Al-Ahram Weekly On-line 30 Nov. - 6 Dec. 2000 Issue No.510

Egypt Region International Economy Opinion Culture Special Travel Living Sports Profile People Time Out Chronicles Cartoons Letters

Stormy seas

By Sherine Nasr

Egyptian maritime transport companies have discovered that it takes much more than a strategic location and 2,500 kilometres of coast to be a competitor on the high seas. Such companies face stiff competition in a market characterised by well-established international maritime companies, alliances among companies that traverse the globe and rapid technological advancements. The capacity of Egyptian companies to compete in this cut-throat business is further hampered by local legislation.

In a meeting with members of the Egyptian Businessmen's Association and transportation experts, Ibrahim El-Demiri, minister of transportation, underlined the importance of establishing strong private sector maritime companies to revitalise this industry.

According to a Shura Council report on maritime transportation issued in 1999, 44 per cent of Egyptian transport ships are more than 15 years old, while all oil tankers are at least 20 years old. Referring to this report, Wael Qaddour, a maritime transportation expert, said that operating such ships makes little economic sense. Added to this, many of these old vessels need considerable investment to upgrade them to comply with Egyptian safety standards or those of international ports.

In recent decades, the number of Egyptian ships has decreased and the quality of service they provide has declined. One reason for these trends is that the laws regulating the maritime sector are outdated, say those in the sector. Laws in force were issued in the 1960s, undergoing some minor modifications in the early 1990s.

Within this legislation is a regulation that requires an eight-year waiting period to sell a ship. "It is hard to understand the philosophy behind such a regulation," commented Samir Mu'awad, director general of the Maritime Transportation Division in Port Said. Moreover, a privately-owned vessel cannot be sold to a foreigner unless the minister of transportation approves the transaction.

Another regulation prohibits the owner of a vessel older than 15 years to raise the Egyptian flag. "Practically speaking, most Egyptian ships are at least 15 years old. If a ship is older, owners obtain operation licenses from another country and raise the flag of that country over the ship," said Mustafa El-Ahwal, president of the International Associated Cargo Carrier and Head of the Transportation Committee at the Egyptian Businessmen's Association.

Difficulty in obtaining financing to build ships is cited as one of the main reasons that Egypt does not possess an up-to-date fleet of trade carriers. Banks usually refrain from providing credit for what they label a "high-risk industry." According to Emad El-Bawwab of the Commercial Investment Bank (CIB) in Alexandria, banks in Egypt tend to be wary of financing a "mobile asset," whether this is to be constructed or acquired.

It is worth noting that until the 1970s, all maritime transportation companies were state-owned. As the industry expanded, many private companies were established. Yet, the role of banks in financing this sector did not develop proportionately. Under such conditions, success in this sector requires that financing be obtained from international institutions willing to extend huge long-term loans. Building a ship costs at least US$ 40 million and the minimum period sought to pay a loan of such a magnitude is usually 15 years.

CIB's El-Bawwab explained that decision-making in this regard requires a highly specialised team capable of accurately assessing the prospects and risks of any initiative. "Unfortunately, ship-finance departments are not typically a part of an Egyptian bank," said El-Bawwab. That maritime transport is subject to international and not only national regulation, adds an extra dimension of risk to financing such a venture, noted El-Bawwab.

One of the ways of getting around such financing challenges is leasing ships. Saber El-Ghannam, member of the Arab Association of Navigation, explained that carriers can be purchased through a lease-to-own arrangement. For example to purchase a US$ 90 million carrier, the buyer needs less than half this sum. A buyer rents such a vessel, operates it, and typically pays the owner the value of the ship over a period of 10 to 15 years, allowing the profits accrued while operating the vessel to be directed towards its purchase. Such a process, said El-Ghannam, "has become a widespread trend."

Insuring ships is another challenge faced by Egyptian companies. According to Mu'awad of the Maritime Transportation Division in Port Said, there is a wide gap between what businessmen expect and what insurance companies are able to provide. "Unlike international insurance companies, Egyptian companies do not move as fast as they should in the event of an accident," said Mu'awad. Not surprisingly, many Egyptian maritime companies seek the services offered by international insurance companies.

The decline of the shipping industry in Egypt has decreased its ability to transport exports to international markets. "Egypt transports only six per cent of its exports," said Qaddour. Experts in this sector suggest that by 2006, approximately 45 per cent of ships that are capable of delivering goods to these markets will need to be retired.

One of the promising markets for Egyptian exports and national maritime transportation companies is the Common Market for East and South Africa (COMESA). Immediately following Egypt's joining COMESA in June 1998, the Transmar Shipping Company, a venture by a group of Egyptian companies, was established as the first regular operator offering direct-line service to East and South Africa. Three multi-purpose vessels carrying the Egyptian flag set out from Suez for Djibouti, Mombassa and other African ports. However, according to Mu'awad, the lack of infrastructure, banking and insurance services in these countries has made it very difficult for this company to operate regularly and as a result, profitably.

© Copyright Al-Ahram Weekly. All rights reserved

weeklyweb@ahram.org.eg