A look at the challenges facing the industrial sector amid rising energy prices: Egypt’s industrial sector is currently undergoing a severe crisis due to the recent hikes in energy prices across all industries, raising production costs and necessitating the adoption of a new pricing policy.

REMEMBER- The gov’t has been slashing energy subsidies throughout the year: The government bumped up the price of mazut for most industries by 13.3% to EGP 8.5k per ton in July. Car fuel prices were also raised by 11-15% in July. Meanwhile, electricity prices for the industrial sector increased last month to between EGP 1.74 and EGP 2.34 per kWh across high, medium, and low consumption industries, up from between EGP 1.10 and EGP 1.50 per kWh/month listed previously as average prices.

More hikes could be in the works: The government has been studying the possibility of raising the price of natural gas supplies for the country’s industrial sector since July, a government source confirmed to Enterprise earlier this month.

EnterpriseAM spoke with several industry players to get a better sense of the challenges they are currently facing following the hikes, and how they are handling them to maintain their production capacities and their export opportunities.

The marble production sector has taken a hit: The increases in electricity and gas prices have led to a 55% rise in production costs, triggering a serious crisis for the industry, Chamber of Building Materials Industries (CBMI) deputy head Sayed Abaza told EnterpriseAM. The government didn’t take the needs of the industrial sector into account in the same way that it did with previous price hikes, he added.

In numbers: Electricity bills make up at least 60% of production costs for marble factories. Those who used to pay EGP 100k prior to the hikes now pay over EGP 160k, while those who used to pay EGP 200k saw their bill rise to nearly EGP 300k, Abaza said. The sector has also lost some of its key competitive advantages — namely energy and currency prices — and is now facing serious competition from neighboring countries that export to Egypt.

A number of firms have already shut down and moved to other markets: Some Chinese companies that had been operating in the marble sector shut down following the price hikes and moved to neighboring markets to continue their operations, Abaza said.

Ceramic players are also struggling: Some 50% of ceramics factories have suspended production following the price hikes. The rise in energy prices has had a significant impact on the sector, ceramics manufacturers division member Tarek Sadek told Enterprise, emphasizing the need for government support. Players in the sector recently met with Industry and Transport Minister Kamel El Wazir to request an exemption for the sector from the rising gas prices, as well as a change in the pricing mechanism for the sector. The sector is classified as an energy-intensive industry, though it doesn’t meet the criteria, sources in the sector told us. El Wazir promised to review the matter and discuss changing the pricing mechanism, the sources said.

Price increases are already in motion for the brick industry: The hikes have already led to all factories operating in the brick industry adjusting their pricing policies, which has already resulted in price increases for bricks across the country, head of the Federation of Egyptian Industries’ Refractories and Bricks division Ali Singer told Enterprise. The use of gas or fuel accounts for 40% of the industry’s production costs, while electricity makes up an additional 8-10%, he said. Natural gas prices for the sector currently stands at EGP 170 per 1 mn BTUs, he added, saying that factories have turned to natural gas to reduce production costs in light of rising fuel prices. Efforts are being made to reduce other production costs, Singer said.

Brick factories have decreased significantly over the last five years: The number of factories operating in the sector currently stands at 650, producing 6 bn bricks — down from 1k factories that produced 9 mn bricks back in 2018, Singer said, attributing the drop to halted building permits in governorates, rising costs, and reduced production.

How bad are the price increases? Production prices have already been driven up by anywhere between 10-15% in the final product sold to consumers, Ahmed El Zayat, a member of the Businessmen’s Association told Enterprise, saying that energy price hikes have led to significant increases in production inputs across all sectors. Meanwhile, economic conditions have caused firms to limit price increases to match the purchasing power of consumers, he added.

Industry players have had to cut costs to adapt: Most factories have looked to reduce transportation costs, as well as other logistics and storage-related extensions — which account for around 2-3% of the costs — and have reduced targeted expansions. Secretary-General of the Chamber of Transport and Logistics Amr El Samadony previously told Enterprise that the decision to raise its service fees by 10% following recent diesel price hikes. Reducing insurance benefits, bonuses, and incentives will be some of the options on the table for industrial players to control the rising production costs in the coming period.

Next year will be the most difficult, El Zayat said, with the price hikes set to continue as the state moves toward the complete removal of fuel subsidies, in addition to continuing global tensions, and rising shipping costs. El Zayat expects even higher price increases for products on the market during this period.

Egypt is still a competitive market: The value of our currency and the comparatively low energy prices give Egyptian products a major competitive advantage in global markets, El Zayat said. However, as the energy prices continue to rise, both exports and local sales will be affected.

A shift towards clean energy: Several factories have moved to establish solar power plants in an effort to reduce their electricity bills — namely in energy-intensive factories and car manufacturers, sources told Enterprise.

A few solutions are in progress: German cement manufacturer Heidelberg Materials has received a license to produce electricity from waste heat recovery systems in its factory in Helwan, with a capacity of 19 MW, in one of the solutions to reduce electricity bills and control production costs, the sources said. Meanwhile, studies are underway for the implementation of an area for marble production in Shaq El Tebaan — the largest marble and granite industrial cluster in the country — to supply the entire area with solar energy and reduce reliance on electricity, while also selling any production surpluses to the national grid, Abaza tells us.

But they don’t work for all sectors equally: Solar energy isn’t feasible for the production process of the brick industry, as brick production requires high levels of energy that solar energy can’t provide, Singer said.

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