x Abu Dhabi, UAEThursday 27 July 2017

GCC may remove materials tax

Timing is not good for producers in Emirates as 5 per cent levy on imports is expected.

Gulf states are expected to remove a 5 per cent duty on steel and cement imports, although some experts say the move is badly timed for cement producers in the UAE. Finance ministers from the GCC met yesterday to consider the proposal. An official from the GCC secretariat told Reuters before the meeting that "there is consensus among GCC countries about this proposal. It will be approved without any problem but it will probably take a month or two for it to be implemented."

Abolishing the tariff would ease the supply burden in busier construction markets such as Saudi Arabia and Qatar, where governments are spending billions of dollars on infrastructure and housing projects. However, it is likely to put more pressure on producers in the UAE, particularly in the cement sector, where profits have been hit by the economic downturn. Local cement factories are also dealing with surplus supplies after rapidly expanding their production to meet soaring demand during the five-year construction boom, which ended abruptly in the third quarter of 2008 leading to the cancellation of hundreds of projects.

"We have sufficient capacity to provide cement to the country, so removing the cost of importing cement is going to curse the market," said Mustafa Gorgunel, the general manager of Union Cement Norcem, a cement producer in Ras al Khaimah. The UAE started importing cement in 2003 to keep pace with the construction boom. A tonne of imported cement costs about Dh10 (US$2.72) less than local cement, which is selling for between Dh180 and Dh200 a tonne, Mr Gorgunel said.

Another local cement producer, who asked not to be named, was concerned that removing the tax could lead to an influx of poorer-quality cement. "Imports do affect us," he said. "Sometimes customers complain about lower prices of imports compared with local produce, but the quality of domestic cement is far higher than what's imported." Khaled Galal Hegazy, the vice president of Hegazy Cement and Building Materials, an Egyptian company, said that while removing the tariff might be badly timed, it would have to happen "sooner or later". The main beneficiaries would be cement producers Pakistan and Iran, he said.

"It's just part of the free-trade agreement, although it comes at a time when local producers actually need more protection … but with the way the world is trading right now, you need to be able to compete with worldwide prices," Mr Hegazy said. Meanwhile, companies that rely on steel imports to make their products would welcome the move, which would allow them to expand their operations more freely across the GCC.

Steel prices reached Dh3,100 a tonne early last month, surging as much as 55 per cent since February after changes were made to the mechanism used to price iron ore on international commodity markets. Prices have since dropped to Dh2,681 a tonne. "Removing the tax will definitely help us. We're already suffering quite a bit from the increase in steel prices," said Arvind Sharma, the managing director of Dubai-based Kwik Steel Structures, which uses imported steel.

"We will also have the advantage of not paying export fees so we can expand to other markets in the GCC." GCC finance ministers were also expected to discuss proposals from Qatar to set up a regional bank for international aid and a Bahraini proposal to set up a stabilisation fund to aid troubled GCC economies should the need arise, Reuters said. The meeting was to set the agenda for a GCC summit due to be held in Riyadh this week, where a final decision on the tariff is expected to be made. agiuffrida@thenational.ae