Customs duty waiver unlikely to curb costs

Dubai: Dubai's decision on Thursday to scrap a five per cent import duty on cement will have little impact in curbing galloping domestic prices of the building material, the chief executive officer of the emirate's largest construction company said.

Ninety per cent of cement used in the UAE is produced locally, so a cut in import duties is unlikely to have "any impact" on prices, Riad Kamal of Arabtec Holding said. Longer term, the cut may "encourage consumers to look to the international market," forcing local producers to curb price rises, he said.

Cement prices in the UAE have risen almost 35 per cent in the last three months to Dh400 ($109) a tonne due to shortages in the local market, Kamal said.

Dubai Government yesterday scrapped a five per cent import duty on cement and steel to rein in surging inflation, estimated to be running at nearly 10 per cent a year. The UAE is executing, or has planned, construction projects worth $658 billion, ING Bank NV said in October.

Importing cement also requires special handling and storage facilities at ports that are unavailable to local contractors and will take time to develop, Kamal said.

The duty cuts will have "only a marginal impact" on overall project development costs, Majid Azzam, an analyst at HSBC Holdings said yesterday. Cement and steel, each contribute 14 per cent to the development costs while plumbing, electro-mechanical and interior finishing make up 60 per cent, HSBC said in a report on February 20.

"Cement producers are taking advantage of the situation and cutting supply to hike prices," Kamal said. "Seven factories have shut production for maintenance."

The scrapping of a five per cent import duty on steel will only cut the cost of a building by about half a per cent, Kamal said.

Steel, all of which is imported in the UAE, typically makes up 10 per cent of the cost of a skyscraper, he said.

Cement producers are taking advantage of the situation and cutting supply to hike prices."

Riad Kamal, Arabtec Holding