Ghana’s
Trade
Minister
has
recently
proposed
legislation
to
control
the
pricing
of
cement
production
within
the
country.
A
significant
step
in
this
direction
was
the
establishment
of
a
nine-member
committee
to
monitor
and
coordinate
the
local
cement
industry,
in
accordance
with
the
Manufacture
of
Cement
Regulations
(LI
2480).
This
committee,
inaugurated
in
Accra
on
April
5,
2024,
is
chaired
by
Professor
Alex
Dodoo
of
the
Ghana
Standards
Authority
(GSA)
and
includes
representatives
from
various
governmental
and
industrial
bodies,
such
as
the
Ministry
of
Trade
and
Industry,
Ministry
of
Environment,
Science,
Technology
and
Innovation,
Environmental
Protection
Agency,
Ghana
Institution
of
Engineering,
Association
of
Ghana
Industries,
Chamber
of
Cement
Manufacturers
of
Ghana,
and
an
expert
in
cement
production
nominated
by
the
Minister.
During
the
inauguration,
Trade
and
Industry
Minister,
Kobina
Tahiru
Hammond,
emphasized
the
committee’s
role
in
appraising,
evaluating,
and
approving
local
content
and
participation
plans
and
reports
from
cement
manufacturing
entities.
The
committee
is
also
tasked
with
promoting
the
production,
wholesale,
and
retail
of
cement
and
its
components.
According
to
LI
2480,
cement
manufacturers
are
required
to
register
with
this
committee.
Regulation
11
of
LI
2480
clearly
states,
“A
person
shall
not
manufacture
cement
in
the
country
unless
the
person
registers
with
the
Cement
Manufacturing
Development
Committee
in
accordance
with
these
Regulations.”
Furthermore,
those
who
fail
to
register
will
not
be
granted
a
license
to
manufacture
cement
under
these
regulations.
While
these
measures
may
seem
to
aim
at
regulating
and
stabilising
the
cement
industry,
the
broader
implications
of
such
price
control
strategies
must
be
carefully
considered.
Price
controls,
in
general,
often
fail
to
achieve
their
intended
outcomes
and
can
lead
to
a
host
of
unintended
negative
consequences.
This
article
explores
why
legislating
cement
pricing
is
a
flawed
decision
and
how
it
undermines
the
fundamentals
of
a
free
market
economy.
Historical
context
from
other
countries
Price
control
measures
have
been
implemented
in
various
countries
throughout
history,
often
with
the
aim
of
making
essential
goods
more
affordable.
However,
these
attempts
frequently
backfire,
leading
to
economic
turmoil
rather
than
stability.
Venezuela
is
a
notable
example.
In
the
early
2000s,
the
government
introduced
price
controls
on
basic
goods,
including
cement.
This
led
to
widespread
shortages,
as
producers
could
not
cover
their
costs
at
the
mandated
prices.
The
result
was
a
thriving
black
market,
severe
supply
disruptions,
and
a
decline
in
overall
economic
health.
Similarly,
Zimbabwe
experienced
disastrous
outcomes
from
price
controls
in
the
2000s.
The
government’s
efforts
to
curb
hyperinflation
through
price
caps
on
goods,
including
cement,
resulted
in
empty
store
shelves
and
an
economy
in
free
fall.
Producers
either
reduced
output
or
shut
down
completely,
unable
to
sustain
operations
under
the
artificial
pricing
regime.
These
examples
illustrate
the
dangers
of
price
controls:
they
often
lead
to
scarcity,
reduced
quality,
and
economic
inefficiency.
Ghana’s
proposed
legislation
risks
replicating
these
adverse
outcomes,
stifling
the
cement
industry
and
harming
the
broader
economy.
The
principles
of
a
free
market
economy
At
the
heart
of
a
free
market
economy
is
the
principle
of
supply
and
demand.
Prices
are
determined
by
the
interaction
between
buyers
and
sellers,
reflecting
the
true
value
of
goods
and
services.
When
the
government
intervenes
to
set
prices,
it
disrupts
these
natural
signals,
leading
to
inefficiencies.
Supply
and
Demand:
In
a
free
market,
prices
fluctuate
based
on
availability
and
consumer
demand.
If
cement
prices
rise,
it
signals
producers
to
increase
production
or
new
entrants
to
join
the
market,
ultimately
stabilizing
prices.
Conversely,
if
prices
are
artificially
kept
low,
producers
lack
the
incentive
to
produce
more,
leading
to
shortages.
Price
signals:
Prices
act
as
indicators
for
resource
allocation.
They
help
businesses
decide
where
to
invest
and
how
much
to
produce.
Interfering
with
these
signals
can
result
in
misallocation
of
resources,
where
investments
are
driven
by
regulation
rather
than
market
needs.
