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Why the Saudi Government Implemented Banning Exports of Cement?

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  1. Introduction
  2. Discussion and analysis
  3. Trends in cement demand
  4. Main outlets or inputs
  5. Barriers to Entry
  6. Advantages to the Firm
  7. Conclusion

In 2009, the ban was partially lifted following an upsurge in demand in the Middle Eastern countries. Other factor was the continued fall in country's GDP growth rate projections for the past 2 years forcing the adjustment on foreign trade policies to boost the balance of payments. The outlaw has had slight effect on the cement manufacturers. According to Jimaa (2011), cement sales in the Saudi Arabian market (local market) had grown from ?3.61 million tons to 4.61 million tons between April 2010 and April 2011? despite the 2009 export ban (p. 2). In 2011, domestic demand for cement in Saudi Arabia rose to 48 million tons, and Economists predict that the demand is likely to rise to more than 50 million tons by 2013.Based on the increasing construction projects currently taking place in Saudi Arabia, economists have predicted growth in demand throughout this year (2012). This means that companies will have sufficient demand in the local market.Therefore,the government ban on exports will not affect the sales for the companies.

The figure below shows forecasts for demand in cement since 2007. It is evident that the demand has been increasing gradually throughout the years.Economists predict similar trend between 2011 and 2013. This implies that sales per company shall increase within the local market now that the government has banned the export of cement.

[...] Such is the case in the Saudi Arabia, the world's largest oil producer, where the government has sole control over the oil industry, which accounts for approximately 45% of the Kingdom's Gross National Product. In recent years, the Saudi Government has looked to an economic growth strategy of diversification to reduce its economic dependence on oil and as such, has targeted the cement industry. In order to implement this growth strategy and create a monopoly, the Saudi government has created several barriers to entry. Sloman and Jones (2011, p122) considers several forms of monopolistic entry barriers; two of which are particularly relevant to the situation in Saudi Arabia. [...]

[...] The ban has had little effect on local cement manufacturers. According to Jimaa (2011), cement sales in Saudi Arabia has increased by 1 million tones in 1998-1999. Conclusion Lasting monopolies are those sustained through government policies. With the GDP growth rate in Saudi Arabia projected at an average of over the past 4 years and in view of the immense expenditure on infrastructure alongside the anticipated population, growth of the demand for cement in the building and construction industry seems secure- for the moment. [...]

[...] In effect, the government is behaving monopolistically by creating barriers to entry of the local market by other firms. Reasons for the export ban include: 1. To match growing demand in the local market especially with multibillion, dollar infrastructure projects underway e.g. Dubailand project quoted at $5B To ensure price stability over the commodity locally 3. To ensure there is enough supply. The government's strategy is one designed to create efficiency and legislative monopoly in the industry. Legislative monopoly is achieved through the Ministry of Commerce's limit on the quantity exported, the pricing, and the tax levy on imports. [...]

[...] In 2006, the cement export volume was quoted as 2.26 million tones. Total production over the same period was estimated at 33.1 million tones against a local consumption level of 31.2 million tones. This translates to a shortage of approximately 0.36 million tones locally. Figure 1:Trends in cement export from Saudi Arabia Source: El-Quqa, Hasa, Desai, Rout, B & Gupta, S 2007, p.8 The table below provides the total production of clicker and cement as between regions in the Kingdom in Table 1. [...]

[...] It is therefore recommended that Saudi Arabia should continue with the complete ban and impose more impediments like making it illegal to export cement. Another recommendation is that the government should subsidize prices of cement for the local consumers. The government should reduce the taxes on production of cement. Bibliography Arab News 2012, ?Export ban on cement enforced rigorously' February, p viewed 20 February 2012, El-Quqa, Hasa, Desai, Rout, B & Gupta, S 2007, ?Saudi Arabia Cement sector', Global Research, pp. 1-82. Hasan, Karman, Faruqui, U&Alyaqout, T 2011, Cement sector quarterly-3Q11', Global Research Sector, pp. 1-19. [...]

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