24 September 2012

Namibia: Ohorongo Sounds Alarm Over Cement Imports

AN investment of more than N$2 billion in the Namibian economy and hundreds of jobs which were created in the process, could be at risk if infant industry protection cement import tariffs are not left in place. This is the warning from the managing director of Namibia's only cement manufacturer, Ohorongo Cement, in an affidavit filed with the High Court in Windhoek in the latest stage of a case in which a Chinese-owned cement importer wants to have the cement import duty declared invalid.

Ohorongo Cement has filed an application with the High Court in which it is asking to be allowed to join the case in which a cement importer, Jack's Trading CC, has sued the Minister of Finance and the Commissioner of Customs and Excise in connection with the tariffs which have been levied on cement imports into Namibia since July 27.

The Finance Minister and the Commissioner of Customs and Excise have lodged an appeal to the Supreme Court against the judgement in which High Court Judge Dave Smuts on August 31 declared the import duty as being of no force and effect.

Judge Smuts found that the wrong sequence of steps was followed in terms of the Customs and Excise Act of 1998 when the import duty was imposed.

With the appeal in effect suspending Judge Smuts's order, the import tariffs are remaining in place until the appeal has been decided. In the meantime, though, Jack's Trading CC has again approached the High Court, to ask that the August 31 judgement be put into operation while the appeal is pending.

Ohorongo Cement wants to oppose that application by Jack's Trading CC.

Ohorongo Cement has a direct and substantial interest in the case, the company's managing director, Hans-Wilhelm Schütte, states in his affidavit.

If the cement import duty falls away, Ohorongo Cement will be seriously prejudiced, he is warning.

"The absence of infant industry protection will jeopardise (Ohorongo Cement's) entire operations in Namibia and may result in the need to retrench employees and down-scale (or totally halt) operations," Schütte is claiming.

"(Ohorongo Cement's) significant investment in Namibia will be put at risk, with the concomitant knock-on effects upon the local and national economy."

The company, which has set up a cement manufacturing plant between Otavi and Tsumeb, has invested about N$2,25 billion in Namibia, Schütte says. A sister company of Ohorongo Cement, Energy for Future, which is involved in harvesting invader bush and turning this into a replacement fuel for coal, has invested about N$200 million, he says.

Ohorongo Cement employs 316 people at the moment. Through the company's wider impact on the Namibian economy it has created about 2 000 jobs in total, according to Schütte.

Finance Minister Saara Kuugongelwa-Amadhila imposed an import duty of 60 per cent on cement with effect from July 27. The rate of 60 per cent would be in force until 2014. In 2015, the import tariff would be lowered to 50 per cent, while it would drop further to 42 per cent in 2016, 24 per cent in 2017, and 12 per cent in 2018.

Infant industry protection, which is allowed under the 2002 Southern African Customs Union agreement, was a precondition for the decision to establish Ohorongo Cement's plant in Namibia, Schütte says in his affidavit.

Ohorongo Cement has been producing cement since February last year, and its plant has the capacity to produce about 700 000 tons of cement a year, he says.

With Namibia's domestic demand for cement estimated at about 500 000 tons a year, Ohorongo would be able to meet the country's cement needs and turn Namibia into an cement exporter, Schütte states.

However, given Ohorongo's costs and scale of production, as well as domestic demand, it is difficult to compete in price with cement imported into Namibia, he says.

If the import duty falls away, "the possibility exists that (Ohorongo Cement) will close down as (it) will be unable to repay interest and capital amounts to its long term lenders and various financial institutions", he also claims.

Schütte adds: "The loss of infant industry protection will send a negative signal to potential foreign and domestic investors."

In his latest affidavit filed with the court, the majority member of Jack's Trading CC, Yuequan Jack Huang, states that he has signed a four-year contract to import 180 000 tons of cement a year into Namibia.

A shipment of 16 000 tons of cement from China is now on its way to Namibia, and he would have to pay an import duty of about N$4,7 million on that if the import tariffs remain in effect pending the appeal to the Supreme Court, Huang says.

A date for the hearing of the two applications must still be set.

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