Franklin Cudjoe, President of IMANI Africa, has pointed out that the proposal to enact a Legislative Instrument (LI) mandating pricing in the cement industry is fraught with substantial legal and practical challenges.
In a statement addressed to the Majority Leader, Honorable Alexander Afenyo-Markin, Franklin Cudjoe emphasized that the Ghanaian Constitution embodies the principles that protect economic liberties and free trade.
Accordingly, he pointed out that Article 36 stipulates that prices should be governed by supply and demand dynamics in authentic market environments, unfettered by undue government interference.
“It may be argued that adopting a legislative instrument to capriciously regulate prices violates fundamental constitutional rights, which could result in disagreements and legal challenges”.
“In the past, and in other experiences, attempts to implement price limits have frequently led to court disputes, and in most cases, courts in other countries have overruled comparable initiatives because they conflicted with statutes or the constitution. To prevent lengthy legal entanglements, it is imperative to take these precedents into account in your deliberations with the stakeholders”.
Franklin Cudjoe
Franklin Cudjoe further emphasized that Ghana, as a member of the World Trade Organization (WTO), is bound by international trade agreements that uphold market-driven pricing mechanisms and is thus obligated to adhere to these principles.
As such, he contended that price controls that flout these accords could trigger disputes and sanctions, ultimately jeopardizing Ghana’s trade relations and diplomatic ties with other nations.
Franklin Cudjoe pointed out that there are several reasons why a Legislative Instrument is not a viable option for mandating stable prices in the cement industry.
He pointed out that cement prices are influenced by natural market forces, including seasonal fluctuations, manufacturing capacity, raw material costs, and supply and demand dynamics.
He argued that attempting to legislatively impose price stability ignores these market forces and may lead to market distortions.
Franklin Cudjoe also indicated that stakeholders have urged cement manufacturers to disclose their price build-up, citing transparency in pricing.
Accordingly, manufacturers, he cited, responded that 77% of their costs are linked to imported inputs (Clinker and Gypsum) priced in hard currency, exacerbated by exchange rate volatility, high port charges, levies, and taxes.
He further noted that manufacturers also noted that consumables and spare parts are largely import-dependent, while locally sourced materials, such as limestone, granite, and energy, (23%) are affected by inflation.
Moreover, Franklin Cudjoe detailed that the government and its agencies impose 22 taxes, levies, and fees on clinker imports, accounting for 30% of the final cement price.
He noted that despite this, the industry has made efforts to mitigate price increases: absorbing a substantial portion of production costs (equivalent to 28% of the total cost increase) and prioritizing affordability for Ghanaian consumers.
He indicated that over the past two years, the industry has borne a significant financial burden, delaying price adjustments by GHS 30/bag to minimize the impact on consumers.
“Supply Chain Disruptions: Cement prices can be impacted by any supply chain interruption, including shortages of raw materials or logistical difficulties. Such unanticipated developments cannot be taken into account by a legislative instrument”.
Franklin Cudjoe
Price Controls: A Recipe For Market Distortions and Economic Harm
Franklin Cudjoe cited price signals as a reason why the Legislative Instrument cannot be implemented, stating that in a free market, prices serve as signals for allocating resources efficiently.
He pointed out that price fixing can distort market signals, leading to inefficient resource allocation, and causing producers to fail to respond adequately to shifts in supply or demand.
The IMANI boss cautioned that fixed price laws may have a chilling effect on investment and innovation in the cement industry, as investors may view price controls as a risky proposition, leading to reduced investment and a lack of technological progress.
Cudjoe asserted that price regulations can distort competitive markets, leading to inefficiencies and hindering more efficient businesses from competing successfully.
He stated that set pricing can also create a barrier to entry for new competitors, potentially resulting in less competition and even monopolistic conduct from existing businesses.”4. Legal and Regulatory Challenges
“Constitutional Constraints: As previously noted, using a legislative tool to impose price limits may be in opposition to constitutional ideas that uphold free commerce and industry. Legal challenges that cast doubt on the validity of these controls might arise”.
“Regulatory Enforcement: Stable pricing would necessitate strong regulatory frameworks, which can be resource- and complexity-intensive. It can be challenging to ensure compliance throughout the market, and doing so could result in regulatory capture or corruption. The Director-General of the Ghana Standards Authority, Professor Alex Dodoo, cited the European Commission’s sanctions against cement manufacturers in Europe as well as those against manufacturers in South Africa, the United States, Brazil, and India as strong arguments for the necessity of the L.I. in Ghana. However, he did not present any evidence to support this claim”.
Franklin Cudjoe
Franklin Cudjoe emphasized that IMANI urges a cautious approach to legislation, ensuring that laws are carefully considered and grounded in factual reality, rather than rushing into ill-conceived legislation based on unsubstantiated assumptions.
He also detailed that could affect export competitiveness as fixing pricing at home could hurt Ghanaian cement’s ability to compete on global markets, which could limit export prospects and have an influence on the trade balance.
Franklin Cudjoe further specified that price limits may lead to black markets and shortages, as producers reduce output due to unattractive pricing, arguing that companies may compromise on quality to remain profitable, resulting in inferior cement products.
He observed that historically, price controls have been unsuccessful, as they have consistently led to adverse economic consequences, including reduced supply, lower-quality products, and the emergence of black markets, as supported by historical data from various countries.
Franklin Cudjoe stressed that this raises questions about the potential consequences for other industries, such as the need for similar price increase disclosures and the possibility of implementing comparable mechanisms without comprehensive regulatory impact analyses.
Competition and Regulatory Reforms To Stabilize Cement Prices
Moreover, Franklin Cudjoe suggested that given the substantial legal and practical hurdles, the Majority Leader weighs in and encourages the Minister of Trade and Industry and Parliament to consider alternative solutions to stabilize cement prices.
He indicated that an alternative is to foster competition by encouraging new entrants in the cement market potentially leading to more stable and lower prices, unhindered by excessive taxes.
He also suggested protecting consumer interests by advancing a Competition Bill, which Parliament should prioritize and enact fully
“The foundation of a strong, dynamic economy is competition. Strong competition laws will guarantee economic efficiency, safeguard consumers, protect enterprises, and promote innovation. They will also stop anti-competitive behaviors like cartels, monopolies, and the abuse of market power, guaranteeing that companies compete on the basis of merit”.
“The measure will improve consumer welfare by prohibiting actions that may result in increased costs and fewer options. Businesses are compelled to develop and enhance their goods and services via fair competition. Economic growth will be promoted by a transparent and equitable market environment that draws in both domestic and foreign investment”.
Franklin Cudjoe
Franklin Cudjoe argued that encouraging fair competition across borders will promote regional integration efforts, particularly among countries within the African Continental Free Trade Area (AfCFTA).
He suggested that to mitigate cost changes without distorting market prices, consideration should be given to offering targeted subsidies or incentives to cement producers that do not disrupt competition.
He also suggested enhancing the regulatory environment to ensure fair practices, such as monitoring for price gouging and anti-competitive behavior, without directly controlling prices.
“I respectfully request that these considerations be taken into account to ensure that any measures taken are both legally sound and economically viable. Using a legislative instrument (which was not widely consulted on) to compel stable prices in the cement industry in Ghana is impractical due to the complex interplay of market dynamics, legal constraints, and potential economic repercussions”.
Franklin Cudjoe
He emphasized that it is crucial to let market forces determine prices while exploring complementary measures, such as fostering competition, strengthening regulatory frameworks, and ensuring a stable supply chain, to achieve price stability and affordability for consumers.
READ ALSO: Fluctuating Trades Lead GSE Index to Pare to 4,085.76 Points
