.
When the EAC launched its customs union in 2005, cement was considered a sensitive product, attracting a tariff set of 55 per cent, a charge which was to reduce at rate of five per cent per year before capping at 35 per cent in 2009.
But due to the shortage experienced in the region last year, the CET on cement was reviewed downwards to 25 per cent, sparking protests from industry players.
At post-budget negotiations concluded in Arusha on Wednesday, the EABC rooted for the treatment of cement as a sensitive product, with its CET reverting to the 35 per cent or $50 per tonne whichever is higher as per the Customs Union Protocol agreement.
If the post budget committee agrees to this demand, cement will have the same protection as cane and sugarcane (100 per cent CET rate), maize (50 per cent), rice (75 per cent), milk (60 per cent), khanga, Kikoi, and kitenge clothes (50 per cent) and used clothes (45 per cent).
But as main producers of cement in the region, Kenya and Tanzanian manufacturers have met stiff opposition from Rwanda, Uganda and Burundi who maintain that the safeguards offered to the industry in the past did not trickle down to regional consumers in form of fair retail prices.
Instead, the landlocked countries want the regional governments to reduce the CET on cement to 0 per cent in the hope that the resulting competition could push down the product's retail prices.
Imported cement retails at prices which are usually 40 to 50 per cent lower than locally produced ones.
At the EAC Extra-Ordinary Meeting for Finance held in early September, Ugandan Finance minister Syda Mbumba petitioned his regional counterparts to remove CET on cement to cushion construction sector from high operation costs.
But those calling for special protection from imports, say their products have been made less competitive because of high production costs resulting from high energy costs, labour costs, poor distribution network especially railway transport and inadequate ancillary industries for spare parts and consumables.
Mr Pradeep Paunrana, the Athi River Mining's managing director and the chairman of the Kenya Association of Manufacturers' infrastructure affairs committee, says electricity alone constitutes 40 per cent of the firms' production costs.
Kenyan manufacturers have not only witnessed arbitrary increases in electricity tariffs but also intermittent power outages.
"Some of these claims are genuine but we also get frustrated because companies keep raising their prices even after negotiating safeguards for them," said a government official who cannot be named because of involvement in the post budget negotiation with the business leaders.
Mr Mbogori said the influx of cheap cement imports from countries which enjoy lower production costs like China, India, Pakistan and Egypt will in the long run have a negative impact on the local industry.
According to East African Cement Producers Association, the region which has a cement production capacity of 9.5 million tonnes against a demand of 6 million tonnes can increase its output if protected from cheap imports.
Players in the region say the industry needs protection because of Its capital intensive investment requirement, the fact that it relies on local raw materials and because the cost of energy and transportation in the region is 3 to 4 times that of low cost countries
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