ARUSHA, Tanzania, May 13 – A recent subsidy by the Pakistani government to cement manufactures is causing jitters amongst cement players in the East African Community.
The East African Business Council is of the notion that a 35 percent subsidy on inland transportation expenses to the sea for cement manufactures in Pakistan could result in an influx of imports within the region.
Executive Director of East African Business Council Agatha Nderitu said the local cement industry is currently grappling with increased competition from imported cement from countries that enjoy lower production costs as well as subsidies since EAC finance ministers reduced Common External Tariff (CET) on cement from 40 percent to 25 percent.
“The EAC cement sector is not able to effectively compete with the low cost producers like Pakistan, China, and India because of the high production costs; not to mention the rail and road transport inefficiencies,” Ms Nderitu said.
A report released by Pakistan-based research institution, JS Research, shows that East Africa is one of the strategic markets for Pakistani cement owing to its close proximity as well as a construction boom that has hit the region.
The report further projects 10 to 11 million tonnes of cement to be exported in2010-11 setting off alarm bells by local players.
Under EAC customs union protocol 2005, cement was considered a sensitive product and the CET was set at 55 percent gradually reducing by five percent every year capping it at 35 percent.
Based on this policy, the industry mobilised investments amounting to $1.1 billion in capacity expansion in the region based, according to East African Cement Producers Association (EACPA).
However in 2008 during pre-budget meeting, the council of ministers dropped the CET on cement from 40 percent to 25 percent.
“There is need to make the policy environment predictable in order to encourage new and expanded investment to ensure that the EAC Community realises the benefits of the integration for the EAC businesses,” Ms Nderitu said adding the abrupt change in policy only dented growth of the industry.
EACPA Chairman David Njoroge said there was need to address a number of bottlenecks such as transport and electricity costs which are three to five times higher than in countries and continued to cap growth.
“Whereas we recognise the efforts being made by governments to improve the physical infrastructure, we are not yet at the level in terms of costs to compete with the low cost producers in Asia and Middle East,” Mr Njoroge said.
Cement manufacturers under the umbrella body EACPA through the EABC have requested the East African governments to reinstate CET on cement to 35 percent or $50 per ton whichever is higher.
“This will create a level playing field for the local industry to compete,” he said appealling to the partner states to invoke additional anti-dumping and countervailing measures to limit dumping of subsidized cement in the region.