Competition
and
innovation:
Free
market
competition
drives
innovation
and
efficiency.
Producers
strive
to
improve
quality
and
reduce
costs
to
gain
market
share.
Price
controls
dampen
this
competitive
spirit,
as
producers
are
less
motivated
to
innovate
or
optimise
their
operations.
The
case
of
cement
manufacturers
in
Ghana
1.
High
inflation
Ghana’s
cement
manufacturers
are
operating
under
incredibly
challenging
economic
conditions.
This
critical
situation
is
underscored
by
the
country’s
recent
economic
history,
where
inflation
soared
to
a
22-year
high
of
54
percent
in
December
2022.
Although
inflation
has
since
moderated
to
23
percent,
it
remains
significantly
higher
than
that
of
neighbouring
countries,
which
have
managed
to
maintain
inflation
rates
in
single
digits.
This
persistent
inflationary
pressure
is
not
an
isolated
incident
but
rather
a
symptom
of
broader
economic
turmoil
driven
by
fiscal
imprudence
and
monetary
policy
failures.
2.
Currency
depreciation
The
cedi,
Ghana’s
currency,
has
experienced
severe
depreciation,
losing
over
50
per
cent
of
its
value
between
September
2022
and
April
2023,
with
an
additional
18
per
cent
decline
in
2024.
This
devaluation
has
had
a
profound
impact
on
cement
manufacturers,
who
rely
heavily
on
imported
inputs
like
clinker.
As
the
cost
of
imported
goods
has
surged,
manufacturers
are
facing
significantly
higher
production
costs.
This
situation
is
further
compounded
by
an
import-dependent
economy,
where
the
increased
expenses
on
raw
materials
strain
the
industry’s
finances,
making
it
even
more
challenging
to
maintain
affordable
cement
prices.
3.
The
burden
of
high
borrowing
costs
One
of
the
most
significant
challenges
facing
cement
manufacturers
is
the
prohibitively
high
cost
of
borrowing.
The
financial
struggles
of
manufacturers
are
compounded
by
the
steep
interest
rates
on
corporate
loans.
Data
from
the
Bank
of
Ghana
reveals
that
the
average
Annual
Percentage
Rates
(APRs)
for
corporate
loans
are
alarmingly
high,
with
banks
such
as
First
Atlantic
Bank
Limited
and
Stanbic
Bank
Ghana
Limited
reporting
APRs
of
43.64%
and
50.92%
respectively.
On
average,
the
cost
of
borrowing
hovers
around
40%.
These
elevated
interest
rates
reflect
the
banks’
response
to
the
heightened
risks
in
the
lending
environment,
driven
by
economic
instability,
high
default
rates,
and
the
negative
impacts
of
the
domestic
debt
exchange.
Nonperforming
loans
(NPL)
stood
at
a
worrying
24.6
per
cent
in
2023,
further
illustrating
the
precarious
financial
landscape
that
businesses
must
navigate.
4.
IMF
conditionality
and
operating
costs
Adding
to
the
financial
woes
of
cement
manufacturers
are
the
conditions
imposed
by
the
International
Monetary
Fund
(IMF).
The
IMF
has
mandated
an
upfront
weighted-average
electricity
tariff
adjustment
of
at
least
29
per
cent,
significantly
increasing
the
cost
of
operations
for
manufacturers.
This,
coupled
with
the
constant
rise
in
fuel
prices
and
other
operational
expenses,
places
an
enormous
burden
on
the
cement
industry.
The
cumulative
effect
of
these
economic
pressures
makes
the
proposed
price
controls
on
cement
even
more
problematic.
With
such
high
borrowing
costs
and
operational
expenses,
cement
manufacturers
need
the
flexibility
to
adjust
prices
to
sustain
their
operations.
Legislating
fixed
prices
would
constrain
their
ability
to
cover
costs
and
invest
in
maintaining
or
expanding
production,
potentially
leading
to
a
decline
in
quality
and
availability
of
cement
in
the
market.
In
this
context,
it
becomes
clear
that
the
challenges
faced
by
Ghana’s
cement
industry
are
deeply
rooted
in
the
broader
economic
issues
plaguing
the
country.
Effective
solutions
should
address
these
foundational
problems
rather
than
imposing
price
controls
that
could
further
destabilise
the
industry.
Potential
negative
impacts
of
cement
price
legislation
Legislating
cement
prices
can
lead
to
several
detrimental
effects
on
the
market
and
the
economy:
Market
distortions:
When
prices
are
set
below
the
market
equilibrium,
demand
exceeds
supply,
causing
shortages.
Conversely,
if
prices
are
set
too
high,
it
leads
to
surpluses
that
the
market
cannot
absorb.
