NAIROBI, Kenya, Nov 4 – The East African Business Council has asked regional governments to reclassify cement as a sensitive product to protect the domestic industry from cheap imports.
Executive Director of East African Business Council Charles Mbogori said on Wednesday that the influx of cheap cement imports from countries with lower production costs would have a negative impact on the local industry.
Under the EAC Common External Tariff (CET), cement was classified as a sensitive product with tariff set at 55 percent in 2005, which was to reduce at rate of 5 percent per year capping it at 35 percent in 2009.
The EAC is classified in three tariff bands of zero percent for raw materials, 10 percent for intermediate goods and 25 percent for finished products. Goods considered sensitive often attract a higher tariff.
However, in June 2008, the sensitive status accorded to the Cement sector was removed with import duty drastically reduced from 40 percent to 25 percent.
“This was done without consultation with the industry stakeholders,” Mr Mbogori said.
He argued: “Such unilateral decisions and lack of commitment by partner States of EAC to live up to and uphold the Common External Tariff (CET) is tantamount to deliberate creation of unpredictable policy environment in the region.”
This led to an outcry by local cement manufactures who complained of being on an uneven playing field.
They argued they are faced with high production costs resulting from high energy and labour costs, poor distribution network (especially railway transport) and inadequate ancillary industries for spare parts and consumables which created an opportunity for cheap imports to make their way into the market.
“The cost of energy and transportation in the region is three to four times that of low cost countries,” he said.
The reduction of import tariff on cement has led to an influx of cheap cement imports from low cost producers such as India, China, and Pakistan sold at 50 percent to 60 percent cheaper than the domestic market price.
But even as East African cement producers grapple with the influx of cheap cement imports, Uganda wants the tariff reviewed further from the current 25 percent to zero percent to mitigate the effects of high prices on the construction sector.
The East African Cement Producers Association (EACPA) argues the local industry has capacity to meet local demand. The current production capacity for cement in East Africa is 9.5 million metric tonnes against a demand of 6 million metric tonnes.
“EACPA has assured us that the region has enough capacity to meet the regional demand but cannot fully utilise its installed capacity due to unfair competition from imported cheap and sometimes sub-standard cement,” Mr Mbogori
EABC therefore recommends that cement should be treated as a sensitive product and CET reverted to the agreed 35 percent or $50 per tonne whichever is higher as per the Customs Union Protocol. The caveat $50 per tonne is meant to protect the industry from unfair competition caused specifically by the current world economic crisis that has led to availability of cheap cement in Asia and Middle East.
