Construction booms as cement price rises

 

The price of cement has jumped 98 percent in 10 months since last August, worrying property investors and threatening the survival of the booming construction industry, an expert has said.

Construction economist Patrick Khambadza, who is also a lecturer in quantity surveying at the University of Malawi’s The Polytechnic, told Business Review on Tuesday that the exorbitant price of cement, a critical ingredient in the construction industry, has pushed up construction cost by 68 percent.

He said in a normal building construction, cement accounts for 0.55 portion of building materials; hence, the 98 percent rise is too huge considering that construction is a long-term process.

Available data indicate that in July 2011, the price of a 50 kilogramme bag of cement was selling at K2 368 and the price has peaked at K4 700 in May 2012.

“This is an exceptional situation in the construction economy, but of course expected. It is prudent to note that Malawi is approaching a construction boom in the coming months and the demand for cement is expected to double that.

“Based on the law of forces of demand and supply, companies will be tempted to blow up the price again,” feared Khambadza.

But he said in Malawi, being a developing country, cement will keep on increasing and the cost of construction will be very high compared to other similar countries.

He suggests that in the long-term, government should support local investors that have shown interest to manufacture cement to enhance competition on the market.

The new investors should forecast producing large volumes of say 37 000 tonnes per day, he said.

“In the short term, government should make deliberate policies that will enable traders or contractors to import cement at reduced tax charges. Malawi Bureau of Standards should ensure that the imported cement conform to the ISO [International Standards Organisation],” he said.

Investors in the cement industry are not just sitting idle.

Cement Products Limited (CPL) has just completed phase one of the $50 million (K12.5 billion at the current exchange rate) cement manufacturing plant under construction in Mangochi.

The company’s officials said, at current demand, the factory would potentially save the economy $30 million (K7.5 billion) on imports of clinker, an important ingredient in cement manufacturing which is made by heating ground limestone.

Malawi imports clinker from Zimbabwe and Zambia.

The CPL plant can make up to 500 tonnes per day of cement.

Commenting on the 49 percent devaluation of the kwacha on the construction industry, Khambadza said the move has not spared the construction industry.

“We have seen building materials rising in cost with an average of 20 percent since the devaluation on May 7 2012. In reality, most building materials had already risen in prices when the foreign currency was in short supply in banks.

“This was in response to the higher rates offered on the parallel market for foreign currency as most of the materials are imported,” he explained.

Malawi has, for the past two years, been having a deficit of foreign exchange, a development that affected the procurement of essential imports such as medical drugs, fertilisers and fuel.