Business News of Friday, 22 June 2012

Source: Graphic

Break Duopoly On Cement Production - World Bank

The recent hike in the prices of cement has reignite debates on the impact of the Ghana Cement Company (GHACEM) on prices of cement and the building and construction industry in general.

The World Bank is uncomfortable with the continuous dominance of the Ghana Cement Company (GHACEM) and the Diamond Cement Company in the construction and sale of cement in the country.

The bank is worried that GHACEM and Diamond Cement’s more than 80 per cent hold of the market suppresses competition in the sector with dire consequences on prices and the supply of the product to the building and construction industry.

It has thus called for urgent steps that would liberalise the market “to engender competition and drive down prices.

“I do not see any justification for a ‘monopoly’ in the cement market in Ghana. It makes no economic sense,” a World Bank Lead Economist in the country, Mr Sebastien Dassus, said in a recent interaction with financial journalists in Accra.

The Association of Building and Civil Engineering Contractors of Ghana (ABCECG) recently expressed similar misgivings on the matter.

The Chairman of the association’s Technical Committee, Mr Rockson Dogbegah, had earlier said in an interview with that the government needed to break GHACEM and Diamond Cement’s de facto duopoly in the cement business or leave the nation’s construction and building sector to the whims and caprices of the company.

“We need a conscious effort to get other cement factories into the system because where you have only Diamond Cement and GHACEM controlling the market, it means that we (builders and contractors) will continue to be at their whims and caprices,” he said.

The recent increase in prices of the product partly as a result of the weakening cedi has since reignited that debate over the impact of the two companies’ actions on the building and construction industry as far as prices and supply of cement was concerned.

Currently, GHACEM comfortably controls close to 60 per cent of the market share. Diamond Cement, on the hand accounts for about 35 per cent of total cement sale and production bringing to over 90 per cent the stake of the two companies in the industry.

Fears are that the dominance of the two companies in the sector, however accidental it was, makes it possible for them to ‘technically’ determine prices of the product nation-wide.

Concerns over artificial shortages created by key distributors aligned to these market leaders in favour of price hikes also abound, allegations GHACEM and Diamond Cement have often denied knowledge of.

Given these companies’ dominance in the sector, their actions with regards to pricing and supply of cement have become more of a roll-over effects on competing cement producers and suppliers like Greenview, and the other cement companies which all together account for less than 20 per cent of cement production and sale in the country.

According to the World Bank’s Lead Economist, having a de facto duopoly in the manufacturing and sale of an essential commodity like cement is not good for the country, especially given the rising housing and infrastructural deficit.

With Ghana’s status as a developing nation and undertaking lots of infrastructure and housing projects, Mr Dassus said “liberalising the cement sector will help drive down prices and create more jobs for the teaming youth.

“The more there is competition in the sector, the better for consumers,” he added.

On fiscal and monetary issues, Mr Dassus also advised the Ghana Government to double up on tax collections and pull back on unprofitable expenditures or risk missing its fiscal targets for the year and subsequently pushing the entire economy into disarray after the December 2012 general elections.

But while that happens, World Bank’s Lead Economist said the government, policy makers, development partners and all political parties in the country also needed to find a long-term solution to the classic destabilisation of the economy in and after every election years.

He said such actions were necessary to help save the country the cost of rebuilding the economy after every other election year. He was however optimistic that the country will achieve its fiscal targets for 2012 despite having to surmount some risks in the months to come.

The government is aiming to achieve an overall growth rate of 9.4 per cent, end-period inflation of 8.5 per cent, overall budget deficit equivalent to 4.8 per cent of GDP and not less than three months of import cover in 2012.

Many analysts and economic watchers are however sceptical about the government’s ability to attain those targets given the current depreciation in the cedi, rising government expenditure and the decline in the country’s foreign reserves from U$5.4 billion in December 2011 to US$4.3 billion as at June 8, 2012.

This is equivalent to 2.5 months imports cover of goods and services.

To Mr Dassus, however, those targets are achievable provided the government exhibits the needed political and economic discipline.

“I think Ghana can definitely meet the fiscal targets for 2012, but it is the question of will.

He said the recent fluctuations in gold, cocoa and crude oil prices in the commodity market also posed “real risks to the government and the economy” hence the need to “accelerate tax collections and spend wisely” in this election year.