A move to force cement producers to end a suspected monopoly of the market took everyone by surprise. Mona El-Fiqi
While consumers are glad that the government is finally playing a role in protecting their rights by establishing the Egyptian Competition Authority (ECA) and enforcing the anti-monopoly law, producers strongly oppose the decision to investigate a possible monopoly by cement companies.
The controversy erupted when Minister of Trade and Industry Rachid Mohamed Rachid filed a criminal suit on 4 October against cement companies, accusing them of violating Article 6 of the anti- monopoly law. The penalty for monopolising the market is a fine between LE30,000 and LE10 million.
Rachid's suit came in light of a recent report by the ECA accusing cement producers of conspiring to monopolise the market and control cement prices. The minister later announced that Law 3/2005 on the protection of competition and prohibition of monopoly practices needs to be amended, especially in the case of the cement industry.
Currently, the law states that economic activity should not be performed in a way that prevents, restricts or damages the freedom of competition. Also, that the minister of trade and industry has the right to refer violators to formal investigations. Rachid asserted that the government is adamant in enforcing the anti-monopoly law to protect consumers in all sectors.
While some producers believe the minister's decision will only marginally affect the cement market because it relies on a supply and demand dynamic, others feel it will negatively impact new investments in the sector since investors will be put off by the industry's tarnished image. But Rachid announced last week that the ministry had recently granted licences for 14 new cement factories, with a total investment worth LE17 billion.
The move is a step towards increasing domestic cement production to 59 million tonnes annually by 2011. The new production lines will help cover local market needs for the ongoing construction plan, expected to require 55 million tonnes annually by 2011, and stabilise cement prices by increasing supply. According to Rachid, the new factories will also help maintain Egypt's share of cement exports on the international market.
Ahmed Ibrahim, a construction engineer, said that the decision to sue cement producers is a step in the right direction to prevent them from controlling prices. Ibrahim added that it is the consumer who pays the final price of a product, so the government should have a clear oversight role and, when needed, take action to stop producer greed.
"The increase in cement prices during the last couple of years is unjustified," argued Ibrahim. "According to experts, the cost price of a tonne of cement does not exceed LE80, but producers sell it at LE380 per tonne. This is unreasonable." Already, he added, the government's decision has impacted the price of cement, with the cost of a tonne dropping from LE380 to LE365.
Naturally, cement producers are averse to Rachid's decision and deny any conspiracy to control prices. A representative of a cement company who preferred to remain anonymous told Al-Ahram Weekly that cement producers were surprised to be accused of monopolising the market. "It is unreasonable that 11 companies have colluded to raise prices," countered the source. "This accusation is not true; we are waiting for the outcome of investigations." In their defence, cement producers claim that the hike in prices is due to a drop in supply and an increase in demand. Cement consumption on the local market increased from 23 million tonnes annually in 2004, to 33 million tonnes in 2007.
As early as July, 2006, Rachid had asked the ECA to conduct market research on the cement sector, especially that cement is one of the essential products for economic development and increasing investment. ECA Chief Mona Yassin told the Weekly that Rachid requested a focus on the reasons behind the unjustifiable rise in cement prices, and whether these increases were due to monopoly practices or anti- competitive agreements among cement producers.
For 14 months, the ECA collected information and data from various sources in 15 governorates, including the structure of the domestic cement market, production capacity, cement dealers, production costs, sales figures on the local market, in addition to cement exports. "The ECA concluded that there is, in fact, an agreement among cement companies to raise prices, in violation of Article 6a, and an agreement to restrict marketing, in violation of Article 6d of the competition law," revealed Yassin.
The ECA sent several letters to cement companies warning them against any verbal or written pacts to control prices, but producers reassured it that they were abiding by the law. Nonetheless, the ECA board of directors decided to refer the report to Rachid. Generally, cement producers say they would have preferred the ECA inform them of report results before the issue was raised with the prosecutor-general.
While the ECA investigation of the cement market took 10 months less than the average 24 expected in most countries, noted Rachid, he promised that the outcome of an ECA investigation into the steel industry is expected in December.