| 08 January, 2017

Egypt construction costs escalate after currency float

Building material prices jump may force contractors out of market

Image used for illustrative purpose. 
To match Analysis EGYPT-ECONOMY/

Image used for illustrative purpose. To match Analysis EGYPT-ECONOMY/

REUTERS/Asmaa Waguih
08 January 2017
By Eman Hamid

The prices of building materials in Egypt have increased sharply since the most populous Arab country floated the pound, according to industry experts.

They said the surge in prices could threaten projects, force contractors out of the market and property prices may rise by 30 per cent.

The pound was floated by the Central Bank of Egypt (CBE) in November last year to stabilize exchange rates as part of a broader structural and financial reforms program. Since then, the currency has declined by more than 50 percent against the US dollar to 18-20 pounds to a dollar from the pre-floatation peg of 8.88 pounds.

“Prices of some steel and cement products have jumped by nearly 100 per cent. This will negatively affect projects and put pressure on some contracting firms, who could be forced out,” said Ahmed Al-Zaini, Chairman of the Building Materials Division, Federation of Egyptian Chambers of Commerce (FEDCOC).

He told Zawya Projects that steel prices touched 9,000-9,600 pounds ($500-533) per tonne last month compared to 7,500 pounds ($416) per tonne in July 2016. During the same period, cement prices soared to 750-900 pounds ($41.6-50) per tonne from 550 pounds ($30.5) per tonne.

“The manufacturing of steel relies on imported components, whereas the increase in cement prices is due to the control of foreign companies on manufacturing, and these companies have been impacted by the rise in the dollar, even though cement components are local,” Al Zaini explained.

Multinational cement firms own and operate 64 percent of Egypt’s installed production capacity, according to a 2016 International Finance Corporation report titled ‘Alternative Fuels for Egypt’s Cement Industry’.

Ahmed Abdel Hamid, Chairman of the Building Materials Chamber, Federation of Egyptian Industries (FEI) said the market “has suffered from a shock because of the dollar rise,” but admitted that it is still early days in terms of gauging the exact impact of the floatation on the construction sector.

However, Fared Chalabi, Chairman, International Investment Group (IIG) noted that there has been an uptick in business despite the price rise due to an increase in the number of government projects.

He expects property prices in Egypt to increase by around 30 per cent.

Daker Abdellah, Board Member of the Egyptian Federation for Construction and Building Contractors (EFCBC), said the increase in fuel prices and implementation of Value Added Tax (VAT) on contracting companies would also negatively affect projects.

 “This means the projects will take a longer time and this will escalate costs and put new burdens on contractors. Some housing projects could now stop while a large number of contracting firms could be forced out of the market,” he said, adding that more than 25,000 contracting companies operate in Egypt.

Egypt produces around 6.5 million tonnes of steel per year and imports nearly 700,000 tonnes while cement output is estimated at 60 million tonnes per year, which meets domestic demand.

© Zawya Projects News 2017