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Cement Crisis and State Capture- Dr. Ousman Gajigo

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Dr. Ousman Gajigo, Economist formerly with ADB

By:Dr. Ousman Gajigo

In the most recent official announcement concerning the cement crisis, the government indicated that they would be releasing trucks carrying bagged Senegalese cement that had been stuck at the border. However, the government declared that allowing these trucks was a one-time reprieve and that the punitive 500% increase of custom duties on bagged cement from Senegalwould remain. This is meant to effectively kill the businesses of small-scale Gambian cement importers so as to benefit only one firm, which is Jah Oil. Once again, small Gambian businesses would have their goods stuck at the border whose prices will continue to rise in the local economy.

This is a perfect example of state capture. It is phenomenon whereby the state prioritizes the interest of a few connected individuals at the expense of the national interest. It is an illustration of systematic corruption where the government is at the behest of certain individuals. As a consequence, government actions and even policies, get crafted to benefit these particular individuals or businesses without regard to their broader ramifications. This is what this whole cement story is about. It is easy to explain why this cement crisis has nothing to do with protecting Gambian industry or getting a fairer trade relations with Senegal. 

The key fact that undermines the government’s argument about protecting a local industry is the reality that there is no local manufacturing of cement in The Gambia, since no cement factory exists in the country. It is impossible to engage in cement manufacturing in The Gambia due to the absence of the key raw material, which is limestone. Limestone cannot be imported for local cement manufacturing because it is too expensive to transport a high-volume, low-value product.

All businesses dealing in cement in The Gambia would need to import it from outside of the country. The only difference is that some import the cement in bulk (i.e. Jah Oil, Gacem and Salam), while others import in small quantities that arrive already in bags (i.e. hundreds of small Gambian businesses). Only one company, which is Salam, imports clinker and does limited processing in the country. Jah Oil does not undertake any cement processing of any kind, and therefore it has no cement factory. 

So, the government cannot claim to be protecting local industries when in fact all companies are importing cement from abroad. In fact, the government is not banning the importation of cement from Senegal completely. Rather, it is allowing Jah Oil to import cement in bulk without incurring any of the punitive increase in duties that it is imposing on the small-scale Gambian importers that bring in bagged cement. This act lays bare the government’s goal. It is a naked ploy to protect Jah Oil and suppress its competitors.

The government also made the dubious claim that it is imposing these duties because Senegal is restricting the importation of certain Gambian goods. This is a bogus reason. If it is really the case that the government is responding to Senegalese actions, why is it not uniformly imposing the duties on all cement (bagged and bulk) that is coming from Senegal? Why create an exception for Jah Oil? And why not restrict the importation of aSenegalese good that the Gambia actually produces locally?

So, the current cement problem has nothing to do with the Gambian government siding with local businesses to protect them from unfair competition against Senegalese actions or businesses. The truth is that the government is siding with one particular company at the expense of smaller Gambian businesses. 

Another point that must be emphasized is that the small-scale importers whose businesses the government would be effectively killing are Gambian citizens. I had the opportunity to meet some of these entrepreneurs and learn about their challenges and concerns. Some of these businesses are owned byyouths who recently returned from abroad to contribute to the local economy. What these Gambian businesses need is support rather than the government actively trying to kill their businesses. In fact, these businesses are not asking for any special assistance from their government. They are simplyasking for the government to be fair and transparent in its interventions in the cement market.

Besides the fact that these small businesses are Gambians, they are also significant contributors to the economy. Indeed, it is arguable that these small businesses contribute at least as much as Jah Oil does to the overall economy. The cement importers associations comprise hundreds of small firms, with thousands of workers. Working closely with these cement importers are several distributors and transportation firms, which employ additional thousands of workers. Associated sub-industries in construction that depend on affordable cement are also quitesignificant. What Jah Oil has that the other cement dealers lack is the former’s connection to the Barrow regime. The viabilities of all businesses are being destroyed just to create a monopoly for Jah Oil. This is morally wrong and economically disastrous.

The Gambia government also falsely claim that the bulk importers have sufficient capacity to meet the local demand. Thefact is that the government has not carried out any study this year to assess the local demand and the capacities of the various suppliers. Moreover, the country would not have experienced the shortage and hikes in cement prices if the capacities of Jah Oil, Gacem and Salam were sufficient to cover the national demand.

All Gambians should have vested interest in the country having adequate supply of cement at affordable prices. Cement is the most important input in the construction sector, which is a major component of the country’s economy. In fact, according to therecent World Bank report on The Gambia, the one sector that contributed negatively to the country’s economic growth is the construction sector. One would think that the government would work to ensure that constraints to this sector are removed. Cement being the most important input, it is quite unfortunate that the government is instead doing the opposite of what is needed to assist the sector.

It is important to reiterate that there is nothing morally wrong for anyone to lobby the government for their individual businessinterest. This happens all the time across the world. And the Gambian government and its officials have a responsibility to provide legitimate assistance to all businesses as long as it is lawful and in the collective national interest. The success of Jah Oil as a business is in the country’s interest as long as it operates legitimately. What is not ethical is for the government to assist one particular business at the expense of other businesses who are less connected. And even worse, to provide an assistance at the expense of the interest of the whole country, and using dubious reasoning in the process. 

So, the punitive duty increase on bagged cement remains. Which means the general availability of cement will be restricted, leading to continued supply shortage. And prices will remain high for consumers. In some areas around Basse, the price of a bag of cement reached D500, an increase of over 20% within two months. In Farafenni, the cement prices are currently aboutD400, an increase of more than 25% within 2 months. This is particularly outrageous when the country is already experiencing high inflation. This means that the government is continuing to prioritize Jah Oil’s interest ahead of the national interest. If this is not state capture, I don’t know what is.

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