Azzeddine Abaakil: "The construction materials industry is heading for disaster!"
31 March 2015
Read by 2145 persons
The near halt in housing production freezes orders placed with construction materials manufacturers. Operators are forced to drastically lower their prices, leading to losses, in addition to cash flow problems resulting from longer payment deadlines.
In this difficult context for the real estate sector, how is the construction materials industry doing?
The situation is difficult. We are seeing a near standstill in real estate projects and the orders for construction materials that they generated. Prefabricated concrete manufacturers, in particular, are forced to drastically lower prices. Our products are currently selling 10 to 15% cheaper than in 2012. Knowing that, in parallel, the cost of our inputs is increasing, this leads to significant losses for most manufacturers. This situation is aggravated by the lengthening of payment deadlines experienced by our customers and amplified at our level. The standard for customer deadlines is currently between 6 months and 1 year, and in extreme cases, it can go up to one and a half years, which puts a strain on manufacturers' cash flow. All this leads us to believe that we are heading for disaster, with a real risk of several production units ceasing operations and consequently the destruction of tens of thousands of jobs. We are already hearing about two units based in Agadir and Tetouan that are threatened with closure. The situation could worsen rapidly in the coming months throughout the construction materials sector if no measures are taken.
What immediate action lever do you propose?
We believe that it is necessary to restart housing production by releasing the considerable demand represented by rental housing. This involves developing social housing, for example, ensuring that the rent is capped at 30% of the minimum wage (SMIG), thanks to assistance from the state and local authorities. Without such action, the recovery should not take place before 2017. This is the time that seems necessary to absorb the existing stock of housing and reach a balance in macroeconomic indicators, two factors likely to relaunch the real estate sector.
Apart from the current downturn, the prefabricated concrete sector remains structurally underdeveloped in Morocco…
The concrete industry currently consumes around 7% of national cement production, while more developed markets show a proportion of more than 24%. This reveals the low industrialization of the national construction sector, which leads to significant losses on several levels. These are firstly linked to the long lead times for construction projects, while the use of prefabricated concrete allows for shortening the production cycle of the sector with gains in rigor and quality. Losses also result from the excessive consumption of materials that prefabrication avoids, as the parts are manufactured using optimization techniques. Furthermore, the weak development of the concrete industry greatly limits the export possibilities of national operators due to a lack of financial resources. This is despite the fact that they would have been of great use to property developers who have expanded their activities in sub-Saharan Africa. This market is indeed characterized by a shortage of skilled labor, which increases the interest of prefabrication, hence the opportunity to set up manufacturing units there. Unable to rely on national manufacturers, some of our exporting developers have been forced to call on foreign operators to supply them with prefabricated products.
How can this low industrialization of the construction sector be explained?
It is firstly due to an environment that is clearly hostile to innovation, characterized by conservative mentalities among our clients and especially our administration, which hinders any change in the act of building. Even in large companies, there is still reluctance to introduce new techniques, even if the gain to be obtained is proven. In short, it can be said that in terms of building, the same techniques used during the French protectorate are still being applied.
Another reason that justifies the low use of prefabricated concrete is the extra costs that affect this product, primarily the special tax on cement. This currently represents 15 to 20% of the price of cement and makes prefabricated concrete one of the rare industries, if not the only one in Morocco and perhaps in the world, whose locally manufactured inputs are taxed. This levy would be justifiable if it were an imported raw material, but its application to products of the national industry is nonsense, especially given the distortions it causes. For example, because of the tax, manufacturers of concrete pipes and conduits are disadvantaged compared to PVC products, which are largely imported. The tax also penalizes manufacturers of concrete blocks compared to manufacturers of red bricks, which are very energy-intensive.
The tax still represents 4% of the production cost of prefabricated concrete framework manufacturers; this penalizes them compared to the same imported products or compared to imports of metal materials.
The prefabricated concrete sector is also very disorganized…
Indeed, out of a total of nearly 250 prefabricated concrete manufacturers, there are many informal units. I would like to specify that we exclude from these figures the informal sector based on family employment that carries out artisanal production. In our opinion, this plays a social role, and efforts must be made to preserve it while providing it with the means to gradually evolve towards transparency. On the other hand, the informal sector that concerns us is that of industrial units that sell their production without applying VAT and without paying their social and tax obligations. These players sell their products with margins made on VAT, income tax, and social security contributions and sell cheaper than the rates of the players. An unbridgeable gap, knowing that with innovation and cost-saving efforts, a transparent operator can only hope to reduce its prices by a maximum of 5%. What is most worrying is that we are seeing more and more companies shifting part of their activity to the informal sector. They are all the more encouraged by two factors. On the one hand, it allows them to be paid in cash; this relieves their cash flow. On the other hand, the state has practically guaranteed outlets for these informal operators by exempting self-construction from VAT payment. This pushes individuals to systematically contact manufacturers who work in the black market. All this means that the prefabricated concrete industry remains largely disorganized with a low probability of the emergence of national champions.
What is the action plan of the Moroccan Concrete Industry Association (AMIB) to remedy this?
We plan to act on two fronts. The first concerns the internal plan and will first consist of organizing the sector by expanding the membership base of the AMIB. Also, we are working on the creation of an AMIB quality label for prefabricated products that will raise the technological level of production units and promote quality. Finally, it is our aim to create a climate of dialogue between manufacturers.
Our second area of action concerns the external plan and will be implemented firstly by promoting the use of concrete products in building and public works through explanatory campaigns to clients. It will also involve initiating a dialogue between various producers and users of cement-based products in order to mitigate the harmful effects of the tax on cement and other taxes that weigh on concrete manufacturers in particular and the construction industry in general. Finally, our objective is to open exchanges with other professional associations working in the construction industry to consider urgent measures to safeguard the activity and jobs in the sector.
