Contractors and traders have welcomed a six per cent cut in cement prices introduced in a federal move to help control inflation.
The Ministry of Economy and UAE producers yesterday signed a memorandum of understanding to lower prices for a 50 kilogram bag to Dh16 from Dh17, and to increase production by two-thirds to 250,000 bags a day.
Minister of Economy Sultan bin Saeed Al Mansouri, announcing the move, pledged the ministry would continue to combat monopolistic activities, which contradict the open nature of the economy and negatively affect free-market principles.
He said: "Some individuals and companies attempted to take advantage of the huge demand for cement and other consumer goods influenced by the UAE's economic and construction boom, particularly by forming monopolies in the market and thus tarnishing the image of fair competition characterising the UAE."
The price cut is the second time the UAE Government has intervened to stabilise the price of cement. Earlier in 2007, the UAE Government introduced a price cap for cement at $80.3 per tonne after concerns that major development projects would be delivered late or over-budget because of rising costs.
Yet the price of a one-tonne cement bag almost quadrupled during the past 12 months. A one-tonne bag is priced about Dh1,500 in the black market, while the cost of cement was about $100.9 a tonne in July 2007.
According to ministry officials, the main aim of the MoU is to ensure the availability of cement in the local market at reasonable prices, to enhance the national economy and to boost the country's comprehensive development process.
The MoU was signed by Al Mansouri and Abdulla Mohammed Al Sayah, President of Cement Factories and Producers Group and General Manager of Etihad (Union) Cement Company.
Ahmed Saif Belhasa, chairman of the UAE contractors association, said the MoU would have a significant impact on the stability of the domestic market and the prices of cement.
"The signing of the agreement is timely since, besides controlling the price of cement, it also positively influences different market trends," said Belhasa who was present at the signing along with Mohammed Ahmed bin Abdulaziz Alshihhi, Undersecretary of the Ministry of Economy, plus other officials.
Under the terms of the MoU, the Cement Producers Group will rise production capacity for 50kg cement sacks from 150,000 sacks to 250,000 sacks a day.
The group also pledged to fix the price of an unpacked tonne of cement at Dh340 and update the Ministry of Economy with production volume data and any other necessary information every three months.
Al Mansouri emphasised that the signing of the MoU formed part of a series of measures taken by the Ministry of Economy to reduce the inflation rate and control rising prices of various goods and services, thereby attaining the broader goal of implementing the UAE strategy towards economic and social stability in the market.
"The MoU will contribute to the stability of the local cement market by increasing production and reducing cement prices and eliminating monopoly and exploitation which negatively affect the local market and the UAE's commitment to a free economy," said Al Mansouri.
The MoU will allow all consumers and contractors to buy cement sacks from the producer directly without any restrictions, on condition that the Cement Producers Group also provide packed and unpacked cement for all emirates without discrimination.
The MoU also requires factory representatives and producers to sign a commitment charter with regards to specific production quotas as dictated by the charter and annexed to the MoU, and which will be an integral part of the MoU.
The agreement also includes specific mechanisms to monitor and follow up the execution of the MoU articles and the extent to which the factories should abide by them; these articles will be annexed to the MoU as part of the agreement. The representatives of the Cement Producers Group will designate a communication centre in each emirate to receive comments and suggestions from individual and corporate clients regarding the execution of the MoU, giving the Group priority in selling cement to contractors and final users.
Nashat Louis, a Project Director at Al Shafar General Contracting, told Emirates Business the move would go a long way to ease problems faced by contractors, if implemented properly.
"Even a one per cent reduction in prices of cement is welcome to us. Cement crisis was like a two edged sword. One the one hand was the severe shortage and on the other increasing prices. If cement factories increase the production prices should automatically stabilise," said Louis.
The Minister of Economy was also confident of an increase in cement production capacity shortly due to the large expansions being carried out by cement companies and factories. "It will pave the way for higher productivity and contribute to enhanced demand, leading eventually to market stability and price reduction," said Al Mansouri.
This MoU he said is the result of the cooperation between the Ministry of Economy as a governmental party seeking the stability of food product prices within the UAE and protecting consumers by adopting various strategies and economic tools, and a group of cement producers representing the private sector in contributing to the development of the industrial sector in the UAE. "We are aiming for the stability of prices in the national resale and wholesale markets and creating a higher level of competency away from illegal activities, in addition to highlighting safety and quality," he said
Al Mansouri also complemented the decision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of UAE and Ruler of Dubai, to exempt cement and steel from the five per cent custom duty.
Al Mansouri also expressed his appreciation about the cement producers, compliance with the ministry's initiatives.