Understanding the economic and historical impact of cement price fluctuations

I wouldn’t call this an opinion piece since it excludes my personal opinions.

Also, the story is still unfolding. I am just writing about the events so far and presenting facts to help my audience create their unique perspective. Suppose this Legislative Instrument on cement pricing in Ghana comes to fruition. In that case, it will set an important precedent for many others that could follow within many other sectors in the coming years.

That affects you reading this right now, and it also affects me. So, we need to know and comprehend what is currently unravelling.

RECENT EVENTS

The cement price in Ghana has seen unprecedented fluctuations in recent years, prompting the government to introduce new regulations. As one of the primary materials in construction, the cost of cement significantly impacts the overall expenses for both public and private sector projects. These price changes have posed considerable challenges for construction companies, real estate developers, and consumers, creating a ripple effect across the economy.

In response to these issues, the Minister of Trade and Industry, Hon Kobina Tahir Hammond (MP), has presented the Ghana Standards Authority (Pricing of Cement) Regulations 2024 in Parliament. This new Legislative Instrument (LI) seeks to monitor and regulate the price of cement by focusing on price reporting to a Committee.

The nine-member Committee was inaugurated in Accra on 5th April 2024, in line with LI 2480, ahead of introducing this new LI, and is chaired by Professor Alex Dodoo of the Ghana Standards Authority (GSA). It 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.

Mr Hammond said, “For a long time, we haven’t seen cement prices de-escalating. It is always escalating. I think there is something fundamentally wrong with the pricing of cement in the country.” He indicates that the regulation is not intended to dictate the price of cement; its purpose is to monitor and fairly regulate the price of cement. The move is touted as a proactive step to stabilise the market, promote transparency, and foster sustainable growth in the construction industry. The measure is to become law following a 21-day sitting period in Parliament.

However, the Speaker of Parliament, Alban Bagbin, has advised Minister of Trade and Industry, Mr K.T. Hammond, to withdraw the Legislative Instrument (L.I.) on cement price regulation, following constitutional concerns raised by former Minority Leader Haruna Iddrisu.

A HISTORICAL PERSPECTIVE OF CEMENT PRICING IN GHANA

Ghana’s construction industry has long been a crucial driver of the country’s economic growth, with cement serving as a fundamental building material. However, cement pricing has been a subject of ongoing discussion and concern over the years. We delve into the historical trends and factors influencing cement prices in Ghana, drawing insights from various industry reports and academic sources, as well as facts from recent events.

Cement Production and Imports

Ghana’s cement industry has a rich history, with the establishment of the country’s first cement factory, Ghacem, in 1967 (Ghacem, 2023). Over the decades, the industry has evolved, with the introduction of additional local producers and the increasing reliance on cement imports to meet the growing demand.

According to data from the Ghana Statistical Service, cement production in Ghana has fluctuated over the years, with domestic production accounting for a significant portion of the overall supply (Ghana Statistical Service, 2022). However, the country has also relied on cement imports to bridge the gap between demand and local production capacity, particularly during periods of high construction activity.

Factors Influencing Cement Prices

Cement pricing in Ghana has been influenced by a combination of factors, including production costs, transportation expenses, market dynamics, exchange rates and government policies.

1. Production Costs: The cost of raw materials, energy, and labour has been a key driver of cement prices in Ghana. Fluctuations in the prices of these inputs can directly impact the cost of cement production, leading to corresponding changes in the prices of the final product.
2. Transportation Costs: The logistics of moving cement from production facilities to distribution centres and construction sites have also significantly influenced cement pricing. Factors such as fuel prices, infrastructure conditions, and transportation distances can significantly influence the overall cost of cement delivery.
3. Market Dynamics: The supply-demand balance in the cement market has been a crucial factor in determining prices. During periods of high construction activity and increased demand, cement prices have tended to rise, while periods of lower demand have often led to more stable or even declining prices.
4. Government Policies: The Ghanaian government has sometimes intervened in the cement market through various policies and regulations. These interventions have aimed to stabilise prices, promote fair competition, and ensure the availability of cement for the construction industry (Ministry of Trade and Industry, 2021).

Historical Cement Price Trends

Analysing data from the Ghana Statistical Service and industry reports, the historical trends in cement prices in Ghana can be observed:

• In the early 2000s, the average price of a 50kg bag of cement was around GHS 12-15 (Ghana Statistical Service, 2005).
• Over the following decade, cement prices steadily increased, reaching an average of GHS 25-30 per 50kg bag by the early 2010s (Ghana Statistical Service, 2015).
• More recently, in the late 2010s and early 2020s, cement prices in Ghana have fluctuated significantly, ranging from GHS 35 to GHS 45 per 50kg bag, driven by factors such as rising production costs and supply chain disruptions (Ghana Statistical Service, 2022).
• With current cement prices for one single bag of cement in 2024 ranging from GHS 82 to GHS 105

INDUSTRIES IN GHANA IMPACTED BY CEMENT PRICE CHANGES

The construction industry is undoubtedly Ghana’s primary consumer of cement, but the impact of cement price fluctuations extends beyond this sector, affecting a range of industries across the Ghanaian economy.

