Ethiopian Reporter - English Version - The sticky cement situation

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The sticky cement situation

Saturday, 21 June 2008

The price of cement - a basic component for most construction works - has shown an astronomical rise over the past few years, surging from as low as twenty or thirty birr a quintal to the record high of four hundred birr a quintal price seen just a couple of weeks ago. Such a staggering price is costing us dear. Particularly in terms of its debilitating effect on the construction sector, it has put the economy in a sticky situation.

The first signs of trouble appeared when the pace of construction resulted in demand-supply dis-equilibrium causing an unexpected rise in price followed by a dry-up in supply. Consequently, most construction woks were halted. Industry also suffered.

After much fretting, the government came up with a "solution" to ease the supply shortage giving a certain company the singular right to import cement. This gave rise to optimism on the part of the public and industry. The eagerly awaited cement, however, never showed up. Construction works continued to remain in limbo.

Then another solution was sought - permitting cement import on a franco valuta basis. This breathed life into the sluggish construction sector and quickened its pace. A little while later, though, a ban was placed on franco valuta cement importation with the exception of foreign contractors. The drop in supply again resulted in a second cycle of explosive price rise and a slowdown of construction works. Couples who were planning to build their own homes put their plan on hold; investors who had borrowed money from banks to build factories have been forced to delay the repayment of their loans and thereby incur more debt; the transformation of Addis Ababa into a city which meets international standards has been severely affected by the shortage and sky-high price of cement.

The government has recently given the go-ahead for the franco valuta import of cement to resume. This is hoped to bring down its price and spur the construction industry.

Though we concentrated here on cement, the price of steel has also gone through the roof and contributed to retarding construction.

The situation we have described thus far forces us to raise a series of questions. Why was the shortage and price increase of cement sudden? Why was its franco valuta importation suddenly allowed and then suddenly stopped and now equally unexpectedly renewed? Wasn't it possible to forecast demand and meet it through a combination of increasing local production and import? There can be no denying that the government has been found wanting in this regard, particularly in view of the fact that it was aware of the fast-paced construction works under way in Addis Ababa as well as other regional cities and was in charge of the economy. The persons at the helm, above anyone else, are culpable for this wholly indefensible oversight.

We have to act fast in order to mitigate the crippling effect the shortage in the supply and the high price of cement is having on the construction sector and by extension the economy. We must learn from our failure and address the critical issue which must be dealt with promptly.

First, let's forecast future demand for cement at the natural level based on construction works currently in progress. Then, let's work out how we can satisfy the projected demand. What percentage from local production? What percentage through import? What proportion of local production should be accounted for by state-owned enterprises and by privately-owned factories being newly established? How many new cement plants should be allowed to be built? How much cement should be imported on a franco valuta basis and how much through letters of credit? What incentives should the government provide? All these questions must be answered soon given the crucial role that cement plays in the economy. It should be put to its proper use of sticking or holding together construction undertaking and not be allowed to put us and our economy in a sticky situation. Therefore, let's ensure that we have adequate cement supply at an affordable price within the shortest possible time.

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