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‘Cheap substandard imports crippling cement industry’

19 Jun, 2020 - 00:06 0 Views
‘Cheap substandard imports crippling cement industry’

The Chronicle

Prosper Ndlovu, Business Editor
THE country’s largest cement producer, PPC Zimbabwe, says urgent measures are needed to safeguard the viability of the local cement industry against the crippling impact of imported cement.

Zimbabwe remains a destination for cheap and substandard cement products, which are finding their way through the country’s borders as well as via smuggling despite the fact that the country has the capacity to produce enough to meet local demand.

The managing director of PPC Zimbabwe, Mr Kelibone Masiyane said in an interview that urgent measures should be taken to safegurd the country’s cement industry.

The country’s cement producers are PPC Zimbabwe, Lafarge Zimbabwe, Sino Zimbabwe, Livetouch and Pacstar Cement and have a combined installed capacity of 2,6 million tonnes per year compared to the country’s annual demand of 1,4 million tonnes.

According to Mr Masiyane, the local cement industry’s competitiveness when compared to regional players is both at a disadvantage and vulnerable. He said the impact of imports is two-fold: firstly there is the threat imports pose on sustainable operation of local cement industry and secondly, there is the hazard of using substandard cement products.

The Zimbabwe cement industry is a significant contributor to economic growth, employment creation and trade. Local manufacture of cement is supposed to save the much needed and scarce foreign currency which unfortunately is being spent on importing inferior cement products.

Kelibone Masiyane

Given the significant role that the cement industry plays, all regional countries have adopted tariff measures to protect their cement industries from imports with the exception of Zimbabwe.

The country attracts imported cement due to the high prices of its locally produced cement which has seen other countries taking advantage of the price discrepancy to export their excess to the country.

Zimbabwe and its six neighbouring countries have a total production capacity of 39,8 million tonnes per year compared to total demand of 23,5 million tonnes. South Africa, Mozambique and Zambia have huge excess capacity. This poses a serious threat to the local market as regional players find it lucrative to export into Zimbabwe taking advantage of their low prices. PPC Zimbabwe alone used to export more than 100 000 tonnes of cement into the region annually around 2012 but the volumes have dropped drastically due to high cost of production in Zimbabwe which has rendered its prices uncompetitive in the region.

The cement industry is a capital intensive and high energy consumption sector and probably there is urgent need to upgrade technology to reduce production costs.

The huge capital investment required to set up a cement manufacturing facility demands that the factory operates at full capacity to guarantee viability. When capacity utilisation is very low due to suppressed demand as is the case in Zimbabwe, cement industry viability is threatened.

The industry is therefore appealing for “protection” from imported cement until such a time that the playing field is even. Mr Masiyane said the industry had since made submissions to the Ministry of Industry and Commerce regarding the issue of protection.

“The local cement industry has met Minister of Industry and Commerce (Dr Sekai Nzenza) and we are confident of a positive response”, said Mr Masiyane. He said survival of the industry is even more critical given the impact of Covid-19 in an already fragile economy.

Another point of concern relates to substandard imported cement products in the market. Mr Masiyane called for policy measures that protect consumers from substandard cement. All countries around us have standards protection procedures. Mozambique uses Intertek, an independent group with a contract with the government responsible for quality controls. Zambia, Botswana and Malawi use their own standards bodies to control imports of cement. Samples have to be submitted and certificates are issued after the standards are met. These are done at the cost to the importer. Bureau Veritas in Zimbabwe tests the first three samples if it is for a manufacturer, thereafter, product comes through without any further inspections making it easy for substandard product to be dumped into Zimbabwe, he said.

“Mandatory testing of cement products on the market will help curb this problem. Standards Association of Zimbabwe is well equipped to effectively carry out this task once the relevant legislation has been put in place”, said Mr Masiyane.

Increased surveillance at borders should be carried out. “Substandard imported cement is a threat to the viability of our industry. This is an issue to us and needs to be addressed at national level,” said Mr Masiyane.

He said inferior cement imports do not only impact on the industry but affect structural integrity of buildings that may collpase.

“When cheap substandard cement comes in, our capacity utilisation goes down and unit cost goes up and this doesn’t benefit business or the consumer.” Between 2016 and 2018 Zimbabwe’s industry capacity utilisation grew roughly by 3,1pc from 45,1pc to 48,2pc but the figure dropped drastically to about 30pc in 2019.

“This is a huge gap and comes about as a result of cheap imports that are forcing local firms to scale down and prices to go up,” said Mr Masiyane. He said the industry’s desire is to increase capacity utilisation and lower unit cost, which would allow producers to pass the benefit to consumers in terms of pricing. The drastic drop in capacity utilisation also implies that companies will struggle to service investment loans.

Mr Masiyane said cheap substandard cement attracts huge costs to the economy as built infrastructure projects would not last and tend to require upgrade or reconstruction in future. Substandard imports also impact negatively on the contribution of the local cement industry to the total Zimbabwean economy. For instance, Mr Masiyane said the sector was contributing about four percent to the Gross Domestic Product (GDP), warning that reduced viability would also cripple the job security in the sector. The industry has 1 400 direct workers.

“If we find ourselves not viable as a sector the impact on jobs and the value chain is huge. We are not only focused on profit making but we are also spending a lot in terms of corporate social investment” said Mr Masiyane.

The industry believes in the old proverb “Honour the tree that shelters you”. “We’re all responsible for sustaining our communities and we’re obligated to give back something in proportion to our abilities and resources”, said Mr Masiyane.

The other issue is loss of contribution in terms of equivalent taxes from the Industry, amounting to just over US$40 million annually. “As a country we can’t afford to lose this given where we are as an economy.

That is why it is important to jealously guard what the cement industry is contributing and the need to address the issue of imported cement,” said Mr Masiyane.

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