Rida Harmak.
Lavieeco.com
Published on March 31, 2015.
Posted online on March 31, 2015.
In this difficult context for the real estate sector, how is the construction materials industry doing?
The situation is difficult. We are seeing a near standstill in real estate projects and the orders for construction materials that they generated. Prefabricated concrete manufacturers, in particular, are forced to drastically lower prices. Our products are currently selling 10 to 15% cheaper than in 2012. Knowing that, in parallel, the cost of our inputs is increasing, this leads to significant losses for most manufacturers. This situation is aggravated by the lengthening of payment deadlines experienced by our customers and amplified at our level. The standard for customer deadlines is currently between 6 months and 1 year, and in extreme cases, it can go up to one and a half years, which puts a strain on manufacturers' cash flow. All this leads us to believe that we are heading for disaster, with a real risk of several production units ceasing operations and consequently the destruction of tens of thousands of jobs. We are already hearing about two units based in Agadir and Tetouan that are threatened with closure. The situation could worsen rapidly in the coming months throughout the construction materials sector if no measures are taken.
What immediate action lever do you propose?
We believe that it is necessary to restart housing production by releasing the considerable demand represented by rental housing. This involves developing social housing, for example, ensuring that the rent is capped at 30% of the minimum wage (SMIG), thanks to assistance from the state and local authorities. Without such action, the recovery should not take place before 2017. This is the time that seems necessary to absorb the existing stock of housing and reach a balance in macroeconomic indicators, two factors likely to relaunch the real estate sector.
Apart from the current downturn, the prefabricated concrete sector remains structurally underdeveloped in Morocco…
The concrete industry currently consumes around 7% of national cement production, while more developed markets show a proportion of more than 24%. This reveals the low industrialization of the national construction sector, which leads to significant losses on several levels. These are firstly linked to the long lead times for construction projects, while the use of prefabricated concrete allows for shortening the production cycle of the sector with gains in rigor and quality. Losses also result from the excessive consumption of materials that prefabrication avoids, as the parts are manufactured using optimization techniques. Furthermore, the weak development of the concrete industry greatly limits the export possibilities of national operators due to a lack of financial resources. This is despite the fact that they would have been of great use to property developers who have expanded their activities in sub-Saharan Africa. This market is indeed characterized by a shortage of skilled labor, which increases the interest of prefabrication, hence the opportunity to set up manufacturing units there. Unable to rely on national manufacturers, some of our exporting developers have been forced to call on foreign operators to supply them with prefabricated products.
How can this low industrialization of the construction sector be explained?
It is firstly due to an environment that is clearly hostile to innovation, characterized by conservative mentalities among our clients and especially our administration, which hinders any change in the act of building. Even in large companies, there is still reluctance to introduce new techniques, even if the gain to be obtained is proven. In short, it can be said that in terms of building, the same techniques used during the French protectorate are still being applied.
Another reason that justifies the low use of prefabricated concrete is the extra costs that affect this product, primarily the special tax on cement. This currently represents 15 to 20% of the price of cement and makes prefabricated concrete one of the rare industries, if not the only one in Morocco and perhaps in the world, whose locally manufactured inputs are taxed. This levy would be justifiable if it were an imported raw material, but its application to products of the national industry is nonsense, especially given the distortions it causes. For example, because of the tax, manufacturers of concrete pipes and conduits are disadvantaged compared to PVC products, which are largely imported. The tax also penalizes manufacturers of concrete blocks compared to manufacturers of red bricks, which are very energy-intensive.
The tax still represents 4% of the production cost of prefabricated concrete framework manufacturers; this penalizes them compared to the same imported products or compared to imports of metal materials.
The prefabricated concrete sector is also very disorganized…
Indeed, out of a total of nearly 250 prefabricated concrete manufacturers, there are many informal units. I would like to specify that we exclude from these figures the informal sector based on family employment that carries out artisanal production. In our opinion, this plays a social role, and efforts must be made to preserve it while providing it with the means to gradually evolve towards transparency. On the other hand, the informal sector that concerns us is that of industrial units that sell their production without applying VAT and without paying their social and tax obligations. These players sell their products with margins made on VAT, income tax, and social security contributions and sell cheaper than the rates of the players. An unbridgeable gap, knowing that with innovation and cost-saving efforts, a transparent operator can only hope to reduce its prices by a maximum of 5%. What is most worrying is that we are seeing more and more companies shifting part of their activity to the informal sector. They are all the more encouraged by two factors. On the one hand, it allows them to be paid in cash; this relieves their cash flow. On the other hand, the state has practically guaranteed outlets for these informal operators by exempting self-construction from VAT payment. This pushes individuals to systematically contact manufacturers who work in the black market. All this means that the prefabricated concrete industry remains largely disorganized with a low probability of the emergence of national champions.
What is the action plan of the Moroccan Concrete Industry Association (AMIB) to remedy this?
We plan to act on two fronts. The first concerns the internal plan and will first consist of organizing the sector by expanding the membership base of the AMIB. Also, we are working on the creation of an AMIB quality label for prefabricated products that will raise the technological level of production units and promote quality. Finally, it is our aim to create a climate of dialogue between manufacturers.
Our second area of action concerns the external plan and will be implemented firstly by promoting the use of concrete products in building and public works through explanatory campaigns to clients. It will also involve initiating a dialogue between various producers and users of cement-based products in order to mitigate the harmful effects of the tax on cement and other taxes that weigh on concrete manufacturers in particular and the construction industry in general. Finally, our objective is to open exchanges with other professional associations working in the construction industry to consider urgent measures to safeguard the activity and jobs in the sector.
Rida Harmak.
Lavieeco.com
Published on March 31, 2015.
Posted online on March 31, 2015.
