Chemical industries in Egypt experienced substantial growth over the past years, as the volume of investments in this sector reached around EGP 35 billion (USD 5.86 billion) in 2011. The investment volume in chemical industries is expected to reach EGP 100 billion (USD 16.75 billion) during the next five years, and these industries represent 2% of the Egyptian exports so far.
Sectors
A study by Egypt State Information Service concerning the chemical industries sector indicated that the latter, one of the largest industrial sectors, include 7 important sub-sectors, namely: plastic, rubber, paper, detergents, paints, various chemicals, fertilizers and glass. The small and medium-sized enterprises represent around 85% of the total number of companies registered at the Industrial Modernization Center (IMC) in this field, and the relevant exports exceeded around USD 15 billion by the end of 2010. The number of companies registered at the IMC reached 1,167 with a total of 83,000 workers. The investments of the registered companies in this sector amounted to EGP 35 billion.
A study by the Egyptian Industrial Development Authority in early 2011, noted that chemical industries investments in Egypt are broken down as follows:
(EGP billion)
Table No. 1 - Investment volume in each of the chemical industries sectors
Source: Industrial Development Authority
Dr. Yahia El-Arabi, professor of economics and businessman in the chemicals field, stated that there is a significant development in the chemical industries in Egypt, where the volume of Egypt's exports consisting of these products have increased, adding that the private sector plays an important role in this development process.
He believes that this industry began to develop significantly over the past two years after it was severely neglected in the past. He added that there are several obstacles hindering the business in this field, including the interference of foreign companies, which affects the prices of raw materials imported by Egypt and affects as well the prices of local products; in addition to the obsolete machinery and equipment in many plants, particularly the state-owned plants that are operating by less than their capacity. All this has a negative impact on this industry and causes high production costs compared to the real price of the product.
Add to that the smuggling of some products from abroad and their entry to Egypt at very low prices compared to the local products. This phenomenon increased during the last period after the revolution, leading to the increase of the raw materials prices, which caused the bankruptcy of some companies and their inability to purchase the raw materials necessary for their manufacturing.
El-Arabi added that it is necessary to adjust the raw materials' prices, increase the local products' prices compared to the imported products, and subsidize the Egyptian private sector to be able to face the multinationals operating in the region.
Exports
Chemical industries witnessed a 23% exports growth during September 2011, compared to the same period in 2010 according to a study by the Ministry of Trade and Industry as shown in Table 1, Figure 1.
The study submitted by the Chemicals and Fertilizers Export Council (CEC) confirmed that this sector needs export support, which will help increase its exports during the coming years by more than 90%, besides its ability to attract new investments exceeding one hundred billion Egyptian pounds.
This same study added that the exports of cardboard will jump from the current USD 20 million to USD 70 million by 2014, i.e. with a growth rate of 250%, along with attracting new investments over the next five years at EGP 12 billion and creating around 4,000 employment opportunities. The cardboard industry is one of the most important industries that combine the industries of paper, cardboard and printing. Concerning the status of cardboard exports in Egypt, the CEC assured that they increased from USD 8 million in 2006 to USD 20 million in 2007 and then jumped in the following year to USD 64 million. This industry is characterized by the fact that 80% of its components are available locally, in addition to the available manpower. It is an environmentally friendly industry as the waste resulting therefrom is reused and does not harm the environment, and there is growing demand on its products locally and globally.
The study expects that the exports of resins and paints will jump from USD 65 million, currently, to USD 200 million in 2014, which will create 11,000 employment opportunities. The plastics sector exports are expected to double and reach USD 600 million, while attracting new investments of around EGP 13 billion and creating around 200,000 employment opportunities.
The exports of glass products are expected to increase from USD 80 million to USD 250 million, i.e. with a growth rate of 181%, attracting new investments of around EGP 33 billion and creating around 15,000 employment opportunities. The exports of paper products are expected to increase from USD 160 million to USD 350 million, i.e. with a growth rate of 118%, attracting new investments of around EGP 20 billion and creating around 10,000 employment opportunities.
The exports of polyvinyl chloride are expected to increase from USD 15 million to USD 75 million, i.e. with a growth rate of 400%, attracting new investments of around EGP 700 million and creating around 27,000 employment opportunities. The study summarized the main obstacles faced by this industry today, mainly the partial exploitation of the plants' capacity operating at around 60% only, which increases the production cost, in addition to the difficulty of competing with other countries because of the export support provided to the exporting companies and the high cost of shipping, transport and export.
Dr. Waleed Helal, chairman of the Chemicals & Fertilizers Export Council, pointed out to the importance of supporting the new post-revolution government and overcoming all the obstacles faced by the export. He indicated that the export sector is one of the most growing sectors in the Egyptian economy and achieved a big leap recently, particularly in the chemical industries sector accounting for 25% of total exports. He stressed the necessity of focusing on doubling our exports during the coming period because these exports represent the economic and social future of Egypt. The internal and external transport network by land, river, sea or air, should be improved and developed.
The CEC submitted a report to the Ministry of Industry and Foreign Trade including several proposals to develop chemical industries in Egypt and to raise their exports efficiency. Waleed Al-Azab, director of the CEC, stated that the target exports of Egypt for 2011 were of EGP 29.5 billion, according to the latest statistics, but the actual value until last June reached 45% of this target. He asserted that this industry is facing some problems and obstacles that exporters have to overcome, including the imposition of sales tax on the purchases of the companies operating in this field such as investment machinery and equipment, despite this tax unconstitutionality according to the Egyptian jurisdiction.
He called for removing this tax so that the industry can attract the largest number of foreign investors and for providing cash liquidity that can be used in other fields, whether in investments or operations.
By: Mohamed Abdulzaher
mohameda@zawya.com
© Zawya 2011
