Tuesday, November 11, 2008

Uganda needs to further reduce tariff on cement

John Ssempebwa, Daily Monitor

I refer to “EA Leaders should reverse decision on cement”, November 7, page 43 by Daily Monitor’s columnist Mbatau wa Ngai who argues that higher import duty on cement reduces market prices (subject to regulatory interventions) and boosts the capacity of domestic cement suppliers.

Cement is not just any other tradable good. Cement plays a crucial role in the development of infrastructure and per capita consumption of cement is globally accepted as an important index of a country’s economic growth. Because of its central role in any economy, the global demand for cement exceeds its supply and has forced many countries to liberalise (remove/reduce import duty on) cement trade.

China charges 19 per cent import duty on cement while Malaysia charges zero. In 2008, the EAC Council of Ministers’ meeting reduced import duty on cement from 40 per cent to 25 per cent.

Because of its central role in economic growth, nations try to increase the supply of cement in their boundaries with a grand vision of reducing the market price of cement, increasing the quality and quantity of office, warehousing and residential space and increasing the quality of life in line with the Millennium Development Goals.

Cement cartels, duopolies, oligopolies and monopolies are anti-development; many governments have therefore implemented many measures e.g. liberalization, VAT and Excise Duty waivers on cement and cement funds to encourage importation of cement etc. to increase cement supply.

Because of the central role of cement, nations have left pricing to the market forces of demand and supply. It would be simply a matter of policy reversal for government to fix prices of anything, including price of cement.

Cement suppliers in the EAC are charging Shs27,150 ($14) for a 50 kg of ordinary cement in Uganda, compared to $4 and $7 in the middle-east and $9 globally and thus making cement in EAC the most expensive in the world. Unless some intervention increases supply of cement in Uganda is put in place, the construction industry in Uganda should expect to pay up to $20 for a 50 kg bag by 2011. Parents should then expect to pay up to Shs4 million per semester in the university hostels per bed.

Companies should expect to pay Shs10 million monthly, for residential-cum-office property. High cement prices continue to discourage adequate investment in construction and to reduce supply of office, warehouse and residential space from the local construction industry.

The construction industry literally uses cement as a raw material – for the start, the firms in the construction industry could benefit from a further waiver of import duty in line with the 3 band EAC Common External Tariff regime to pay at worst 10 per cent duty and as required, zero tariff on cement clinkers and all forms of other cement used in the construction industry.

I have a dream that one day import duty on cement will be zero and that a cement fund will be available to increase imports of high quality cement.

Mr Ssepembwa is the director of trade at Private Sector Foundation: