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Treasury bans use of imported cement on all government-funded projects

Announcement prompts surge in PPC and Sephaku share prices.
Imports are still likely to account for about 10% of total industry volumes by the end of 2021. Image: Supplied

The use of imported cement on government-funded projects has been prohibited by National Treasury from November 4, which will provide a boost to local cement producers.

The announcement resulted in shares in JSE-listed cement and building materials producer PPC surging by 8.98% on Monday to close at R5.34 a share.

Shares in competitor Sephaku Holdings, whose building and construction materials asset portfolio comprises subsidiary Métier Mixed Concrete and associate Dangote Cement South Africa (SepCem), rose by 6% to close at R1.59 a share.

PPC and Sephaku share prices

Bryan Perrie, CEO of Cement and Concrete SA (CCSA), the consolidated concrete and cement association, said on Monday the cement industry has lobbied for state protection against cheaper imported cement for several years and is delighted at the designation of cement.

Perry said National Treasury has issued a circular to all relevant state departments advising them of the new ruling in terms of the Preferential Procurement Regulations.

He said the designation prescribes that all organs of state, including state entities such as national, provincial, and local authorities and state-owned enterprises, must from November 4 this year stipulate in tender invitations that only South African produced cement, produced with locally-sourced raw materials, will be allowed for use on all public sector construction projects.

Perry said National Treasury has stipulated a 100% threshold for both common and masonry cements.

“This is an important ruling to protect a sector vitally important for the national economy. Furthermore, it has come at the right time in view of the multi-billion rand infrastructure projects planned by the government over the next three years.”

The government in July 2020 unveiled the initial 50 strategic integrated projects (SIPs) and 12 special projects involving an investment of R340 billion that formed part of a drive to stimulate the economy and job creation post Covid-19.

It last week unveiled the second tranche of projects, comprising a pipeline of 55 new catalytic infrastructure projects from various sectors valued at about R595 billion that will create an estimated 538 500 employment opportunities.

Perrie added that the designation of cement will assist in protecting the local cement industry from unfair competition.

“In countries such as Kenya, for one, rampant imports have all but destroyed local cement production,” he said.

“Although cheaper, imported cements reaching South Africa may conform to regulatory standards, South African cement producers have to comply with a Mining Charter, transformation targets, and social and labour plans, all of which importers do not have to comply with.

“In addition, local producers are subject to a carbon tax which the importers are also exempt from [paying].”

Perspective

Peregrine Capital executive chair David Fraser said the designation of cement is positive “at the margin but certainly not game-changing”.

Fraser believes all the big construction projects are already only using South African produced cement because contractors knew the designation of cement was pending.

He said there will be pressure for imported cement on smaller projects, particularly in rural areas and in KwaZulu-Natal where imported cement is available.

Perry stressed the designation specifically states that cement has to be produced with locally sourced raw materials.

Big blow to Cemza

This will be a big blow to Cemza, a joint venture between South African company Osho Cement and Germany-based Heidelberg Cement, the world’s second largest cement company, which invested about R500 million in a grinding plant in the Coega special economic zone (SEZ) and started producing cement in 2018 from imported cement clinker, limestone, gypsum and granulated blast furnace slag.

South Africa’s cement industry has submitted an application to the South African International Trade Administration Commission (Itac) for a sunset review of the anti-dumping tariffs imposed on Pakistani cement in 2015 and another application for a general import tariff on all imported cement and clinker.

Perry said on Monday these applications are “still in the process”.

PPC CEO Roland van Wijnen said last month that cement imports continue to threaten the sustainability of the South African cement industry, with total imports increasing by 14% year-on-year after adjusting for the impact of the hard lockdown in the prior comparable period.

PPC estimates that imports will account for about 10% of total industry volumes by the end of 2021.

Van Wijnen said this is equivalent to the production of one fully integrated cement plant that employs hundreds of people directly and thousands of people indirectly.

“So we are in job destruction and are paying as a country probably about $70 million a year into another country that is weakening the rand. It just doesn’t make sense,” he said.

Van Wijnen said the designation of cement will send a strong signal to the market and “help a little bit here and there but not massively” and the more important difference will come from putting in place measures to level the playing field between local producers and imported cement.

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Well done Treasury. This will shield the cement producers and create sustainable jobs in the cement industry.

Some will condemn this as “protectionism”, however the long-term benefits, far outweigh the negatives.

Next, they need to protect the poultry industry, from cheap chicken imports.

Yes, let the masses pay more for food.

Depends on your world view. Does this make South Africa more competitive in the global market place, or does it make it a more expensive place to do business?
As usual South African policy makers are trying to treat the symptoms of their mismanagement, rather than the root causes.

Protection is needed, because the SA cannot compete with the rest of the globe in doing things cost efficiently (thanks to unskilled labour, labour strife, jobs protection through the Employment Equity Act/CCMA, etc.)

Two things save SA’s manufacturing: a weak Rand exchange rate & protectionism.

(But fair enough, protectionism is practised by almost all countries in various industries).
The consumer pays.
In my mind’s eye I see “the people” marching through the streets again because of high cost of living. I thank our Govt.

“This will be a big blow to Cemza, a joint venture between South African company Osho Cement and Germany-based Heidelberg Cement, the world’s second largest cement company, which invested about R500 million in a grinding plant in the Coega special economic zone (SEZ) and started producing cement in 2018 from imported cement clinker, limestone, gypsum and granulated blast furnace slag.” extract from the article… how many jobs at risk? Will the private sector still import the cement? Will their projects therefore be more cost-effective than Taxpayer funded projects?

Protectionism by banning competition is not the solution to being uncompetitive due to inefficiency, incompetence and cadre greed.

R500 million Coega development ruined by the ANC and they want foreigners to invest here !!!

agree, the cANCer govment should be consistent with this kind of decisions……the use of imported labor on government-funded projects has been prohibited by me…go home Cuba doctors,engineers etc…..on the other hand they are experts at begging….I just shake my head!

So the local industry needs to be protected from the Byzantine regulatory requirements that the government places on them? This will have unintended consequences for sure. Government is not forcing itself to buy local cement at higher prices. There is a shortage of local cement apparently, so that will add to the price pressure. Prices of imported cement will also rise, because they can. And everyone will eventually suffer.
Price controls rarely produce the intended results.

Not government funded projects, tax payer funded projects. Let the tax payer pay more to benefit a few.

Exactly. Remember years back when on all government sites cement mixers were banned – it had to be done by hand with 4… 5 people. What did that do to cost and time.

This should have been done a lot sooner before the inferior imports from Nigeria, China and Vietnam were allowed to pollute our construction industry. But perhaps the backhanders have helped the “redistribution of wealth” so the ANC hierarchy can claim a clear conscience! Seems to be the excuse for all the dodgy dealings under racist BEE policies these days!

Will just make the uncompetitive more uncompetitive. If they cant compete let them go bust!!!!

Its a solution to nothing and will come to tears in a few years time.

anc logic.

I find it surprising that a cheap bulk product like cement can be landed here cheaper than local companies can make it.

Like almost anything else you care to mention.

Like so many things made in SA, we cannot compete with our highly inefficient, wasteful and costly production processes.

So instead of fixing the problems at home, we ban the competition.

Then foreign investors go elsewhere.

And the cycle of self-destruction continues to spiral downwards.

Local companies are only uncompetitive due to government intervention and failures: high electricity prices, onerous regulations, labour unions etc.

Thank you for stopping these rubbish cement imports.

I just wish the government was consistent. Why protect the cement industry but allow anti-dumping laws for the imported potatoes to expire? It seems like every few months we see these types of articles.

It seems that unless an industry has the resources and connections to successfully lobby key government officials, nothing is done. So we end up in a situation where the government goes out of its way to protect some industries and not others.

precisely. Look at the dumping of chicken taking place.

