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Understanding the Cement Crisis – Dr. Ousman Gajigo

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Dr. Ousman Gajigo, Economist formerly with ADB

By Dr. Ousman Gajigo

The government has started another cement crisis again. This most recent one began when the government significantly increased border taxes on imported cement from Senegal. To be clear – this is not a general tax that is designed to affect all importers equally. Nor was it guided by specific, high-minded policy goals. Rather, it is a tax that is designed to assist bulk cement importers such as Jah Oil, Salam and Gacem byincreasing the cost for the small-scale cement importers. This is bad policy because it is not only ill-conceived but it is costly for the Gambian economy as a whole.

By the way, this is not the first time that government has hiked the tax on bagged cement that comes over the land border – the import of which is dominated by small-scale importers. A similar tax was imposed on imported bagged cement in December 2018. Only after public outcry and concerted efforts by small-scale importers was it removed.

You may want to ask why the government would put extra tax levy or custom duties on bagged cement that is coming by landfrom Senegal so as to benefit bulk cement importers. The answer is very simple. The government is protecting a few favored businesses that are large and connected, at the expense of small-scale importers and the general public. There is no other larger or general welfare considerations behind this action.

Jah Oil, Gacem and Salam usually import cement in bulkquantities and then bag them locally. The source of the cement that they import is well outside of ECOWAS. Due to the higher transportation cost and that the fact that the source of the cement is outside of ECOWAS lead to their cement becoming more expensive than the cement that comes from Senegal. There is no difference in cement quality whatsoever between the cement that comes from Senegal and the one imported in bulk from outside the sub-region, since all of them bring in Portland cement within the same acceptable grade range. Small scale importers buy cement from Senegal that is already bagged. Due to Senegal’s proximity, the transportation cost of the cement is much lower than cement that comes from outside of West Africa. 

Because of this price difference, bulk cement importers have always been pressuring the government to increase the duties and other levies on cement that comes from Senegal so that the cost advantage of the latter can be removed. These efforts havebeen on-going since the Yahya Jammeh regime but theyintensified when Adama Barrow came to power. Instead of finding out ways of lowering their cost and competing fairly, the three bulk importers have been using their influence to push the government to eliminate the competition.

The three bulk importers cannot just come out and demand that the government protect them from competition. They have to make up stories. The main argument they started using was that they need to be protected because they are local manufacturers. This is self-evidently false. All cement importers, whether bulk or small-scale importers, buy cement from outside that is already manufactured. The only activity done in the country by the bulk buyers is bagging. 

It is important to discuss why we currently do not have cement manufacturing in The Gambia so that people will not fall for this false claim again. Unless there is a new discovery of significant quantity of limestone in the country, one cannot even build a commercially viable cement manufacturing plant locally. The reason is well-known and simple. The main input in cement manufacturing is limestone, which is a high-volume, low-value product. Such items are simply prohibitive to transport because the transportation cost quickly exceed the value of the good itself over even a short distance. This is why in countries with cement manufacturing, all cement factories are located right next to the quarry sites because it only makes sense to transport the finish products (cement or clinker) rather than its inputs. What this means is that undertaking a cement manufacturing process in The Gambia today would entail shipping or trucking in large quantities of limestone, which would make the whole operation commercially non-viable.

More recently, some of the representatives of these bulk importers have been arguing that their businesses should be protected because they bring higher tax revenues for the government than the small-scale importers that import fromSenegal. This claim is doubtful. In reality, some of these bulk importers are beneficiaries of tax holidays by virtue of the special investment certificates they have. Even if the claim were true that they bring in higher tax revenue, this would be a wrong basis for the government to base this sort of decision on. It would be akin to the government using a penny-wise, pound-foolish reasoning.

To see why, it is important to stress that tax revenue generation is not an end in itself. It is a means to an end. Specifically, tax revenue is useful in so far as it helps the government to finance development expenditures. Therefore, what should be the goal of the government is to maximize welfare for its citizens for the long-term. In the specific case of cement issue, the welfare-maximizing goal for the Gambian government is as obvious as it is important. Cement is arguably the most important input in infrastructure, whether it is for housing or road construction. The government should be striving towards lowering the cost of cement so that ordinary Gambians building houses would find it more affordable. Similarly, lower cement price is useful for the government because it will lower the cost of building schools, hospitals and roads, among others. Put differently, reducing the cost of an important input such as cement should be among the highest priorities of the government because the gains from reducing the infrastructural deficit would more than compensate for any short-term loss in tax revenues. Instead, we have theincompetent Adama Barrow government doing the opposite.

What is more, the joint capacity of these 3 bulk importers is not enough to meet the local demand. This has been amply demonstrated in 2018 when the government last tried to raise import duties on cement coming from Senegal, and it led to a serious shortage and price hikes. It is just as predictable today as it was six years ago. The only beneficiaries of such an effect are the three bulk importers, while the rest of the country suffers. 

Even if these three bulk importers have the capacity to meet the country’s total cement demand now and for the foreseeable future, it would still not be a good idea to have our cement supply to be so concentrated among a few suppliers. It would simply give these businesses too much power to possibly collude and hike prices at will. Moreover, any unforeseen problems that affect any of these businesses would cause major disruptions to the economy. The smart course of action for the government would be to build resilience in the supply of key products by encouraging competition and avoiding risky concentration.

Some may also believe that the import duties on Senegalese cement is acceptable because the government is protecting Gambian businesses. This is not the case. The two sides of this issue are not Gambian businesses on one side and Senegalese businesses on the other. Rather, the real two sides are as follows: on one side, there are big importers such as Jah Oil, Salam and Gacem, while the on other side, there are small-scale Gambian importers together with the Gambian general public. So, nationalism is not germane to this issue. To complicate matters, the government is taking unnecessary adverse trade actions against Senegal for the benefits of countries far outside of the region. This means that Senegal is being put in a position where it may retaliate. And there is no benefit to The Gambia as a whole from such an unnecessary escalation, particularly when our government’s intervention is so poorly motivated.

The end result of this misguided policy action is that the ordinary Gambians are the ultimate victims. As we head into the rainy season, many poor households are rushing and struggling to complete their buildings before the rains start. But the AdamaBarrow government does not focus on ways it can help such households. Beyond households, the country is in serious need of paved roads, drainage systems, more schools and more clinics. Most of these infrastructural constructions are not being undertaken due to the high cost of inputs such as cement. Instead of being guided by the plight of ordinary Gambians and how to address the national infrastructural deficits, the government is more focused on filling the pockets of politically connected businesses and corrupt officials.

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