Construction Sector

Cement is one of the core building materials essential for the construction of residential, commercial, and infrastructure projects. According to a report by the Ghana Statistical Service, the construction sector accounts for over 10% of Ghana’s GDP, significantly contributing to the country’s economic growth (Ghana Statistical Service, 2022). Cement price changes directly impact the overall costs and profitability of construction companies, real estate developers, and infrastructure projects.

Manufacturing Industry

Ghana’s manufacturing sector also relies heavily on cement to produce various construction-related products, such as concrete blocks, bricks, and pre-cast elements. The Ghana Investment Promotion Centre (GIPC) reports that the manufacturing industry contributes around 11% to Ghana’s GDP, with construction materials being a key subsector (GIPC, 2023). Fluctuations in cement prices can significantly affect the production costs and competitiveness of these manufacturing businesses.

Mining and Quarrying

The mining and quarrying industry in Ghana, which includes the extraction of limestone and other raw materials used in cement production, is also influenced by cement price changes. The Ghana Chamber of Mines states that the mining sector accounts for approximately 12% of Ghana’s GDP (Ghana Chamber of Mines, 2022). Stable cement prices are crucial for the profitability and sustainability of these mining operations, which supply the key inputs for the cement industry.

Infrastructure Development

The Ghanaian government’s ambitious infrastructure development plans, such as the construction of roads, bridges, and public buildings, rely heavily on the availability and affordability of cement. The Ministry of Finance’s budget reports indicate that infrastructure spending accounts for a significant portion of the government’s annual expenditure (Ministry of Finance, 2023). Volatile cement prices can impact the feasibility and timelines of these critical infrastructure projects.

Real Estate and Housing

Ghana’s real estate and housing sector is another industry heavily influenced by cement prices. The Ghana Real Estate Developers Association (GREDA) estimates that the real estate industry contributes around 8% to the country’s GDP (GREDA, 2022). Affordable and stable cement prices are essential for the construction of affordable housing units and the overall development of the real estate market.

WHAT DOES ALL  THIS MEAN?

Cement pricing in Ghana has been a complex and dynamic issue, shaped by many factors over the years. From production costs to market dynamics and government interventions, the historical trends in cement prices have significantly impacted the construction industry and the broader Ghanaian economy.

As the country continues to invest in infrastructure development and urbanisation, the stability and affordability of cement prices will remain a critical concern. Ongoing monitoring, policy adjustments, and collaboration between industry stakeholders and the government will be important in ensuring a sustainable and equitable cement market in Ghana.

The impact of cement price changes in Ghana extends beyond the construction industry, affecting various sectors, including manufacturing, mining, infrastructure development, and real estate. Maintaining a stable and affordable cement market is crucial for the overall growth and competitiveness of the Ghanaian economy.

The cement price regulation introduced by the Ministry of Trade and Industry aims to address the significant fluctuations in cement prices that have posed challenges for the construction industry and consumers. As a critical building material, the volatility in cement prices has had a ripple effect across the economy, impacting both public and private sector projects.

The new Legislative Instrument (LI) seeks to monitor and regulate cement pricing by establishing a nine-member Committee. This Committee, composed of representatives from various governmental and industrial bodies, is to oversee the implementation of the regulation and ensure fair and transparent pricing practices.

While it has been stated that the regulation is not intended to dictate the price of cement, it has been made clear that the primary objective is to stabilise the market, promote transparency, and foster sustainable growth in the construction industry.

However, the regulation has faced some constitutional concerns, leading to the Speaker of Parliament advising the Minister of Trade and Industry to withdraw the LI. This development highlights the complexity of implementing such regulatory measures and the need to consider legal and procedural requirements carefully.

Ultimately, the success of the cement price regulation will depend on its practical and effective implementation, ongoing monitoring, and the ability to address the concerns of various stakeholders, including you reading this right now. As the construction industry plays a crucial role in the country’s economic development, ensuring a stable and fair cement market is essential for the overall growth and progress of the Ghanaian economy.

The conclusion of this matter currently remains uncertain as the government’s efforts to address the cement price volatility continue to evolve. Regardless of the outcome, the issue highlights the importance of maintaining a stable and predictable construction material market to support the overall development and growth of the Ghanaian economy.