THE HOYOS FILE: No tariff equals Arawak hard times
I know you are mighty tired of hearing me repeat my favourite joke, but an Arawak Cement version seems apropos: Pretty soon there will only be one employee and a dog at the St Lucy plant. The dog will be there to bite the man if he tries to make cement.
If an airplane can be programmed by computer to take-off, fly and land, why can’t a computer be programmed to make cement?
As you will no doubt have already heard, the Arawak Cement Company Ltd. on Wednesday informed employees of its intention to offer voluntary separation packages as part of a restructuring programme started in October 2015.
The company said it was “necessary to further reduce costs in all areas of our operations” as the first phase of restructuring had “not yielded the results that are necessary to attain profitability and competitiveness”
Arawak blamed what it termed the “unfavourable economic conditions globally and in the region”.
This coming wave of redundancy at the cement plant will be the second in less than a year.
Last November, Arawak Cement Co. announced plans to invest $20 million over three years in training and equipment in order to reduce plant stoppages and increase production.
At the same time, 40 employees were made redundant in an effort to lower costs.
Last May, in a press statement issued after the company’s 32nd annual general meeting, Arawak had struck a more hopeful note, saying that despite new competition it had exported 20 per cent more cement over the previous year and increased its pre-tax earnings.
Referring to the redundancies six months prior, the company said that “although harsh measures also had to be taken, they were necessary for Arawak to become competitive”.
Last week, the company was saying it has so far failed to do so.
General manager Manuel Toro, who earlier this year said he wanted to play the steelpan with the Darryl Jordan Secondary School’s steelband, had to sing a more doleful melody this past week.
Giving the bad news to the company’s employees at a meeting on Wednesday morning, he said that Arawak was hoping to meet its target for reducing the workforce through the voluntary process, but it this weren’t successful, additional people would be severed after consultation with the two unions representing the workers.
It seems clear that the parent company, which has been through some tumultuous times recently and is now controlled by the Mexican cement giant, Cemex, is not going to let its Barbados subsidiary whittle away its hard fought return to profit.
In its annual report for 2015, Arawak’s parent, Trinidad Cement Ltd. (TCL) announced a net profit of TT$429 million, the equivalent of about US$61 million.
That profit came from revenue of TT$2.1 billion, or US$318 million, and was presumably helped to some degree by TCL’s impairing of Arawak’s assets by TT$152 million.
Arawak’s restructuring, therefore, is due to the company’s massive loss of sales revenue in 2015 compared with 2014, and the decision by the Government to lower the tariff on imported cement.
For fiscal 2015, Arawak reported sales revenue of TT$93 million, down from TT$171 million the previous year, a 45 per cent decrease.
In fact, last year, Arawak only accounted for 4.4 per cent of TCL’s total sales, compared to the year before when it contributed 8.1 per cent.
And last November, saying that the intent was to ensure consumers got a better price on cement, Minister of Commerce Donville Inniss announced the Government would lower the 60 per cent tariff on imported cement, which had been in place for many years to protect cement produced in Barbados by Arawak.
The decision allowed one major new competitor, Rock Hard Cement, to enter the local market with cement at a much lower price than Arawak’s, forcing the latter to do the same, and therefore presumably eroding its bottom line even further.
Of course, all of that is contemporaneous stuff.
The problem with Arawak is based on the economic fault line where the nationalistic doctrine of import substitution grinds slowly but relentlessly on the other tectonic plate of economies of scale.
The plaster for that fissure was to place punishing import duties on competing products, but it is gradually being removed from more and more items on the list.
A handful of others – those associated with duty-free purchases – will be traded in by the Government for foreign exchange directly put into the economy by Barbadian citizens, in another historic upheaval of the norms instilled in us since Independence.
The sacrificial lamb in the cement case will be Arawak, as it may not be able to survive unless heavily-automated and controlled by computer programmes to reduce the cost of manpower.
The next thing you will hear is that TCL wants to build a huge solar PV farm next to the kiln to provide the electricity needed to run the whole operation off the national grid.
Nothing wrong with that, either. More power to them, literally.
Some might say Barbados never needed a cement plant in the first place, since the economies of scale were just not there unless local cement could be priced much higher than Arawak even sold the very same product abroad.
Slowly, this Government is being forced to recognise that consumers now run the economies in countries which are progressing, and that means they will no longer pay outrageous prices due to the addition of protectionist tariffs.
The only thing I am eagerly waiting to learn about Arawak is how many people it will finally need to make cement in Barbados.
I hope it’s more than one man and a dog.