Best of times…worst of times

Best of times…worst of times
Published: 30 December 2007

The Egyptian economy has delivered one of its most impressive performances ever this year, with a spurt in growth rates generated by reforms and solid macro-economic management. Better still, international organisations like the World Bank, IMF and rating agencies have issued laudatory reports on the state of the local economy and the outlook for 2007/08. Foreign investors poured billions of dollars into diverse sectors throughout the year, with some, such as real estate and information technology, witnessing double-digit growth rates (reports the Al-Ahram Weekly on-line, Cairo)

For average Egyptians, however, there has been precious little of the trickledown that the government promised would be the fruit of economic reform, and patience appears to be wearing thin.

The country’s economic recovery has so far been a jobless one, with stagnant wages falling well behind mounting inflation rates. The long sought-after high growth rates have come hand in hand with unbearable inflationary spikes and have failed to create job opportunities for millions of Egyptian youth. Persistent unemployment has exacerbated the obvious deterioration in standards of living, leading to increased poverty.

Average household expenditures increased by almost 50 per cent since the beginning of the year. The government introduced a 10 per cent hike in electricity prices last month for both residential and commercial units. Talk about a possible elimination or reduction in subsidies makes the average citizen’s view of the future even bleaker.

Economists also have reservations about the government’s elation with the spurt in FDIs, claiming they were not directed to heavy labour industries and thus are powerless to create more employment opportunities. On the contrary, increased foreign investment in the real estate sector have led to skyrocketing real estate prices.

All hope is not lost, though, as a strong outlook for 2007/08 and continued favourable external conditions provide a promising setting for future implementation of the reform agenda.

Due to a notable increase in steel and cement prices on the local market during the past few months, the government found it necessary to interfere and control prices. Minister of Trade and Industry Rachid Mohamed Rachid issued a decree that imposed additional export duties of LE56 per tonne of cement and LE160 per tonne of steel. The aim of Decree 142 was to reduce the volume of steel and cement exports to meet local market needs.

According to the Ministry of Trade and Industry (MTI) figures, the local market needs for cement stand at 30 million tonnes annually, while total annual production is estimated at 38 million tonnes. But due to an increase in prices on the international market, producers find it more lucrative to export their goods. As a result, supply to the local market dropped and cement prices rose.

Moreover, as a strategic step to increase cement production for local and overseas consumption, the Industrial Development Authority (IDA) held a tender to license new cement factories. Nine bidders competed for eight licences to establish new cement production lines, while five companies competed for licences to expand two existing cement factories. With total investments expected to reach LE17 billion and provide 40,000 jobs, the production capacity of each factory is estimated at 1.5 million tonnes of cement per annum. The total value of the licences for new factories came at LE801 million, while those for expansion lines reached LE336.5 million.

Since the cement sector is attracting local, Arab and foreign investors due to a large demand in the local market, MTI felt that having companies bid for the licences was the best way to ensure fairness in awarding the permits. Rachid explained that the licences stipulate that production lines must use at least 25 per cent local input, and hoped this figure will eventually increase to 35 per cent.

According to a study conducted by MTI, local demand on cement is expected to reach 55 million tonnes in 2011.

In response to consumer complaints that the steel and cement sectors were being monoplised which is driving prices higher, Rachid asked the Egyptian Competition Authority (ECA) to investigate both sectors. The ECA issued a report asserting that cement companies are involved in monopoly acts and have colluded to control cement prices. The report added that these companies coordinated in rationing their output to control prices. In reaction to these conclusions, Rachid referred cement companies to administrative investigations, accusing them of violating Article 6 of the competition and anti-monopoly law. The penalty for monopoly acts is a fine between LE30,000 to LE10 million.