{"id":653839,"date":"2024-10-23T00:00:00","date_gmt":"2024-10-23T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/infrastructure-costs-set-to-rise-as-fuel-prices-increase\/"},"modified":"2024-10-23T00:00:00","modified_gmt":"2024-10-23T00:00:00","slug":"infrastructure-costs-set-to-rise-as-fuel-prices-increase","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/infrastructure-costs-set-to-rise-as-fuel-prices-increase\/","title":{"rendered":"Infrastructure costs set to rise as fuel prices increase"},"content":{"rendered":"

Infrastructure projects are feelin<\/strong>g the recent fuel price hike squeeze<\/strong>, with the country\u2019s most recent hikes set to further increase the costs of construction inputs \u2014 and more \u2014 industry insiders tell EnterpriseAM. To tackle this, infrastructure players will need to adjust their pricing strategies for upcoming project phases as operational costs surge significantly, we were told.<\/p>\n

(Tap or click the headline above to read this story with all of the links <\/strong>to our background as well as external sources.)<\/p>\n

The sector has been under strain for quite a while<\/strong> on the back of price fluctuations that have increased burdens on both the construction and real estate development sectors. The situation has been further complicated by cuts in state investment spending, which has been the largest funder of infrastructure projects in recent years.<\/p>\n

Remember:<\/strong> The fuel pricing committee has decided to hike fuel prices by 8-17%<\/a> earlier this month \u2014 marking the third hike of the year. Petrol prices have risen by 33-38% year to date, while diesel prices have jumped by 63.6% since the beginning of 2024. <\/p>\n

The material-hungry industry will have to pay a lot more for steel, cement, and the like<\/strong> with transport costs potentially rising 25-30%:<\/strong> Secretary-General of the Chamber of Transport and Logistics Amr El Samadony told EnterpriseAM that while the trucks owners association hasn't yet met to determine the price increases for transporting different goods, some are hinting at increases ranging between 25-30%. Ahmed El Zeini, head of the building materials division at the Chamber of Commerce told EnterpriseAM that fuel price hikes could raise prices by EGP 20-30 per ton.<\/p>\n

This comes on the back of already increasing container transport costs:<\/strong> El Samadony told us that container transport costs from Alexandria to Cairo have reached EGP 14k and EGP 13.5k from Ain Sokhna to Cairo, compared to around just EGP 3.7k in 2018.<\/p>\n

Disorganized distribution channels are also driving up costs:<\/strong> El Zeini told EnterpriseAM that trucks can wait up to a week at cement factories to load agreed-upon quantities, which increases transport costs beyond just fuel expenses. <\/p>\n

Some sectors are trying to get ahead of the curve with more thought through pricing<\/strong> strategies:<\/strong> The real estate sector has been calculating input costs, inflation, exchange rates, and interest rates, adding a profit margin above the central bank's interest rate to maintain profitability and sector stability, Federation of Egyptian Industries\u2019 real estate division head Osama Saad El Din told EnterpriseAM. While all real estate companies follow some sort of strategy, projects targeting different social segments follow different strategies as margins tend to increase the more expensive the development per unit is.<\/p>\n

Developers are trying to restrict price increases to only between phases: <\/strong>\u201cWe aim to maintain stable pricing within each launch phase, then reassess pricing for the next phase,\u201d Saad El Din said. \u201cWith current inflation levels, it's impossible to maintain the same sales prices for units within the same project due to changing production input costs.\u201d Transport costs are also a key challenge, according to Saad El Din, who identified it as one of the most important pricing variables that can affect the pricing process.<\/p>\n

Parts of the projects are also being held back from the market until completion: <\/strong>Companies are also holding back 15-20% of project units until completion to leverage inflation in offsetting any operational cost differences that might arise from sudden policy decisions, Mohamed El Bustani, the deputy head of the Federation of Egyptian Chambers of Commerce\u2019s real estate division, told EnterpriseAM. These measures are designed to protect both the real estate market and customers, he emphasized.<\/p>\n

Developers have already learnt the hard way after years of dealing with FX shortages and<\/strong> the resulting parallel market:<\/strong> The real estate sector currently is very careful about how it prices its units by conducting feasibility studies through specialized consulting offices for real estate projects that budget for expected government decisions, inflation trajectories, and more to hedge against the country\u2019s often unpredictable economic trajectory, El Bustani told us. El Bustani pointed to the sector\u2019s recent experience with pre-EGP float FX shortages and at-times runaway parallel market that made accurate pricing near impossible as behind the sector\u2019s new-found approach.<\/p>\n

But even with unit prices in the real estate sector rising, demand is staying <\/strong>strong<\/strong>:<\/strong> Despite price hikes, Saad El Din sees very high demand for real estate in Egypt, indicating the market will absorb and adapt to these increases caused by increased construction costs.<\/p>\n

The situation is not as good for contracting activities,<\/strong> according to Egyptian Federation for Construction and Building Contractors (EFCBC) member Mohamed Abdel Raouf. He explained that while real estate development companies have had flexibility to implement successive price hikes over the past period to hedge against price fluctuations and rising production costs and energy prices, companies dealing with government entities are bound by strict laws and decisions that have caused severe losses for contracting companies, now increasing further with the fuel price hike decision.<\/p>\n

Contractors are calling for government support:<\/strong> Abdel Raouf noted that industry, agriculture, and tourism sectors have received government-backed financing with subsidized 15%<\/a> and 12%<\/a> interest rates, arguing that the contracting sector should be included in one of these initiatives to help absorb successive cost increases, along with expedited payment of dues and stimulating competition through tenders to complete government works.<\/p>\n

\n

Your top infrastructure stories for the week:<\/strong><\/p>\n