CAIRO: Egypt is currently studying the local cement market to determine whether it will extend the cement export ban, which is set to end in October.
Egynews.net, the state-run news portal, cited Mohammed Abu Shadi of the Ministry of Trade and Industry as saying that Egypt is considering lifting the cement export ban in order to stabilize prices after a slowdown in the local cement industry.
Abu Shadi said that export and import bans are tools which the state utilizes to ensure stability in markets, adding that high cement prices had warranted the ban be in place until October.
However, the current slowdown in the local construction and cement markets, he said, calls for a reassessment of the ban citing fears that factories may reduce production, causing further losses to cement traders and leading to a further slowdown.
According to local reports, Ahmed Shebel, managing director of Lafarge Egypt, said Sunday that his company submitted a request to the Ministry of Industry to remove the cement export ban since the company anticipates a production surplus of 10 million tons next year as it gears up to launch seven new cement plants.
Though the government has not yet increased electricity prices, he said, new policies including a 5 percent sales tax and a rise in energy costs are likely to further reduce demand in the coming period.
Egypt’s Minister of Trade and Industry issued the decree in July 2009 extending the cement export ban until October 2010, at a time when government stimulus spending on infrastructure and growing demand for housing helped fuel demand for cement.
According to a statement from the Ministry of Industry, the decision was made in light of a 26 percent increase in cement demand in the domestic market, which “led to the introduction of several measures to ensure that the local production meets the demand including green-lighting cement imports.”
The statement points out that Egypt’s construction sector had been growing by an estimated 20 percent despite the global economic crisis.
"This is a strategic sector for Egypt," noted Minister of Trade and Industry Rachid Mohamed Rachid, justifying the ban when it was first introduced in April 2008.
"We have taken several steps in the past few months to ensure that the price of cement in the domestic market stabilizes. However, prices continued to rise for…no specific reason pertaining to production or demand,” the minister said.
“Therefore, it was imperative for the Egyptian Competition Authority to step in and conduct a full investigation into the sector…to identify the exact reasons behind the price increases…and react appropriately."
Tarek Selim, industrial economist and professor of economics at the American University in Cairo, said that the usual justification for an export ban is an excess in supply, or when market price is above equilibrium.
“Usually you can export this excess supply, but if there is higher demand in the local market, an export ban ensures surplus is sold domestically, causing cement to be less scarce, lowering its price,” he explained.
“The good thing is that it is a temporary regulation and the government can wait for [the] market to stabilize,” he added.
The drawback on the other hand being that the cement industry is one of the leading export sectors in the Egyptian economy and the ban negatively affects the balance of trade and current accounts.