SA’s cement industry is using only two-thirds of its production capacity due to a combination of displacement by imports and low demand, putting jobs and government revenue collection at risk.
This is according to a report produced and published this week by the Centre for African Management and Markets (CAMM) at the Gordon Institute of Business Science, warning that the influx of cheap imported cement is stifling domestic production.
If the trend continues, the contributions that local cement companies make to the economy will be adversely affected, putting further pressure on the SA Revenue Service, which has reported it is battling with corporate tax revenue collections.
The hamstrung cement industry, which is a cornerstone of SA’s industrialisation project, last received a significant boost in the build-up to the 2010 Fifa World Cup. Oversupply and competition from cement imports, which make up 25%-30% of the total market, are threatening the survival of the local industry.
The report titled “The socioeconomic impact of substituting local cement production with imports” said that though the sector can produce about 22-million tonnes of cement a year, it is producing only 13-million tonnes because of low demand and the displacement of domestic production by imports, which can cost up to 40% less than locally produced cement.
Macroeconomic headwinds have lowered demand, with consumers opting for cheaper imitations while the slow rollout of government infrastructure has also affected demand.
Despite President Cyril Ramaphosa’s government earmarking at least R117.5bn for infrastructure in the 2022-23 financial year, with an estimated R903bn to be spent over the next three years, the rollout of spending has been sluggish.
Reduce production
However, JSE-listed companies such as Raubex and Afrimat have flagged an uptick in construction activity in the second quarter and renewed urgency from the government before the election year in 2024.
Using PPC as a case study and a modelled scenario methodology, the study found that if the shift towards cheaper imports continues, manufacturers such as PPC will be forced to reduce production.
“If PPC were to reduce their own production, PPC suppliers confirmed that their businesses would suffer,” said the report. Local suppliers, logistics providers, and related businesses that survive on the cement industry’s ecosystem might face reduced revenues and potential shutdowns, it said.
The domestic industry contributes significantly to the government’s coffers through various tax streams, but the report said that this revenue might be at risk if imports overshadow domestic production.
PPC, SA’s largest cement manufacturer, has long been lobbying the government’s International Trade Administration Commission to impose steep tariffs on imported cement from low-price countries such as China, Vietnam and Pakistan, saying that if the practice is left unchecked it will threaten the survival of the local industry.
According to the data, during 2021-22, the National Treasury received R417.1m in tax revenue from PPC, its employees and customers, with PPC SA contributing R8.8bn to the country’s GDP in 2022.
However, if the import scenario is implemented and cement output is reduced locally, it will negatively affect the group’s value added, with the report estimating that the company’s modelled contribution to GDP would fall R1.3bn a year.
“In this regard, cheap cement imports threaten the domestic industry,” it said.
PPC employs 1,840 people and its value chain supports an estimated 15,897 full-time-equivalent formal and informal jobs, generating R3.24bn in labour income. The 131-year-old group purchased goods, services and capital equipment to the value of R4.71bn directly from SA suppliers.
“Relying on imports could erode this economic value, affecting direct and ancillary industries,” the CAMM report warned.
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