Reduced
incentives
for
producers:
Cement
producers
may
find
it
unprofitable
to
operate
under
fixed
prices,
leading
to
a
decrease
in
production
quality
and
quantity.
This
can
also
discourage
new
entrants
from
joining
the
market,
stifling
competition.
Black
market
emergence:
Artificial
price
caps
often
lead
to
the
development
of
black
markets
where
goods
are
sold
at
higher
prices.
This
not
only
undermines
the
official
market
but
also
fosters
corruption
and
illegal
activities.
Negative
impact
on
foreign
investment:
Investors
seek
stable
and
predictable
markets.
Price
controls
introduce
uncertainty
and
reduce
profitability,
making
Ghana
less
attractive
to
foreign
investors
looking
to
invest
in
the
cement
industry.
Alternative
solutions
for
the
government
Instead
of
resorting
to
price
controls,
the
Ghanaian
government
can
explore
several
alternative
strategies
to
support
the
cement
industry
and
ensure
affordability
for
consumers:
1.
Encouraging
competition
Reducing
barriers
to
entry:
The
government
can
create
a
more
conducive
environment
for
new
cement
producers
by
reducing
bureaucratic
hurdles
and
lowering
startup
costs.
Streamlining
the
registration
and
licensing
process
will
encourage
more
players
to
enter
the
market,
fostering
healthy
competition
that
can
naturally
drive
down
prices
and
improve
quality.
Supporting
Small
and
Medium
Enterprises
(SMEs):
Providing
financial
and
technical
support
to
SMEs
in
the
cement
industry
can
diversify
the
market.
This
could
include
offering
low-interest
loans,
grants,
and
training
programs
to
help
smaller
firms
scale
up
their
operations
and
compete
effectively
with
larger
companies.
2.
Improving
Infrastructure
Investment
in
transport
and
logistics:
By
improving
transportation
infrastructure,
the
government
can
help
reduce
the
costs
associated
with
the
distribution
of
cement.
Better
roads,
railways,
and
ports
will
lower
transportation
costs,
enabling
manufacturers
to
reduce
prices
without
compromising
on
profitability.
Upgrading
energy
supply:
Ensuring
a
reliable
and
affordable
energy
supply
is
crucial
for
cement
production.
The
government
can
invest
in
energy
infrastructure
to
reduce
power
outages
and
provide
incentives
for
cement
manufacturers
to
adopt
energy-efficient
technologies,
thereby
lowering
production
costs.
3.
Incentivising
Local
Production
Subsidies
and
tax
breaks:
The
government
can
offer
subsidies
or
tax
incentives
to
local
cement
producers
to
reduce
their
production
costs.
This
financial
support
can
help
manufacturers
absorb
some
of
the
costs
associated
with
currency
depreciation
and
high
borrowing
rates,
allowing
them
to
keep
prices
competitive.
Encouraging
Local
Raw
Material
Use:
Promoting
the
use
of
locally
sourced
raw
materials,
where
possible,
can
reduce
dependency
on
imports.
The
government
can
support
research
and
development
initiatives
aimed
at
finding
local
alternatives
to
imported
clinker
and
other
materials.
4.
Strengthening
Market
Regulation
Monitoring
and
fair
trade
practices:
Instead
of
direct
price
controls,
the
government
can
focus
on
ensuring
fair
trade
practices
within
the
cement
industry.
This
includes
monitoring
for
price
gouging,
anti-competitive
behaviour,
and
ensuring
transparency
in
pricing.
Regulatory
bodies
can
be
empowered
to
enforce
these
standards
and
protect
consumers
without
distorting
market
dynamics.
5.
Enhancing
Financial
Support
Access
to
Affordable
credit:
The
government
can
collaborate
with
financial
institutions
to
provide
more
affordable
credit
options
for
cement
manufacturers.
This
could
involve
setting
up
a
special
fund
or
guarantee
scheme
to
lower
interest
rates
and
improve
access
to
capital
for
production
expansion
and
technological
upgrades.
Insurance
and
hedging
mechanisms:
Providing
insurance
schemes
and
promoting
the
use
of
financial
hedging
instruments
can
help
manufacturers
manage
risks
associated
with
currency
fluctuations
and
raw
material
price
volatility.
This
financial
stability
can,
in
turn,
help
stabilize
cement
prices.
Conclusion
By
implementing
these
alternative
solutions,
the
Ghanaian
government
can
create
a
more
sustainable
and
resilient
cement
industry.
Encouraging
competition,
improving
infrastructure,
incentivizing
local
production,
strengthening
market
regulation,
and
enhancing
financial
support
are
all
strategies
that
align
with
free
market
principles.
These
measures
can
help
ensure
the
availability
and
affordability
of
cement
while
fostering
a
healthy
economic
environment
for
both
producers
and
consumers.