CAIRO: Investors prepared to brave the aftermath of political turmoil and the threat of a faltering global economy to Egypt’s industry will be able to benefit from strong underlying demand, officials at one of Egypt’s most influential industry bodies said.
Many Egyptian manufacturers have seen sales plunge since a popular uprising toppled president Hosni Mubarak in February and worried households cut back on purchases, officials at the Egyptian Chamber of Metallurgical Industries told the Reuters Middle East Investment Summit.
Legal challenges to state land sales and privatizations had left investors nervous and the number of factories and warehouses being built has halved, they said, adding that plans to raise energy prices had also been a cause for concern.
A clearer business environment might not emerge for more than a year as Egypt holds elections for a new civilian government and the army-backed interim government avoids major policy moves without a strong mandate.
"Of course there will be turbulence over the coming year or so," Khalil Kandil, chairman of the industry group, said.
However, local demand held up relatively well through the turmoil, a booming population required huge infrastructure investment while a swathe of Egyptian industry exports to other Middle East economies were performing well, he said.
"Business plans are built on five and 10-year horizons and are regional plays. Most of the problems we are discussing now are really quite minor," he said.
Steel strikes over
Foreign investors with liquid assets and shorter-term investment horizons fled Egypt after the uprising, alarmed by the prospect of months or years of policy shifts and prolonged social unrest.
But with unrest now mainly confined to state bodies and the textile industry, where salaries are uniquely low, investors taking stakes in companies or building factories could see big rewards, Kandil said.
Government plans to raise energy prices for energy-intensive industries are expected to result in a "competitive" $4 per British thermal unit (BTU), Kandil said.
"The risk will be less return on investment. It’s not about stopping operations or causing major disruption to industry," he added.
Strikes had ended in the steel and metals sectors and for those industries the main problems were no longer at home — where demand from the construction industry had held up — but abroad as a global recovery has hit the buffers.
Independent Egyptian steel mills have suffered since the 2008 global financial crisis as they struggled to deal with volatile prices.
Three companies shut up shop during that crisis and buyers for those businesses were being sought, said Mohamed Sayed Hanafy, general manager of the metallurgical industry body.
He named the companies as Alexandria Iron and Steel, Port Said Engineering and Industry and National Metal Company.
Qatari executives and representatives from India’s Essar Group have visited to look into possible investments, he said.
Remaining risks
Kandil and Hanafy said the biggest remaining risk for foreign greenfield investors was in the real estate industry, where state land deals were the subject of drawn-out lawsuits.
And industry players still faced problems accessing credit at competitive rates, because banks were more keen to lend to the government, which is soaking up funds as it tries to pay for a ballooning budget.
"There is no increase in lines of credit to industry and sometimes there may be a decrease, and that is dealing quite a hit to expansion," he said.
