Namibia’s infant industry protection in limbo

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Windhoek – A Namibian economic expert has criticised the country’s Infant Industry Protection (IIP) scheme that the government initiated in 2012 to develop industries, saying the scheme never worked and questioned whether the protection granted was aimed at safeguarding specific industries or protecting monopolies. 

“We must protect productive capacity while allowing competition, but it seems the IIP is there to protect monopolies,” said the source at the Ministry of Industrialisation, Trade and SME Development, who did not want to be named.

Comparing Namibia to Botswana, the official said, Botswana, for instance, has three cement plants, while Namibia appears to be inhibiting the setting up of a second cement plant - Cheetah Cement, which is expected to start production in October.

Last year, the government received complaints levelled against Cheetah Cement questioning whether it was adhering to its mining licence conditions.

The company, owned by Chinese and Namibian businessmen, is situated near Otjiwarongo in the north central part of Namibia. Apparently, Cheetah bypassed the value chain requirement, which stipulates that a company that sets up a cement plant in Namibia must adhere to the IIP policy by going through the full production chain of manufacturing cement in order to add value and protect domestic capacity.

The only other cement company, Ohorongo Cement, is going through the full production process, with clinker taking up to 80% of the value-addition process of cement production.

IIP is afforded to an infant industry for a period of eight years with the rationale being that while protection is afforded to a newly established industry during the start-up years, the costs will decrease over time to a level where efficient production is achieved. 

The IIP that was granted to players in the cement industry has been in limbo for the past four years, owing to legal loopholes in the policy, which has seen newcomers entering the market without having to comply with its provisions.

Jack’s Trading, a Chinese-owned company that imported cement to Namibia, took the government to court in 2012, just after the introduction of the IIP, when it was ordered to pay high-import levies amounting to R47 million.

“The case remains pending in the Supreme Court, while the IIP for the cement industry is about to come to an end,” said the expert.

The official said some investors behave as though they are the only ones entitled to the IIP when the protection is meant for the whole industry.

“Competition is necessary because it has an impact on the actual price (of goods),” she said, adding that this trend can be seen in other industries, including dairy products where local producers with IIP have driven others out of business with their monopolistic actions.

Ohorongo Cement has in previous reports moaned that there was an oversupply of 2.5 million tonnes of cement in Namibia, while local consumption is only between 500,000 and 600,000 tonnes of cement.

However, critics have argued that if there is an oversupply of cement in the market, the price of cement was supposed to fall as per economies of scale, which is not the case. 

Manfred /Uxamb, the public relations officer for Whale Rock Cement, through its Cheetah Cement brand, has promised to produce cement clinker by next year.

/Uxamb moaned that they tried to buy clinker from their competitor, but the competitor was apparently never forthcoming, leading them to order another consignment of clinker again from their foreign suppliers.

“If clinker was available here, it would have been cheaper because ordering from outside is more expensive,” he said.

Whale Rock Cement, a company owned by Chinese and Namibian partners, made headlines last year when it reportedly imported 40,000 tonnes of cement clinker from China.

The company is making a comeback into the local cement market. In 2005, and in partnership with Brazilian partners, Whale Rock started importing 18,000 metric tons of Cheetah Cement per month from Brazil. But a year later, it was bulldozed out of the market in a fierce price war by South African cement maker Holcim that was dominating the Namibian market before Ohorongo set up a plant in 2010.

Holcim ganged up with its local suppliers to reduce the selling price of a 50kg bag of cement from R54 to R26 against R30 for Cheetah Cement. Presently, the same bag of Ohorongo Cement has been hovering around R110, despite the company enjoying IIP status since 2011.  

The IIP thrives on the principle of a Southern African Customs Union (SACU) agreement of 2002, which contains a provision (Article 26) to protect infant industries in the smaller economies of Southern African Customs Union (SACU) member states, which comprise Botswana, Lesotho, Namibia and Swaziland.

South Africa is the biggest economy in SACU.

 

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