Abstract
Market Overview
In the first half of 2008 the Egyptian chemicals industry
recorded exports of US$10bn, representing
growth of 47.5%, according to
the Chemical and Fertilizers Export Council. This exceeded the target of
25% growth that was set by the Ministry of Trade and Industry in 2007. A key
driver of growth has been
pesticides, which increased by 77%, and plastic
and rubber products, which increased by 58%. One of the
reasons for the
spike in exports has been the impact of government incentives. In 2006, Egypt
began
introducing subsides to support the export sector. For example, 30%
of the export cost of plastic wrapping
is now subsidised. However, since
the end of H108 the global economy has tumbled into steep decline
and the
EU (Egypt’s main export market for chemicals) has fallen into recession.
With demand dropping,
BMI expects Egyptian chemical exports to have fallen
sharply in the second half of 2008 and in the early
months of 2009.
Meanwhile, in 2008, the government removed tax benefits from petrochemicals
firms,
impacting competitiveness.
Business Environment
Egypt
introduced a 20% tax on profits on foreign petrochemical companies in H208.
They also have to
pay almost twice the amount for their gas supplies as
domestic firms. The legislation included the
imposition of duty and a rise
in prices for natural gas in Egypt’s free trade zone. This marks a
radical shift
in policy direction and could undermine foreign direct
investment (FDI) inflows at a time when investors
are reviewing their
investments in the context of the global economic downturn and financial
crisis.
Projects, Expansions And Developments
In August 2008, Canada' s
Agrium, a major retail supplier of agricultural products and services, sold
its
Egyptian project EAgrium to Egypt' s MISR Oil Processing Company
(MOPCO). The approval of the
EAgrium project, which was already under
construction, has been revoked by the Egyptian Government
owing to
protests about its location near the NileDelta. Agrium held a 60% stake in the
project, while
Egyptian PetroChemicals Holding and EgyptGas held a
combined 24% stake, Egypt Natural Gas
held 9% and Arab Petroleum
Investments held 7%.
Industry Forecast
Egypt’s trade and
industry minister, Rachid Mohamed Rachid, has said that exports could fall by
10% in
the 2008/2009 fiscal year as a result of weakening demand in key
trading partners. Falling prices and
volumes were particularly impacting
sales of petrochemicals and fertilisers, he said. Indeed, prices in the
industry have fallen by more than 50% according to Rachid, while demand has
slumped by 20%. The
majority of Egyptian chemical exports go to the EU,
which is suffering a severe recession. In 2005,
output of chemical
products in Egypt was EGP23.28bn (US$4.06bn). It is forecast to reach
EGP26.91bn
(US$4.68bn) by 2009
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