Economics 101 lessons lost. Protectionism is not the long term solution.
Alas, no doubt cadres well invested here.

Here is the problem, regime made: “..South African cement producers have to comply with a Mining Charter, transformation targets, and social and labour plans, all of which importers do not have to comply with.

“In addition, local producers are subject to a carbon tax which the importers are also exempt from”

Almost all the issues in the stricken land is regime created!! Remove the barriers now!

Hopefully this will prevent buildings from collapsing like we saw in East Africa.

On the other hand we have a bureau of standards and it is very easy to test imported cement for compliance. In my day, engineering students used to do these tests as part of their practical tuition.

.the problem of “fragmenting” concrete is insufficient amounts of fly-ash added to the mixture

South Africa cement producers usually add the fly-ash which is an abundant by product from power stations and Sasol plants or developers add it in the mixture process of concrete on site

Fly-ash is critical to stronger concrete and to buffer the use of cement, thus saving

FYI – China is a world leader in concrete technology

OK fine, if that’s Govt decision.

Protection exactly like the local Vehicle Manufacturing industry the past decades:
South African motoring public has been paying artificially inflated new vehicle prices…due to poor production efficiencies.
(And we got mentally conditioned to paying high prices for decades, due to clever marketing)

Building costs will thus rise. If that’s Govt wants for “the people”(?)

I take back every bad thing I said. Bou die nasie.

So you manufacture cement on another continent. The product is bulky and really heavy so you spend a small fortune just on transportation to the nearest harbour. Then you pay massive shipping costs just to get your product to SA. And of course the import duties.
And the locals still see you as a threat to their competitiveness?!

You forget about the ANC premium locals producers are forced to pay. The ANC punishes local producers with a string of hidden taxes.

1. High interest rates on production capital relative to international competitors.
2. The BEE, EE, transformation tax.
3. The high cost of unreliable electricity. Electricity is another tax that finances BEE projects for connected coal miners and transporters.
4. The redistributive municipal rates and taxes.
5. Labour laws and minimum wages are taxes that punish the employer for creating jobs.
6. The implosion of infrastructure and the lack of water and municipal services.
7. The crime and corruption tax.
8. The construction mafia and zamma-zamma tax.
9. High company tax rate.
10. The general gatvol tax.

Still laughing at point no 10! Thanks

Reading some of the above comments I’m about to say something that may be unpopular, but here it goes.

Not all protective policies are bad, this idea of a completely open, unprotected, unrestricted economy is unattainable and quite frankly will be abused by the rest of the world economy who certainly will not follow suit. It’s akin to extreme libertarians who honestly argue that a modern diverse society can function without any government or authority.

All governments, whether socialist or capitalist in nature, implement protective measures to protect local sectors against imports. One cannot simply compare prices per good/service when evaluating whether or not a local sector should be protected against imports. The cheapest product possible is not always the best for the local economy, it’s a bit more complicated than that.

If a local product is protected it does lead to a more expensive product for end users, but the protection also means that there are more people who can afford this more expensive product. As the protections increase there comes an inflection point where the product becomes so expensive that the overall affordability in the population decreases and this is indeed bad for the economy and should be avoided. This inflection point though is not simply calculated by comparing the prices of the product, this is why this is a more complex issue than simply stating that no local products should be protected.

The issue in SA has more accurately been that the government’s efforts in protecting local sectors have been too little too late, or that the inflection point had not been determined accurately leading to protections damaging the local economy.

While we are at it let’s ban foreign funds and all foreign goods and services. It’s a 2 way street people. Careful what you wish for.

Good move by NT. Other jurisdictions are not apologetic about promoting and protecting their industries. Levelling the playing field between local producers and imported cement is critical.

And where were all the protectionist supporters a month ago when Patel decided not tonprotect the local steel industry?

The ANcorruption party does not care about protection for local or anything else that normal governments do for their voters.

Follow the money trail and I am sure you will find a few of them with large amounts of shares in the local business. And this protection will increase the value of their shareholdings.

Ron

End of comments.

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