Analyst: decision represents setback to economic reform program
CAIRO: The Ministry of Trade and Industry (MTI) announced late Tuesday the imposition of export taxes on the cement and steel sectors to control inflation in local market prices.
According to Minister Rachid Mohamed Rachid s decree, cement exports will be subject to a duty of LE 65 per ton and steel exports will face LE 160 per ton. MTI has also ordered all steel manufacturers to begin submitting weekly reports of their selling prices, similar to already implemented regulations for the cement sector.
Rachid had long warned of tough measures to control skyrocketing prices in both sectors. According to a MTI report issued last week, cement ex-factory prices rose to an average of LE 345 per ton. Steel, on the other hand, continues to approach the LE 4,000 per ton mark. El Ezz Steel Rebars, which controls nearly 70 percent of the local market, reported last week its per ton price stood at LE 3,450.
MTI s decision sent shock waves into the Cairo and Alexandria Stock Exchange (Case), with all cement and steel stocks closing down, although analysts also credit the simultaneous decline in global markets as having contributed to the retreat on the Case.
The problem is it is a very high-handed approach, Beltone Financial Head of Research Angus Blair told The Daily Star Egypt. There could have been more elegant, efficient solutions to the problem. This does not set a very good example for encouraging investment.
In August, 2006, MTI imposed a price cap on cement prices at LE 290 per ton, but found difficulty in enforcement since the government retains a majority share in just one of the 12 local producers. Most producers still agreed to reduce prices to the LE 300 to LE 320 range after reaching as much as LE 390 in Q1 2006.
About 60 percent of Egypt s 36 million ton in annual production is controlled by Suez Cement, after a series of acquisitions in 2006, and Orascom Construction Industries. The National Cement Company, of which the government owns 95 percent, captured 9 percent market share in 2006.
Meanwhile, the newly formed Competition Commission launched an investigation of the steel sector for alleged monopolistic practices by El Ezz but has been unable to make progress due to the lack of company and market information, according to Commission Head Mona Yassine.
Blair says MTI could have better tackled problems in both sectors through more negotiation, lifting energy subsidies, or the gradual introduction of duties. But the sudden intervention represents a setback the reforms implemented since 2004, he says.
Investors looking to come to Egypt in other sectors may now look elsewhere because the decision sets precedent for government intervention, he adds.
It s not the end of the world, Blair said. Egypt has a great economic reform story but this does diminish that story. It s not a positive signal. You either want a free market economy or you don t.