10 May 2011

Uganda: Manufacturers Want Cement Tariff Raised

Cement manufacturing companies in East Africa want the Common External Tariff (CET) be increased to 35 per cent when regional governments review the tariff.

In 2008, the governments reduced CET to 25 per cent as a temporary measure to curb the perceived short supply of cement in the region.

Mr David Njoroge, the Chairperson of East Africa Cement Producers Association (EACPA) confirmed that the regional governments had commissioned a panel of experts to carry out a study of the cement industry in the region.

"The commission will make recommendations which will be critical in determining if the Ministers of finance in the respective member states will consider revising the CET to the desired levels," he said.

He added that the experts visited the producers and collected data which he believes is consistent with what they have been telling the government-that there is enough capacity to meet local demand and growing regional markets of Southern Sudan, Rwanda, Burundi and eastern DR Congo.

Manufacturers are hopeful that the regional governments would take special consideration after studying the results of the panel of experts because the cement industry continued to be under threat from cheap imports from Middle East and Asia.

"We have clearly explained why we cannot be as competitive as producers in China and Pakistan or Middle East.

Governments in these regions give heavy subsidies to their producers mainly in power and transport which are the biggest components of cement cost" he said.

The manufacturers want the CET to be reviewed back to 35 per cent $50Uper tonne to level the playing field now that there is enough investment in production capacity.

Recently Hima Cement commissioned a new factory in Kasese which has more than doubled the company's production capacity from 350,000 metric tonnes to 850,000 metric tonne.

The production capacity in the EAC region as a whole now stands at 11 million tonnes compared to a demand of eight million tonnes after the industry players invested over $0.5 billion over the last three years.

In the clearest indication yet that the regional governments are likely to review the CET in favour of the manufacturers, Tanzania President Jakaya Kikwete said during the African Investment Forum held in Dar es Salaam in April.

He said that that Tanzania would continue to pursue investor friendly policies and would ensure that the country's investment policies are clear and predictable.

He emphasized that the reduction of CET was a temporary measure that was taken because of shortage and high prices of cement. The investment forum was attended by the presidents of the five East African countries.

Costs of production

In East Africa, energy costs account for up to 50 per cent 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

"Thermal energy costs in Egypt are $7.2 per tonne compared to $37.5 per tonne for Uganda. Electricity costs in Egypt and China are 3 US cents per Kilowatt per hour compared to 10 US cents for Uganda, 19 US cents for Kenya and 7 US cents for Tanzania," Mr Njoroge said.

He believes cement producers in the EAC region are severely handicapped by these high energy costs in addition to having to imported most spare parts from abroad with consequent foreign currency implications.

Increasing prices

Though cement manufacturers claim there is enough cement for the region, cement prices have gone up by around 8 per cent, a 50Kg bag shot from Shs 24,000 in March to Shs 26,500 this month, something Mr Njoroge attributes to the increased costs of transport which rose by 20 per cent.

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