Uganda: High cost of doing business choking steel industry

from New Vision (Uganda)..

By Oyet Okwera

June 21, 2013

The young steel industry in Uganda stands at the threshold of opportunity but it is bedeviled by high production costs and cheap imports. 
For any country to develop its infrastructure, it needs cheap and readily available steel. The benefits are more if steel production is fully integrated into the local economy.
Government figures indicate that demand for steel in Uganda stands at 150,000 tonnes per year, which is more than double the 60,000 tonnes produced annually.
The steel industry has been growing at a rate of 30% for imports and -40% for exports per year. Players in the steel industry have decried the high costs of production and the prevalence of cheap steel imports from countries such as China, India and Japan.
Narendra Jain, the chief executive officer at MM Integrated Steel, said the steel industry in Uganda is not yet fully developed and players are still grappling with the challenge of imported steel.
High costs
“The cost of doing business in steel exporting and producing countries is relatively low compared to that in Uganda since we are a land locked country,” said Jain.
He added that the Government should follow the example of Kenya and Tanzania and provide incentives to encourage local production.
“For the steel industry to grow in Uganda there needs to be value addition aimed at encouraging local production.
“By August, we hope to embark on full capacity production and we are confident of producing 40,000 tonnes of quality sheet per annum,” Jain said.
Mohsin Hassan, the managing director of Inova, a steel processing company, says high electricity tariffs are the major challenges in the process of manufacturing steel.
“We call upon the Government to intervene and subsidise electricity tariffs for local manufacturers to reduce the cost of production,” said Hassan.
Resty Nassolo, the business development manager at East African Roofing, cited the prevalence of fake steel products as another challenge.
“The cheap and fake products in the market are reducing the profit margins of companies that are producing legitimately.”
Nassolo said the Government should tighten the policy on standards to encourage the production of quality steel.
“We also want the Uganda National Bureau of Standards to start pre-qualification of steel products to discourage fake steel products which are reducing the market margin,” says Nassolo.
Addressing journalists earlier this year during a factory tour at MM Integrated Steel in Jinja, trade minister Amelia Kyambadde noted the lack of a legal frame work for the local steel industry.
“By the end of this year we will have a draft bill ready to be tabled in Parliament,” Kyambadde said
New investments 
An Indian investor was recently given a 49-year land lease for iron ore mining in Rugando village, Kanungu district.
Steel Rolling Mills (SRM), owned by local businessman Abid Alam, launched an iron ore smelting plant in Jinja in October 2012.
It uses sponge iron, a metallic product from the iron ore, to produce high quality steel bars as compared to those produced from scrap metal. At the launch the company was estimated to produce 6,000 tonnes of steel per month or 72,000 tonnes a year from local ore.
In September 2012 it was reported that China Machine Building International would build a $100m iron ore mining and integrated steel plant in Mbarara district. Construction of the plant, whose start date is not stated will last 18 months.
President Yoweri Museveni told a press conference recently that the steel project will spur the much needed development of infrastructure in Uganda.
“We need a steel industry very badly because the Government does a lot of construction works,” Museveni said.
Uganda has confirmed reserves of iron ore in excess of 100 million tonnes in the eastern and southwestern regions of the country.
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