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petrochems sector nurses dreams of export

from the disposable stir sticks and sporks used by fast-food restaurant chains to the multicolored candy packaging on display at the corner kiosk, egypt’s demand for plastics is massive. according to middle east economic digest (meed) figures, some 1.2 million tons of the raw petrochemicals used to manufacture plastics are consumed by the local market each year – which amounts to over 18 kilograms for every egyptian citizen.

local production of these materials stands at around 470,000 tons per year, which still falls short, by about one-third, of meeting overall domestic demand. the shortfall, meanwhile, is imported from countries with petrochemical sectors developed enough to export their surplus, like saudi arabia, south korea and india.

reducing egypt’s reliance on imported plastics – and even perhaps eventually exporting petrochemical products – has become the aim of a comprehensive government strategy to build a competitive petrochemicals industry over the next 20 years.

over the course of the coming two decades, the ministry of petroleum hopes to attract $10 billion worth of investment in order to build a number of petrochemical plants and beef up production. in a best-case scenario, 100,000 new job opportunities will be created, and $7 billion in annual revenues generated – including $3 billion worth of badly needed export receipts. “we have to compete with other countries in this area,” minister of petroleum sameh fahmy acknowledged in january.

under the plan, factories capable of producing high-demand petrochemicals – such as ethylene, polyethylene and propylene – would be constructed, along with downstream plants for vinyl, polyester, acrylics, aromatics and detergents.

egypt’s abundant – and largely untouched – natural gas reserves give it at least one competitive advantage in terms of petrochemical production, as gas is the primary feedstock for petrochemical plants. egypt has 58.5 trillion cubic feet (tcf) of proven gas reserves, and an estimated 120 tcf of unproven reserves.

nevertheless, local producers would face tremendous competition in the global petrochemical market, especially from countries in the nearby gulf. “western europe is already being targeted by saudi arabia, kuwait and qatar. they have large investments there,” said cyril widdershoven, a netherlands-based political and energy analyst at mediterranean energy political risk consultancy.

foreign investors, particularly these days, don’t have the stomach for establishing new – and potentially risky – petrochemical ventures, he added. “financing is totally dependent on the rate of return on investment. there is a huge market in egypt, but national concerns and political constraints are restricting total development.”

widdershoven went on to say that investors wouldn’t enter the market before they saw some serious infrastructure. more high-quality facilities like the middle east oil refinery (midor), for example, built by an egyptian/israeli joint venture in 1997, would “help push egypt into the big league of petrochemical production,” he said.

some investors have also expressed reluctance to enter a market in which the government frequently dictates prices, especially in the sensitive energy sector. “to attract more investors, the government needs to liberalize its price-setting policies,” suggested one analyst, “and give market forces the chance to establish a price formula.”

according to some in the local industry, however, finding investors should be relatively easy, given the number of incentives on offer.

hesham raafat, chairman of the oriental petrochemicals company (opc), noted that foreign investors are entitled to own 100 percent of their egyptian operations, are provided with guarantees against nationalization or expropriation and receive tax exemptions of up to 20 years. another industry official pointed out that there are currently two special economic zones (sezs) dedicated to investors in petrochemicals, both of which offer liberalized entry and exit.

in reaction to investors’ complaints regarding the opacity surrounding egypt’s petrochemical market, the government created the egyptian petrochemicals holding company (echem) last year. the company was established with a mandate to lure potential investors and provide them with vital information about the sector. under echem’s watch, egypt has attracted around $2 billion in investments for the first phase of the initiative, according to echem figures.

yet echem officials were unwilling to provide information on their petrochemical strategy when contacted by business monthly. sherif ismail, echem’s director, explained that the body wasn’t authorized to talk to the press, adding that information on the sector could be found at the ministry of petroleum.

players in the private sector, meanwhile, argue that the petrochemicals industry can only develop if the government takes its hands off. one petroleum executive criticized echem, arguing that “the growth of the sector depends on its being deregulated. let the private sector take charge.”

despite the challenges, private firms are eager to expand domestic petrochemical production. opc has even succeeded in exporting a modest portion of its output.

having opened egypt’s first polypropylene-manufacturing plant two years ago, the company now commands more than 75 percent of the domestic market for the chemical used to manufacture carpets, packaging films, woven bags and garden furniture. more significantly, opc currently exports 10 percent of its polypropylene production, and this figure is expected to climb as high as 25 percent in the coming years, as exports – particularly to the european union – expand.

“we find that there is a serious demand for petrochemicals,” said opc commercial manager nabeel hamdi. such promising potential for foreign currency returns bodes well for both the company – and the country.

abdalla f. hassan
and glen c. carey

 

cosmetics companies seek local value added nurturing the petrochemicals industry could help boost egypt’s budding cosmetics industry, currently facing inflationary pressures due to its reliance on imported raw materials. according to hamdy soliman, vice chairman of the chamber of pharmaceuticals & cosmetics and chairman of pyramids cosmetics, the £e 1.5 billion local make-up industry is tiny by international standards. one barrier to growth, he said, is that the sector imports 80 percent of the petrochemical-based raw materials used to manufacture make-up, skin-care and hair-care products. cosmetics, from lipstick to nail polish, are composed of oils, waxes, perfumes and pigments – all derived from petrochemicals. even beauty products like hair dyes and shampoos use petroleum-based raw materials. “if we produced these [petrochemicals] products locally, it would lower the production cost, help the industry to grow and open new markets for export,” soliman said. pyramids’ kamille brand of skin-care products and its hair code hair gels earn the company around £e 40 million a year – 10 percent of which is from exports to other countries in the region. the recent jumps in oil prices, meanwhile, have led the cost of raw materials for cosmetics to increase between 5 and 10 percent, soliman noted. this, coupled with the recent devaluation of the egyptian pound, has put a strain on the import-dependent industry. shoppers at local boutiques, therefore, can expect at least a 25-percent jump in the cost of their favorite lipsticks, blushes and mascaras, according to abeer mohamed emaish, a representative of misr cosmetics, which produces and markets make-up, perfume and other personal care products. she explained that around 90 percent of the company’s raw materials is imported from europe, and is subject to stiff duties ranging from 35 to 45 percent. for the cosmetics industry to remain competitive, she said, producing raw materials locally is “a must.” currently, misr doesn’t export its products, mainly due to the lack of locally manufactured inputs. one of the sector’s biggest problems is that, even when local raw materials are available, they aren’t up to standard, according to some in the industry. for instance, paraffin oil – used in all creams, hair-care and skin-care products – is imported in large quantities because the local variety is not of pharmaceutical grade, soliman said. as a result, pyramids cosmetics imports 50 percent of its paraffin oil from germany, italy and britain. egypt’s luna cosmetics – which produces toiletries for the meridien, inter-continental and hyatt hotels in the middle east, africa and europe – also imports about 80 percent of its raw materials, according to vice chairman maged amin. he, too, predicted price hikes on his company’s products of up to 25 percent. in the meantime, however, industry players are hoping that recently announced government plans to build a large-scale petrochemicals industry could provide the impetus needed to jumpstart the cosmetics sector. daliah merzaban

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