Duty waiver would kill cement industry

The aura of excitement hovering over the East Africa Community as it gears up for a common market next year can only be equated to the feelings of an expectant woman: The over 100 million people in the region are looking forward to increased economic activity.

But tension is also building up. If the past is prologue, then instances that have seen countries within the bloc adopt selfish positions when their individual interests are threatened and ignoring deals under the EAC Protocol, could pose serious threats to the strides that have already been made. A case in point is the division that has been generated by a proposal by Uganda and Rwanda to zero rate cement imports.

While the two nations believe this is critical to propelling their building and construction sectors and, in effect, drive economic growth, Kenya and Tanzania are strongly against the move.

They argue that is would ultimately destroy a prospering cement industry and wipe out billions of shillings invested.

The fact that the matter has to some extent resulted to the disregard of the common external tariff (CET) that clearly stipulates how raw materials, intermediary goods and finished goods entering the bloc should be treated shows regional leaders still have some homework to do.

Despite the divisions, the issue of whether to allow cement importation or not also raises some fundamental realities that the bloc should confront.

Delicate truths

Ultimately, the final decision must be based on the willingness to balance some delicate truths.

First, it is important to understand that allowing cheap foreign cement into the EAC at zero duty will badly hurt local manufacturers. Due to their exorbitant production costs, there is no doubt all the six cement manufacturers that are selling the product at an average of Sh700 a 50 kilogramme bag cannot compete with the imports from China and Pakistan that costs about 60 per cent less.

Is the region willing to sacrifice one of its most vibrant industries for short term benefits, and condemn thousands of people who depend on it to poverty?

Another question that needs to be addressed is whether EAC wants to be a manufacturing region or a group of importing nations. To experts, the proposal to zero-rate cement is a dangerous gamble as it cedes the countries’ sovereignty to foreigners.

To understand the dynamics, one has to consider the example of China, which has more than enough cement to export. What will happen when the country, which has one of the most vibrant construction industries in the world, needs more cement for domestic consumption and is unable to export? The answer to this question provides the fundamental truth, detailing the real impacts of allowing duty free imports into the region’s economy.

Besides driving up activities in the building and construction sector, the EAC governments will lose billions of shillings in taxes and will be creating jobs elsewhere. While cement manufacturers have felt the impact of the global economic downturn in recent years, as soon as the economy turns upward, they will once again be called upon to produce the additional cement needed to sustain a thriving construction sector, and that could lead to additional job creation.

Reduce costs

It harms our countries, and their ability to confront challenges when important commodities like cement are left in the hands of foreigners. But having looked at these worrying realities, we also believe it is prudent for the governments to find ways to better address the issue of cost and cement deficit. While it’s encouraging to see local manufacturers investing in processes to increase their capacity, it is highly unlikely the cost of cement will ever come down in the current operating environment.

This is what makes it important for governments to engage manufacturers and seek ways of addressing the issue of cost, as it will be difficult for those within the EAC bloc to continue paying exorbitant prices for cement and sustaining manufacturers’ inefficiencies when cheaper alternatives are available.