Thursday, June 20, 2024
Money TalksCement: a cry for regulation

Cement: a cry for regulation

A 2018 academic thesis entitled “The cement industry in Ethiopia” states that Ethiopia has transformed itself from being a cement importer to an exporter. Its recipients are mainly said to be its neighbors such as: South Sudan, Djibouti, Somalia and Kenya. The study further indicates that annual cement production increased from 2.7 million tons to 10 million tons in a relatively short amount of time, with the surge encouraging the Ethiopian government to ban the import of cement as of 2010.

Although the above stated facts reflect very positively on the Ethiopian cement industry, current conditions stand in stark contrast. The rising cement production was only dwarfed by the surging demand for it because of housing projects and numerous mega projects that include the Grand Ethiopian Renaissance Dam (GERD). As a result, there has been a constant shortage of cement over the years.

Construction usually goes down considerably during the Ethiopian rainy season. The reduced demand, in turn, discourages production in a market that has shortage as its hallmark. To offset the prospects of such a scenario and motivate producers, the Ministry of trade enacted a directive that lifted the price cap already in place and allowed cement to be sold under free market principles.

Two weeks into the implementation of the directives, the price has slightly surged while the supply is acutely short. Wossen, father’s name withheld by the person, is a cement salesman at Jomo Michael; he told The Reporter that he is barely working as he doesn’t have access to cement anymore. He pointed out that cement shops used to register themselves at factories, get a coupon and wait for their turn to receive the amount of cement they requested. That system has now been changed, according to Wossen, to one that avails cement from factories to specific agents. Middlemen then take the cement from agents and sell it to others before the cement reaches the shops, he stated with a tone of frustration. Wossen also stated that the price is nearly the same after the introduction of the new directive to sell cement at free market price. He remarked: “It was between 650 and 700 birr a quintal before the direction and the price is within that margin now.”

Alganesh, father’s name withheld on her request, owns a cement retail shop around summit. Like Wossen, she claims to have opened the shop on Wednesday for the first time in three months. “We still have to pay rent but we’ve not been working for months now,” she stated with a tone of anger in her voice. The main problem, she noted, is that agents do not provide them with cement. “They are supposed to supply us cement with a reasonable addition on the gate price. However, they sell it at nearly retail price illicitly instead of selling it to us,” she explained. She further indicated that there have not been new sales from factories in a long time, raising her personal case of not receiving cement from Derba despite being registered a couple of years ago as an instance. The major difference after the directive, Alganesh asserts, is that they are expected to buy a quintal of cement for 670 birr and sale it for 720 or 750 birr. She claims that the directive has noticeably done away with the monitoring activities of woreda authorities and the police who used to check on the selling price at cement shops. The police cannot monitor and woredas cannot regulate price hikes because the directive has allowed people, including agents, to sell for whoever offers more.

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Elias Sultan, a contractor, stated that he has noticed a 50 birr increase on the price of cement after the directive was put into effect. “We used to buy a quintal of cement for 650 birr but that has recently risen to 700 birr. I bought 30 quintals of cement for 700 birr a quintal this week,” he remarked. He stated that most people associate the price hike with the rising number of middlemen between the factory and end users.

The Reporter went to Dangote cement to find clarity on the price surge. A member of the Dangote cement management who spoke to The Reporter on condition of anonymity stated that the combined effect of a number of items has necessitated a price increment pushing the price of a quintal of cement from 295 birr in November, 2020 to 350 birr (including VAT) currently. Stating the items that forced the price increment, the manager pointed out that the price of imported coal has increased by 220 percent since December, 2020 and that of diesel has surged by 27 percent since February, 2021.

The manager further indicated that Dangote cement is 60 -70 percent dependent on imported goods. “Even the tires we use for our trucks and the cement bags we use are imported,” the manager remarked. The devaluation of the birr in the past few years has, therefore, an immense strain on our company, the manager indicated. The source also stated that the total amount of salary paid by the company has increased by 15 percent in relation with the devaluation of birr. The whole situation, the manager underscored, led to an 18 percent increase in cement price.

Speaking on the shortage of cement in the market and the alleged illicit activity of agents, the source noted that Dangote is the only cement company that functions at 92-95 percent of its production capacity with the rest operating at an average production capacity of just 50 percent over the last two years.

Talking about the agents, the manager stated: “They don’t have cement; there has been a long period of shortage of cement in the market.” As to allegations that agents sell cement at exaggerated rates, the source pointed out that the cement factory does not have control after the product leaves their gate. “Regulating distribution and market price is the responsibility of the government,” he concluded.

The Reporter’s repeated efforts to speak to agents could not materialize as they declined to comment on the matter. Similarly, Pricing research, monitoring and control director at the Ministry of trade, Kassahun Mulat did not respond despite The Reporter’s repeated efforts. 

However, The Reporter’s source at a relevant public office explained that factories have been sent a letter that clearly indicates that they have to control the distribution and price of the cement they produce. The source pointed out that factories have a responsibility of making sure that their products are distributed all across the country and that they are not centralized at a single point. He further explained that their working relations with agents and others in the supply chain could also be used to control price. The government’s effort is geared towards optimizing the market’s ability to ensure fair price and distribution across the country. The source further stated that despite popular understanding, the government’s previous measures did not intend to fix price but to allow the market drive the price.

The Dangote manager The Reporter spoke to further explained that the government established consumer protection office and the Ministry of trade for a reason. Part of that reason, he noted, is because it has the responsibility of controlling the distribution and price of products. On the other hand, the manager stated, we are legally required to meet quality standards and avoid overpricing. Apart from that, he opined, our controlling mechanisms of others in the supply chain are not as organized and institutional as that of the government.

Despite the logical arguments, the source confirmed Dangote’s receipt of the letter and pointed out that they have already taken measures to do their part in stabilizing the market. Accordingly, he indicated that the company has handed out letters to agents notifying them that selling Dangote cement for more than 10 percent profit over the gate price and distributing it outside of their scope of distribution could be a ground for termination of their contract with the company.

The government’s move of sharing its controlling responsibilities with the cement companies might be one aspect of the solution; however, responsible governmental body should be stronger in undertaking their part of the controlling responsibilities. With the problem proving to be a chokehold on construction and development, stakeholders need to come together and figure out a working solution not just to the latest problem in the cement market but to the lingering issues in the sector in general.   

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