BU S INE S STHURSDAY, AUGUST 27, 2015

JAKARTA: Investors in Indonesia’s cement-making giants have much to grieve about - bluechips like PT Semen Indonesia Tbk and PTIndocement Tunggal Prakasa Tbk have fallenvictim to massive overcapacity, and things arenot expected to get better soon.

Shares of the country’s largest cement mak-er Semen Indonesia have plunged 51 percentso far this year, surpassing the 20 percentdecline in the main stock index. Domestic rivalsIndocement and PT Holcim Indonesia Tbk haveslumped 33 percent and 57 percent, respec-tively. Some people in the industry say thedomestic sales growth outlook this year could

be the worst in a decade.Indonesian cement makers in the last four

years have enlarged their production capacityin anticipation of higher demand from infra-structure projects and a property boom. EvenThailand’s Siam Cement Pcl has opened its owncement plant in Indonesia, as well as acquiringa local ready-mix concrete maker, to access themarket. China’s Anhui Conch Cement Co Ltd hasbuilt a cement plant in Kalimantan and is set-ting up another in Papua. Indocement itself ismajority-owned by Heidelbergcement AG,while Holcim Indonesia is a unit ofLafargeHolcim Ltd.

Cement production capacity in Indonesia isexpected to rise to 75.5 million tonnes a year by2016, up about 67 percent from 2011. Yetdemand is far from catching up, with infrastruc-ture spending on roads, bridges and portsdelayed by bureaucratic red tape and the econ-omy growing at its slowest pace in six years. InJanuary-to-June, cement consumption fell 4.3percent to 27.7 million tonnes, its worst first-half since 2009, according to industry associa-tion data. Heightened competition from newplayers has not helped. Costs related to trans-portation in Southeast Asia’s biggest economyhave also remained high.

ISLAMABAD: Despite recent optimismsurrounding Pakistan’s economy, thecountry is facing an “existential crisis”stemming from its woeful tax collectionrates and inability to finance itself, areport said yesterday.

Pakistan’s economy grew at 4.24 per-cent during the 2014-2015 fiscal yearwith per capita income rising a signifi-cant 9.25 percent, markers that come asinvestor confidence in the long-under-perfoming South Asian giant have alsoincreased.

But according to the report by non-profit organisation Raftar, funded byBritain’s Department for InternationalDevelopment (DFID), Pakistan’s econo-my continues to rely heavily on “com-mercial loans, concessionary donorloans and aid”.

The country’s tax-to-GDP ratio of 9.4percent is among the lowest in theworld, leading to a public debt of 17 tril-lion rupees ($163 billion). This an almost

three-fold increase since 2008 for the$232 billion economy, with 44 percentof tax revenue going toward interestpayments.

The report blamed the lack of a “taxculture” on non-revenue sources of fundsthe country has historically enjoyed inthe form of foreign aid and loans.

It said 68 percent of tax revenue wasbeing generated through indirect taxeson fuel, food and electricity, whichunfairly penalises the poor. The lack ofrevenue collection also negatively affectsinfrastructure development includingpower generation, with the country fac-ing a massive shortfall of up to 4000 MWin the summer that shaves about $15 bil-lion off the country’s GDP. Pakistan is cur-rently in a $6.6 billion loan programmewith the International Monetary Fund,which was granted on condition thatIslamabad carried out extensive eco-nomic reforms, particularly in the energyand taxation sectors. — AFP

The negative outlook for cement mak-ers has decoupled their shares from prop-erty stocks. Both segments of the stockmarket usually move in tandem, but theplunge in cement counters this year hasfar exceeded the 18 percent drop in thesub-index for property and construction.“Property stocks will have more supportsince price valuation can be justified by

more stable valuation of land banks andrecurring assets. On the other hand,cement stock valuations are based oncement demand - a less stable variable inthe slowing economy and increasing com-petition,” said Jeffrosenberg Tan, a direc-tor with Sinarmas Asset Management whohelps manage about 6 tri l l ion rupiah($433.53 million) in funds. — Reuters

Indonesia’s plunging cement shares signify new economic reality

Pakistan’s economy facing revenue generation crisis