Mohammad Ali Tabba, chief executive of the Lucky Cement, and chairman of the All Pakistan Cement Manufacturers Association (APCMA), has said that at least five percent increase in cement prices is inevitable this month, as the cost has been pushed up.
Tabba discussed the issues and challenges being faced by the cement industry in an exclusive interview with The News.
Q. What future does the cement industry foresee for 2014, what are the growth prospects?
A. As far as cement industry is concerned, the year 2014 is not likely to bring any significant change and we calculate overall growth in the cement industry to hover around five percent.
There are no changes in the fundamentals, not until June 2014, while the consumption patterns are likely to remain the same.
Q. Is the company plans expansion by setting up new plants?
A. At this point of time, expansion in the cement production sector is not wise. We already have surplus capacity and there has been no considerable growth in the gross domestic product (GDP) in the last five years. If we look at the last five years, the GDP has growth of an average 3.5 percent, which is actually the result of two percent growth in the population of the country, so effectively the growth is almost stagnant.
Moreover, Afghanistan market, which is considered as home market for Pakistani cement manufacturers, is going to be shared with Iran. As after the nuclear deal, Iran signed with the world powers most of the sanctions on the neighbouring country will go and the market will formally be opened for Iranian products.
Iran also is a surplus cement production country; besides, their cost of production is lower than Pakistan because of the subsidies and cheaper factors of production.
Q. What is the reason behind cement price hike every quarter?
A. If the cost of production goes up, the prices of the commodity have to go up. This is basically the cost push impact and not because of the rising demand.
The policies are not favourable for the industry and the producers are overburdened with taxes and levies, which increases the cost of production. We suggest measures that will not only flourish the industry but will result in lower prices but the government machinery is highly reluctant to change the status quo.
Q. What are the issues and challenges being faced by the cement industry?
A. Doing business in Pakistan is not an easy job. There are a lot of issues and challenges being faced by the industry such as unfriendly government policies, hostile attitude of departments and harsh taxation.
Transportation is the biggest problem for the entire industry. Because of non-operational railways, the industry has to use road transportation, which is costly, on the one hand, and unreliable, on the other.
The recent strike of transporters inflicted a severe loss to the industry, as well as the government but still no steps have been taken to culminate their monopoly.
These transporters have become a mafia and whenever they want, they put the industry in a fix through strikes. Energy shortages, security issues and inappropriate taxation are already there.
Q. What do you suggest to government?
A. The government should promote and encourage industry through friendly policies and reasonable taxation, as overburdening the taxed leads to leakages and pilferages.
The government should take measures to widen the tax base and bring the rich in the tax net.
Most importantly, the railways (cargo) should be revived.
Q. What do you think about the amnesty / incentive package announced by Prime Minister Nawaz Sharif?
A. The amnesties have never proved to be good for the industry, as these are designed to benefit the tax evaders. I don’t think there will be any significant increase in the investment or industrial growth in the country following the incentive package.
The investments are made for returns and if the investors / industrialists get returns they reinvest, bring modern and cost-efficient technology, which also brings down the prices of products.
Unless and until the policies are devised rather streamlined so that the investors could get better returns, the amnesties and incentive packages would bring no change.