Market distortions alarm investors, Sri Lanka cement producer warns

ECONOMYNEXT – Investors are concerned by uncertainty in Sri Lanka’s cement policy with price controls on local producers and duty free imports creating market distortions, a top producer has said.

Cement manufacturing industry is extremely capital intensive, Tokyo Cement Managing Director S. R. Gnanam has said.

“Therefore, policy and regulatory stability is vital for industry investments, development and growth.”

The national policy on cement that allows duty free imports of cement but imposes price controls on domestically manufactured cement, leads to “market distortions” that do not benefit consumers or the construction industry, Gnanam said.

He did not explain how free trade in cement did not benefit consumers. Free trade in cement allows poorer homeless Sri Lankans to build houses at the same cost as the rest of the world, and prevents domestic producers from exploiting them with import duty protection. At the moment cement is one of the few domestic industry sectors that do not exploit the poor.

The imposition of import duties, analysts say will put cement in the same bracket as tiles and steel, which are exploiting the homeless, putting up construction costs and generaly making Sri Lanka a more expensive place to do business as well as to live. Sri Lanka’s construction and tourist trades have already complained that construction cost are too high in Sri Lanka due to protection.

Protectionists also shed crocodile tears over ‘quality’ in a bid to prevent competition from imports and earn unjust profits.

Quality tested locally made cement is subject to price controls and even “adhoc price reductions” while duty free imports come without adequate quality controls, he said.

“The present situation is an example of such price changes by the state, without adequate industry consultation, despite the existence of a pricing formula to adjust cement retail prices,” Gnanam told shareholders in the firm’s annual report.

"Such sudden and unilateral decisions by the state causes unpredictability and instability within the industry, while also alarming potential investors."

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While large indstries should learn to live with free trade for the poor or close down, they should not be shackled with price controlsm analysts say.

St. Anthony’s Consolidated (Pvt) Ltd has a 27.5 percent stake and Nippon Coke & Engineering Co. Ltd a 23.4 percent in Tokyo Cement.

Gnanam said the current climate of uncertainty with regards to pricing is “detrimental to the future of the local cement manufacturing industry,” one of the few domestic heavy industries that have survived.

He said the authorities should reconsider present policy and have industry consultations as soon as possible.  (Colombo/August 20 2015)

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