CAIRO: Without international regulation of the cement industry, a global market failure would ensue, industrial economist Tarek Selim told the 15th annual Conference of the African Econometric Society, stressing the need for such regulatory body.
Selim, along with his co-author Ahmed Salem, presented their study at the conference held at the American University in Cairo.
The conference brought together experts from around the world representing various fields of economics to discuss issues ranging from theoretical econometric models, to social welfare spending, industrial economics and sustainable development.
Salem explained that the international cement market is one of the least regulated markets on an international scale whereas international cement trade has been growing intensively in recent decades.
According to the study, while the amount of cement traded has increased, the percentage of internationally traded cement to total cement production remains in single percent digits, 5 to 7 percent. This means that most of cement production exists to satisfy local consumption.
Even though economic rents are considerable, cement is one of the most polluting industries, the study said, explaining that 5 percent of the world’s total emission of greenhouse gases is caused by cement production.
While it is desirable for European and North American countries to achieve green economies by closing down cement factories in compliance with strict environmental regulations, it is a major problem when such cement production is only shifted to countries with looser environmental regulations, Selim said.
Due to stricter environmental regulations to be enforced by 2020, Selim expects the relocation of cement industries to occur more often in the upcoming period.
“Initial fact finding suggests that cement production has recently been concentrated in the developing world,” the authors write in their study.
Selim provided details of the proposed solution, explaining how they used competitiveness models to determine the relative power of cement industry cartels allowing them access to and unaccountability in developing markets.
The solution, according to Selim, comprises three crucial elements.
The first element is that the solution must be implemented on an international scale.
“Local solutions cannot solve the problem,” reads the study, “The impact of global warming is not limited to China alone but may have an extended impact on countries even as far away as South Africa.” The study had warned against the uncontrolled fuel burning process required in cement production, citing its grave environmental impact.
“Second, the developed world has to create an incentives system that does not shift all production to areas that are less regulated,” the study adds.
The most important aspect, according to the study, is that, “corruption and hidden transaction costs within developing nations exacerbate the problem.”
“Whether it is the lack of strong environmental regulations or weakly implemented competition laws, developing countries can be a haven for poor environmental control and strong cartels especially in a very high fixed cost industry such as cement.”
“Egypt, or any developing country, has a tradeoff between environmental protection, and economic or industrial development, like in the case of cement. Cement is very important to the Egyptian economy in terms of infrastructure and real estate development,” Salem said in reference to the study’s relevance to Egypt.
He added that developing countries like Egypt may be exploited as production sites, as the authors expect a shift of factories from Europe and North America to developing countries as more and more cement is traded in international markets.
According to Salem, Egypt is among the top 20 producers of cement in the world adding that its excellent geographical location and reserves of natural gas make it a prime target for cement industry relocation.
Selim said that the growing production of cement calls on all countries and NGOs to begin seriously considering a global policy to solve the problems posed by this industry.
“An effective global policy can only be found if different actors cooperate. Being a capital-intensive industry that utilizes scarce resources to operate means that governments need to keep some sort of an eye on production,” Selim said.
He explained that even though cement is locally produced, the impact of the production is global and the presence of lucrative opportunities to shift production sites makes the industry an attractive one for governmental regulation.
The international body, Selim explained, would include cement firms, cement associations, real estate and construction groups, consumer rights groups, environmental agencies and independent environmentalist groups.
“The strategic objective is global sustainable industry development,” said Salem.
“It is this interaction between the economic (efficiency) and the political (institutional) that calls for finding a framework for evaluating solutions that takes into account both ends,” the study concludes.
