Industrial diversification is a central element of the region’s economic development plans. Driven by the desire for self-sufficiency and to create jobs, governments have been investing billions of dollars in cement, metals and petrochemicals schemes. But as parts of the region descend into political chaos, many of those projects have now been put on hold. The worst affected markets are Libya and Egypt.

Many people are now worried about the future and everyone is watching and waiting for any developments

Project director in Egypt

Egypt has the region’s most developed industrial base. In anticipation of a major construction boom in the country, the sector has been attracting new investment. There are currently about $2bn-worth of steel and cement projects either at the bidding stage or under way in Egypt, according to regional projects tracker MEED Projects. But progress has ground to a halt on several of these, following the popular uprising that began on 25 January and led to the end of President Hosni Mubarak’s 30-year rule 18 days later.

Staff evacuated in Egypt

“We have been delayed and many of the technical experts on the project have left the country,” says a project manager on a steel development worth several hundred million dollars. “Many of the staff in key positions have been evacuated from the country, so we have to wait until they return before we can resume.” He expects the project to restart by mid-to-late March as some workers are already coming back, meaning only a minor delay to the scheme.

Others are not so confident. “Many people are now worried about the future and everyone is watching and waiting for any new developments,” says a project director from a similar-sized cement project.

Most worrying are reports that many captains of industry have fled Egypt. This could impact on the development of projects further in the future. Tensions have also risen in the steel industry, following the arrest on 17 February of Ahmed Ezz, chairman of Egypt’s largest steel company, Ezz Steel. He has been charged with misappropriating public funds.

I believe the [Bahrain] government has listened … and will now push industrial diversification even more

Khalid al-Qadeeri, United Steel Company

The chairman, who was a high-ranking official in Mubarak’s regime, has vehemently denied the allegations and assured shareholders that Ezz Steel’s operations will be unaffected. The company is also investing in new capacity, with a new $475m steel plant due to come onstream in Ain Sokhna later in 2011.It will have a capacity of 3 million tonnes a year.

Petrochemicals projects have also been disrupted due to the evacuation of essential personnel. There are currently some $3.28bn-worth of petrochemicals projects under way and a further $30bn of downstream projects planned in Egypt. The largest project is the $17bn Kafr el-Sheikh Integrated Refinery & Petrochemicals Complex, being planned by Egyptian Petrochemicals Holding Company and currently in the study phase. 

Egypt’s spending priorities

Whether these schemes progress according to schedule will depend in large part on the investment priorities of the new government. The previous regime approved a 20-year national petrochemicals masterplan that aimed to raise output by 50 per cent and establish Egypt as a major world player by 2020.

With an abundance of gas to use as feedstock and rapidly rising domestic petrochemicals demand, Egypt is an attractive long-term investment proposition for many companies. But the upheaval will have made investors cautious.

“People still want to work in Egypt, but it is going to depend on what happens with the transition,” says a Dubai-based executive, whose company is working on several projects in Egypt. “If the political situation veers too much to the left, you could see outside investment leaving the country.”

While the disruption to industrial projects under way in Egypt is likely to be only minor, in Libya the threat to the sector is far more serious. As the country teeters on the brink of civil war, foreign workers are being evacuated and continuing with normal daily life is impossible. According to MEED Projects, just three industrial schemes are under way in Libya, worth a combined $410m. Repeated attempts by MEED to contact project offices failed to gain a response and it is likely activity has halted. The three projects are the $260m Misurata Rolling Mill being developed by Libyan Iron & Steel Company, the $100m Wadi al-Shatii cement plant and the $50 El-Sewedy cables plant. 

A further $17.5bn-worth of projects are planned or under study and the future of those schemes now hangs in the balance. Even before the anti-government uprising began, questions were being asked over the viability of some of the projects, in particular two aluminium schemes. One had a strong backer in Russia’s United Company Rusal (UC Rusal), but industry insiders still doubted whether the $3.5bn smelter would be developed.

Industry projects
  Sector Budget Chance of major delays
Egypt
Kafr el-Sheikh integrated refinery & petrochemicals complex Petrochemicals $17bn High
Ain Sokhna olefins complex Petrochemicals  $2.5bn Medium
EGPC integrated refinery & petrochemicals complex Petrochemicals $9bn High
EGPC refinery & petrochemicals complex  Petrochemicals $8bn High
Ain Sokhna copper smelter & refinery Metals $850m High
Echem ethylene cracker expansion plant Petrochemicals  $2bn Medium
Libya
Lisco: Misurata rolling mill Metals  $260m Extremely high
Rio Tinto aluminium smelter Metals  $2.7bn Extremely high
UC Rusal aluminium smelter Metals  $3.5bn Extremely high
Tripoli aluminium smelter & oil refinery Metals & oil $8bn Extremely high
Bahrain
Hidd steel mill Metals $1.2bn Low
Aluminium Bahrain sixth potline Metals $1bn Low
Hidd sugar refinery Food $150m Low
Yemen
Bajil cement plant expansion Cement $100m Low
Arab Iron & Steel steel plant expansion Metals $1.6bn High
EGPC=Egyptian General Petroleum Corporation; Echem=Egyptian Petrochemicals Holding Company; Lisco=Libyan Iron & Steel Company. Source: MEED

“UC Rusal is a major operator and we have known about this project for some time, but to be honest, even before the trouble in Libya our attitude to it was that we’d only believe it when we saw the prequalification documents,” says a source at an international engineering consultancy.

Smelter projects planned by the Anglo-Australian Rio Tinto and Switzerland’s Klesch, worth more than $10bn combined, are also believed to be on hold indefinitely. “If they weren’t on hold before, they will be now,” the source adds.

Business as usual in Bahrain

Although Bahrain has also seen large-scale demonstrations and several protestors killed during a violent clampdown by authorities, industrial projects in the country have been unaffected. This is largely due to the lack of evacuations of expatriate workers.

The biggest industrial project under way in Bahrain is the $1.2bn Hidd steel mill, being developed by United Steel Company (Sulb), the joint venture of Bahrain’s Gulf United Steel Holding Company (Foulath) and Japan’s Yamato Kogyo. Work is ongoing and the project is scheduled to be completed by the end of 2012.

“The project has not been disrupted in any way,” says Khalid al-Qadeeri, managing director of Sulb. “Hidd is an area that is far from the demonstrations and so we have had no stoppages.”

Another major industrial project in the Gulf state is the sixth potline being planned by Aluminium Bahrain (Alba). The $1bn scheme is awaiting final approval from the Alba board, but no significant delays are expected.

“I believe the government has listened to people’s concerns and will now push industrial diversification even more,” says Al-Qadeeri. “We need to create more jobs and delaying projects is not going to do that.”

With the lack of job opportunities in the Arab world the trigger for the current wave of unrest, the region could, in the longer term, even see an increase in investment in industrial projects. Countries with high levels of youth unemployment, such as Saudi Arabia and Yemen, would particularly stand to benefit.