Cement sector in Egypt: A new economic crisis created by the military’s business

The Egyptian Competition Authority approved, one week ago, a demand applied by 23 cement companies to reduce the production of Portland cement, with all its types, for the domestic market. The reduction amounted to 10.69% of the current production, added to special reductions for each production line and company according to its age. The decision is to come in effect with mid-July until the end of 2021. The authority justified its decision with that “it resulted from the conditions created by Covid19 pandemic that slowed down construction projects decreasing demand on Portland cement.” Accordingly, the demand was approved as a temporary solution of the current imbalance between offer and demand.

What the Competition Authority hided is that the crisis was not merely a natural consequence of Covid19. Instead, it was caused by the military engagement in the cement industry since 2018, what added 15 million tons to the production capacity in Egypt, exceeding the domestic demand.

In 2020, the total cement production capacity in Egypt hit 82.5 million tons annually, while consumption remain at 44.9 million tons, what means an offer surplus of over 37 million tons. In 2019, before Covid19, the consumption did not exceed 48.7 million tons despite the sharp rise in construction projects. In 2018, the production capacity was 86.3 million tons, but the demand remained at 52 million tons.

Over the past years, the cement factories complained of the decline of sales and earnings. Some companies warned of imminent bankruptcy and exit from the market. This what occurred in fact with the state-owned National Cement Company that exited market in 2018 after high losses. In 2019, Suez Company of Cement declared closing its Portland cement factory in Tora, the oldest one in Egypt, due to losses. Among 7 cement companies offered in the Egyptian stock exchange, only 2 companies achieved earnings in 2019 and remain under the earnings in 2018. Well, this means that the sector suffers a crisis earlier before Covid19, and that there is no enough domestic demand that could accommodate more production. However, the Egyptian military, in its ardent campaign to build an economic empire, decided to invade the market.

In August 2018, Abdel Fattah al-Sisi opened a factories complex in Beni Suef, owned by one of the companies of the military national service sector. The production capacity of the developed factories reached 12 million tons annually from 6.5 million tons in 2010. Companies owned by the armed forces have many competitive advantages in Egypt, including a tax exemption according article 47 of law 91 of 2005 regarding the income tax. Such unfree market policies reduce revenues for the governmental budget in a double way. From one side, the earning companies of the military do not pay taxes for the state. On the other hand, the same companies reduce earnings of the other competitive companies that pay taxes.