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The Arab Spring – Part 1: Will the Cement Industry Survive?

World Cement,

The Arab Spring that swept through the MENA region nearly three years ago has led to widespread instability in Egypt, Libya, Sudan, Tunisia and Syria. In fact, the only countries that have escaped the unrest are the oil and gas rich countries of the Gulf, which were able to inject sufficient amounts of money into their economies to avoid political upheaval. Countries such as Saudi Arabia, Kuwait and the United Arab Emirates, which enjoy favourable ratios between wealth and demographics, have the leeway to overcome economic challenges.

This is not the case, however, for most of the region where the political instability shows no signs of abating anytime soon. In Syria the turmoil has escalated into a full blown civil war. As a result, the Syrian economy, which once had a tremendous amount of potential, has simply come to a complete halt.

Although Syria is the most extreme case in the region, all of the countries within ASEC Cement’s operational footprint, including of course Egypt, have been negatively impacted by the economic fallout from the Arab Spring. As a leading regional cement producer with a goal to produce 10 million tpa of cement by 2016 in what are essentially attractive, key markets in the region, including Egypt, Sudan and Algeria, we found ourselves facing a host of operational challenges.

Where we stand today

The political upending of the region has made its impact felt upon the cement industry in several ways.

The significant and ongoing deterioration of security conditions has adversely affected our productivity. Social unrest combined with a lack of police presence in many areas, particularly the more rural areas where production facilities are generally located, has made it extremely difficult to maintain productivity levels at operational plants. Lack of security has also had a negative impact on the progress of construction at new sites, leading to significant delays in the launch dates of new cement plants. In some instances last year we were forced to temporarily freeze construction due to security lapses and labour unrest. During the construction of our recently launched 2 million tpa greenfield cement plant in the Upper Egyptian Governorate of Minya, which began just months after Egypt’s 25 January Revolution, we were forced to negotiate and resolve local tribal disturbances on our own.

The unreliable nature of the supply chain for raw materials, spare parts and equipment has also been a major cause of disruption for the cement industry. It was most painfully felt in the form of severe fuel shortages. The shortage of fuel and electricity coupled with rising prices were a clear sign that governments in the region would no longer be able to maintain subsidies at current levels. As authorities examine ways to gradually dismantle subsidy systems, cement plants in Egypt and Sudan are being forced to reduce production levels and postpone launch dates because of their inability to secure fuel.

Difficulty in obtaining the necessary government permits, licenses and authorisations, as well as a general slowdown in the decision making process on the part of incompetent leadership and transitional governments, has confounded our ability to deliver projects in a timely manner. Due to the transitional nature of many of the current governments, it is becoming exceedingly difficult to get signatures affixed to documentation. The enormity of this problem cannot be overstated. Governmental inertia has had a major impact on several of our projects.

General instability and a deteriorating security situation has made it increasingly difficult to accommodate expatriates who have been employed by the cement industry in the MENA region. Although we at ASEC Cement have done our utmost to replace foreign staff with local hires in order to maximise efficiency and control costs within all of our operations, we still require a limited number of expats to transfer knowledge and train local staff.

The banking sector has chosen to withdraw its support of the MENA cement sector at a very critical time, thus threatening the viability of certain projects and rendering previously obtained licenses null and void due to lack of funding. For example, before the outbreak of the civil war in Syria we had been working diligently to develop a viable solution that would allow us to launch a project with the help of international investors. As the project was ready to move ahead, the crisis in Syria led to the immediate withdrawal of financing and the indefinite postponement of the project.

Can we move forward?

Despite these daunting challenges, demand for cement in the region’s net oil-importing countries witnessed a modest decline. The drop is mainly attributable to the occasional breakdown of security rather than a lack of effective demand. Supply also contracted on the back of the aforementioned security and energy issues. Even within the compromised nature of our operating environment, the building materials sector was still responsible for driving a significant portion of the overall growth in MENA markets in 2012.

Read part two of ‘Can the Cement Industry Survive the Arab Spring?’ here.

Written by Giorgio Bodo, ASEC Cement, Egypt. This is an abridged version of the full article, which appeared in the November 2013 issue of World Cement. Subscribers can view the full article by logging in.

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