In doing so, he bucked the policy trend of Prime Minister Ahmed Nazif's government, which, with its broad programme of privatisations, subsidy reductions and efforts to cut red tape, has followed a laissez-faire attitude towards local industry. But for many, especially in the construction sector, the intervention was justified. Rachid had been provoked by the swelling retail price of grey cement. In mid-2006 it rose as high as £E 380 ($66.50) a tonne, squeezing local contractors. Rachid limited the number of companies allowed to export cement and introduced a suggested ex-factory price cap of £E 290 ($50.70), a move that would pull the retail price down to £E 330 ($57.70) a tonne. 'It is true that costs are rising, but companies had been raising prices without sufficient justification,' says Nabil el-Gabri, chairman of the National Cement Company. 'So the strategy was necessary and now we can see it is working. Most companies are following the price guidelines.' Cement is big business in Egypt. Its 11 producers churn out more than 38 million tonnes a year (t/y) of grey cement 73 per cent more than its nearest rival, Saudi Arabia (see pages 47-49). It already accounts for more than a quarter of the region's 146 million-t/y capacity and is set to grow further.

Expansion mode

With most plants running at somewhere near full capacity, producers have more expansions planned. Misr Cement Company (Qena), Arabian Cement Company and ASEC Cement Company are just three local producers that in 2006 signed or entered the final stages of planning for new greenfield clinker plants, while Sinai Cement Company is building a new production line for its grey cement plant in El-Arish. Other investors are also interested in the sector the local Naeem Holdings has recently completed a feasibility study for a new 3 million-t/y plant.

Nor is this capacity expansion expected to slow down as investors and producers seek to profit from the region's construction boom. A report by HC Brokerage estimated that cement capacity would top 40 million tonnes by the end of 2006 rising to 48 million tonnes by 2008 and to 53 million tonnes by 2010. 'Of course, it is a good time to invest and there are plenty of companies willing to pay the costs a new production line alone will cost about $125 million,' says El-Gabri. Qena, Beni Suef Cement Company and Sinai Cement are all expected to double their capacities by 2008 to 3 million t/y, 2.8 million t/y and 2.7 million t/y respectively. 'But at some point supply is going to exceed demand and the prices will fall,' he warns. However, figures show he may not be correct, in the medium term at least. Egyptians are expected to need even more cement over the next four years. Per capita consumption is expected to rise from 403 kilos today to 448 kilos by 2010. Local demand in 2005 hit 28.4 million tonnes, a rise of 19 per cent from 23.8 million tonnes in 2004. This trend has continued into 2006. The first nine months of the year registered a total demand of 23 million tonnes against 21.2 million tonnes a year earlier, a rise of almost 9 per cent. The third quarter of 2006 had the highest demand of any quarter for four years. However, supply is now rising faster than domestic demand. Egyptian producers are in the rare position of being able to export some of their output. The costs associated with cement export normally prohibit such an undertaking, but on the back of cheap labour costs and comparatively cheap fuel and energy, such an option is realistic. Today, exports total 8.5 million t/y, but this is 4 million tonnes below 2004's figure. With producers unable significantly to increase cement output in the short term, growing domestic demand has taken a chunk out of export capacity. Between 2004 and 2006, domestic demand rose by almost 7 million tonnes, yet production increased by only 2 million t/y. 'Foreign demand for Egyptian cement is rising fast, but we only have a limited amount we can afford to export,' El-Gabri says. Rachid has limited export rights to producers. This prevents traders selling cement needed for domestic demand abroad at higher prices. With domestic demand still rising, exports are likely to fall again in 2007. However, once new production capacity is brought on-line the following year, the market should start to develop again. Opportunities abroad are especially favourable Spain and Italy, Europe's two biggest importers of Egyptian cement, are both experiencing construction booms while Turkey, a key rival on the export market, is enjoying its own domestic boom, cutting the amount free for export. HC Brokerage expects Egyptian exports to top 14 million t/y by 2009. For now, though, the focus is on the domestic market. Rachid has promised tough measures against companies that do not comply with the new pricing strategy, although this is unlikely to go beyond tinkering with charges for overladen cement trucks. In the meantime, the government is likely to continue again with its privatisation programme. National Cement is a key candidate. The Cairo-based company is one of the few not to have been sold since 2001 Italcementi, Cemix, Lafarge and Holcim have all acquired stakes in Egypt's leading producers. Egypt is not the only country with cement ambitions Saudi Arabia expects its own capacity to reach 40 million t/y by 2008 and the UAE is also committed to double its production, to 28 million t/y. But Egypt's supply growth is already booked and with foreign-backed mega-projects, such as Emaar's Sidi Abdul-Rahman tourist development, and an expected escalation in real estate projects taking care of demand, Egypt's thriving cement sector looks set to stay ahead of the pack.