Leading cement manufacturers in Kenya are against a move by National Cement Company chairman Narendra Raval to increase duty on imported clinker from 10 per cent to 25 per cent.
Bamburi Cement, East Africa Portland Cement Company and Savannah Cement led firms opposing the increase at a meeting in Nairobi, under the stewardship of the Kenya Association of Manufacturers (KAM).
However, KAM directed the manufacturers to provide data on their grinding and clinker installed capacity, clinker demand and the capacity of ongoing expansion projects. With this data, KAM will then approach the Ministry of Industry over the proposal.
“Mr Raval is pushing for a duty increase to force local manufacturers to buy clinker from him but he can’t sustain the market,” Stephen Nthei, EAPCC managing director told The EastAfrican.
Also opposing Mr Raval’s call is Rai Cement, Karsan Ramji & Sons — manufacturer of Ndovu Cement — and Safari Cement Ltd, which is setting up a plant in Mombasa.
“The overriding opinion in the meeting was that increasing clinker import duty will kill the industry because Kenya does not have enough stocks,” a source who attended the meeting told The EastAfrican.
National Cement and Mombasa Cement said they are investing in new clinker production lines that should start production in October thus ensuring Kenya is clinker sufficient.
Only Mombasa Cement supports Mr Raval’s tax proposal on the basis that it is crucial for saving struggling local manufacturers under the pressure of declining demand and nosediving retail prices amid overcapacity.
Clinker is currently charged 10 per cent duty as per East Africa Community Common External Tariff regime for raw materials. Companies opposed to the duty increase say it will be a contravention of the EAC Common Market protocol and could kill competition.
Bamburi is the leading manufacturer in the region and commands a 33 per cent market share in Kenya followed by Mombasa Cement with 16 per cent, EAPCC 15 per cent and Savannah Cement 15 per cent. National Cement has seen its market share rise to 21 per cent after the acquisition of Athi River Mining (ARM).
Mr Raval is pushing for the increase on the basis that although Kenya has an oversupply with a production capacity of 7.5 million tonnes per annum against a demand of four million tonnes annually, the country imports about two million tonnes every year, costing more than $100 million in foreign exchange.
“An increase in duty will protect local industries from competition, create more jobs for Kenyans, and save the country billions of shillings in foreign exchange annually,” he said in January 28 when National Cement commissioned a new plant in Nakuru county in an event presided over by President Uhuru Kenyatta.
According to analysts, increasing duty will make it difficult for companies to import clinker yet sourcing from local manufacturers is expensive. Currently, the landing costs for a tonne of clinker from the international markets ranges from $100 to $110.
“An increase in duty or a ban will be a disadvantage for some manufacturers leading to prices of cement going up because of an increase in production costs,” said Sarah Wanga, head of research at AIB Capital.
Cement manufacturers import clinker from Pakistan, Dubai and India to supplement local production.
Savannah Cement is among manufacturers that depend entirely on clinker imports while Bamburi imports to cover for its huge cement production capacity of 3.2 million tonnes a year while EAPCC imports clinker when demand for cement is high.
Bamburi Cement has stepped up importation of clinker after commissioning a 900,000 tonnes per annum grinding plant in 2018. The company imports 60 per cent of its clinker needs.
National Cement has significantly increased its capacity to produce clinker after it acquired ARM that was in liquidation and Cemtech Cement, which owns huge deposits of limestone and clay in West Pokot.
Data from Kenya Ports Authority shows that clinker continues to be leading conventional cargo handled at the Mombasa port with bulk clinker imports recorded at 110,800 tonnes in the week ended February 5, accounting for 42 per cent of bulk cargo.
In 2018, Kenya spent about $100 million on clinker imports, up from $64 million in 2017.
Amid the importation controversy, cement manufacturers in the region are struggling from a slowdown in the building and construction sector and government spending cuts on large infrastructure development projects.
The slowdown in cement uptake comes even after manufacturers invested heavily to increase installed production capacity that now stands at 13.2 tonnes from eight million in 2017 in Kenya and is set to rise to 18.1 tonnes when ongoing expansion projects are complete.
In Tanzania the installed capacity stands at 10.8 million tonnes from 7.1 million tonnes in 2016 while in Uganda it stands at seven million tonnes from 2.3 tonnes in 2015.