Pakistani cement flooding East African markets

Sunday, May 16, 2010
NAIROBI: Local cement manufacturers are headed for hard times after the Pakistan government offered huge subsidies to its domestic cement makers to increase exports to East Africa, media reported here.

Pakistan government has agreed to give 35 per cent subsidy on transportation expenses for cement meant for export. East Africa is one of the strategic markets for Pakistan cement owing to its proximity as well as the construction boom in the region. Cement demand in East Africa is expected to grow by 33 per cent to eight million tons in 2011 from six million tons in 2009. Pakistanís cement industry says that their government’s move should help generate better volumes as it will strengthen competitiveness over other manufacturers, which in turn can pave way to a fall in local cement prices. An umbrella body representing business associations in East African Community asked East African countries’ governments to support local cement manufacturers compete with imported cement. East African Business Council said cement industry faces increased competition from the imported product from countries with lower production costs.

Executive director Agatha Nderitu said that low cost producers such as Pakistan, China and India were flooding the region. “Pakistan Government recently granted cement manufacturers a generous subsidy on inland transportation of cement for export in what East African Cement Producers Association believe is likely to hurt the local market,” she said.

Cement in East African countries was classified as a sensitive product in 2005 with the import duty set at 55pc, which was to be reduced by five per cent every subsequent year. However, in June 2009, the status was removed and the tariff was cut to 25pct. This, along with the ability to produce at a lower cost and the implementation of 3pc inland freight subsidy, has made Pakistan’s cement manufacturers more price-competitive over African makers. Nderitu said that the drastic drop in duty from 40 to 25pc adversely affected cement industry by opening doors for cheap imported cement into the region. East African Cement Producers Association chairman David Njoroge said transport and electricity costs in East Africa were three to five times higher than in Egypt, Pakistan, and India. “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,” he said.