CAIRO: The key events of the year demonstrate the ongoing balancing act between the Egyptian government’s attempts at economic reform and its obligation to provide for low-income citizens.
Although Egypt’s financial sector was spared the toxic assets endemic in more developed markets, 2009 saw large dips in trade and industrial production as global demand slowed.
Adham Nadim, executive director of the Industrial Modernization Center, pointed to export figures as a key performance indicator of Egypt’s global competitiveness.
He acknowledged that 2009 was disappointing, registering only LE 90 billion in non-petroleum exports, as compared to LE 95 billion in 2008. Still, that’s a far cry from just four years prior, when non-petroleum exports reached only LE 44 billion.
Nadim stated that Egyptian industrial production seeks to double its exports in the next four years, earning LE 200 billion.
“This is a challenge that we in Egyptian industry have set for ourselves. This will generate 200,000 new industrial jobs in the export business alone, and 600,000 new factory jobs, he added.
Industry watchdogs
Regulation was one of the buzzwords for 2009. Although Egypt’s banking system provided immunity to overleveraging, thus obviating the need for increased financial control, industry watchdogs were let off the leash, so to speak, in other sectors.
In April, Industrial Development Authority (IDA) Chairman Amr Assal confirmed monopolistic practices in the cement market after experts in mining engineering stated that the maximum cost of locally produced cement should not exceed LE 200 per ton.
Even with the addition of increases in the price of energy and clay last year, no market factors could explain tons of cement sold at over LE 500 each. With the arrival of the first shipment of imported cement, prices declined.
Assistant Minister of Trade and Industry Hisham Ragab said in a statement that cement prices will continue to decline as imports infiltrate in the local cement market. The IDA will continue to monitor cement manufacturers, but rising imports should ensure market corrections for price imbalances.
Some players proved impervious to oversight, even in as conservative a climate as 2009.
In January, after two years of investigations, the Egyptian Competition Authority declared that the steel industry in Egypt had not carried out monopolistic practices.
The verdict surprised analysts given the nature of the allegations, namely that “the existence of agreements between companies working in the production of steel rebars, (that would specifically violate Article 6 of the anti-monopoly law), “could not be proven.
Experts speculate that Ahmed Ezz, owner of Ezz Steel – in control of 60 percent of Egypt’s steel market – used his political clout in the National Democratic Party to escape persecution.
Nadim of IMC gave his insights to the rulings, pointing out that more than any court decision, the steel and cement industries were affected by their first foreign imports.
“There is no custom on imported steel, so this helped drive the construction boom we saw last year. With that and the high demand for cement, no one in either of these industries is complaining, he explained.
Nadim warns, however, that the real estate boom is not sustainable, calling instead for an industry boom to generate long-term growth.
Public vs. private
The government made some headway in carrying out far-sighted plans with sometimes short-term cramps. By deciding to extend a ban on rice exports through the end of 2010, Minister of Trade and Industry Rachid Mohamed Rachid hopes to reduce unnecessary water consumption.
The controversial measure was first implemented in January 2008 when rice prices rose 30 percent in response to high global demand. Rice farmers profited from selling rice export licenses, which international exporters would use to purchase Egyptian rice at subsidized prices and sell it on the global market at the inflated price.
Rice production swelled to 2.4 million tons, well beyond Egypt’s domestic annual consumption of 1.4 million tons, prompting the government ban and efforts to reduce cultivation to 2 million tons per annum.
Egypt’s sweet tooth, however, is another matter. In November the Ministry of Trade and Industry extended the exemption on customs duties for imported sugar. Due to global high prices and low supply, and imaging the riots that would break out if Egyptians are asked to pay any more for sugar, the ministry is considering extending the exemption past December 2009.
Egyptian sugar producers usually cover 60 percent of domestic demand, or 1.7 million tons out of 2.7 million tons. Although customs duties on imported sugar are usually only 2 percent, the Ministry of Trade knows better than to touch the sugar jar.
“I think the government has maintained its efforts at reform, this is not the problem. What we are facing is a conflict of interests between the government and industry competing over access to finance, Nadim said.
“The government is issuing treasury bills to cover its deficit, which takes money away from industry. The banks need to realize that greater profit comes from investing in industry than in giving their money to the government.
“We’ve seen enormous growth in all industrial sectors over the past several years. [but] industry needs about LE 70 billion in order to reach international standards.
Global and domestic
Egypt announced plans to spur trade over the coming years, on both the domestic and global levels.
In May, Rachid said Egypt is looking to double the volume of trade with the US over the next four years. The volume of trade between Egypt and the US currently stands at $8.4 billion.
He also said an Egypt-US free trade agreement (FTA) will no longer be the focus of bilateral cooperation.
Egypt also said it aims to increase investments in internal trade to LE 25 billion over the next five years.
In line with this goal, October saw the highly-anticipated launch of Makro, a sales division of Germany’s Metro Group, which will bring its wholesale food and goods chain to Egypt, a total investment of ?460 million.
Rachid previously told Daily News Egypt that the focus in the coming period will be on “specific areas such as the development of internal trade because this is an area with very large potential and we have yet to effectively tap into it.
He added, “As far as trade is concerned, we will continue to focus on the diversification of our export markets, because there is a strong awareness that the more diversified the markets to which you export, the more resilient you are if you are faced with an international crisis such as the one that we had during 2009.
As for industry, Egypt will identify niche areas and support the private sector in entering “these sectors alone or with international partners.
