The nation’s construction sector is facing a potential storm. The country’s cement industry, a vital cog in the infrastructural development machine, is warning of imminent supply disruptions due to a proposed government regulation on cement prices.
This unilateral approach spearheaded by the Trade Ministry raises concerns about stifling competition, disrupting supply chains, and ultimately hindering economic growth.
The crux of the issue lies in a recently proposed Legislative Instrument (LI) seeking to regulate cement prices. The Chamber of Cement Manufacturers, Ghana (COCMAG), has been at the forefront of vehemently criticising the lack of consultation with industry stakeholders and the potential negative consequences of this intervention.
They argue that the industry has already absorbed significant cost increases due to a multitude of taxes, levies, and a depreciating cedi. Despite these pressures, they have maintained relatively stable retail prices, with increases lagging behind inflation.
Already, the cement industry operates within a complex web of economic challenges. Industry actors highlight the staggering burden of taxes, levies, fees, and charges levied by various government agencies, which contribute to an estimated 30 percent of the consumer price of cement.
Imported clinker, a crucial component in cement production, is subject to a whopping 22 different taxes and fees before even reaching production plants. This labyrinthine tax structure significantly inflates production costs.
Further compounding the situation is the recent sharp depreciation of the cedi. Over the past two years, the cedi has nearly doubled against the US dollar. This devaluation has a severe impact, as 77 percent of cement production inputs, including clinker and gypsum, are directly priced in dollars.
Despite these pressures, the industry has shown remarkable restraint in pricing. Retail cement prices have increased by 48 percent, significantly lagging behind the 103.7 percent rise in the exchange rate. In fact, measured in US dollars, the price of a bag of cement has decreased by 27 percent over the last two years.
The proposed price regulation has sent shockwaves through the industry, with stakeholders raising numerous concerns. Firstly, they argue that such measures typically backfire in competitive markets. Ghana’s cement industry is considered one of the most competitive globally, boasting 14 independent suppliers. Price controls could distort this healthy competition, potentially leading to reduced product quality and innovation.
Secondly, industry stakeholders warn of potential disruptions to the efficient distribution network that currently ensures cement reaches even remote locations. Price controls often fail to consider the complex value chain involved in cement distribution, including wholesale distributors and warehousing. This could lead to logistical bottlenecks and shortages, especially in underserved areas.
Thirdly, the proposed regulation disregards the existing quality differentiations between cement products. Higher-grade cements offer superior strength, durability, and environmental benefits, and are priced accordingly. Price controls that fail to account for these quality variations could undermine the value proposition of these premium products, ultimately impacting construction standards.
Policymakers should take heed of these warnings. Price controls in a competitive market like Ghana’s cement industry are likely to have unintended consequences. A more collaborative approach that considers the industry’s input is critical.
COCMAG advocates for open dialogue with the government to find solutions that address consumer affordability concerns while ensuring the long-term sustainability of the industry.
This collaborative approach could involve exploring avenues to reduce the tax burden on cement production. Streamlining the tax structure and eliminating unnecessary levies could significantly reduce production costs, allowing for more competitive pricing without jeopardizing government revenue streams. Additionally, exploring ways to improve distribution efficiency could further reduce consumer costs.
The potential consequences of a disrupted cement industry extend far beyond the construction sector. Cement is a vital component for infrastructure development, playing a crucial role in building roads, bridges, schools, hospitals, and other essential structures.
Shortages or price hikes could significantly slow down critical infrastructure projects, hindering Ghana’s economic growth and development.
Furthermore, a disrupted cement industry could lead to job losses across the construction value chain. The industry employs a significant number of Ghanaians directly and indirectly, and any disruptions could have a ripple effect on the national economy.
When two elephants fight, it is said, the grass suffers. Consequently, the government should work collaboratively with the cement industry to find solutions that address affordability concerns without jeopardizing the industry’s sustainability.
A thriving cement industry is vital for Ghana’s construction boom and its journey towards a more developed and prosperous future.
