Monday,23 October, 2017
Current issue | Issue 1231, (29 January - 4 February 2015)
Monday,23 October, 2017
Issue 1231, (29 January - 4 February 2015)

Ahram Weekly

Monopolising Egypt?

Unfair business practices are still widespread in Egypt, despite changes to the country’s anti-trust laws, Sherine Abdel-Razek reports

 

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Al-Ahram Weekly

The influence of monopolies is still strong in Egypt’s economy, despite amendments to the anti-trust laws, according to economist Ahmed Al-Naggar.

Monopolistic practices in the mobile, cement and steel sectors, and the massive wealth gathered by the owners of those industries, were one of the main features of the economy under the rule of ousted former president Hosni Mubarak and a main contributor to the 25 January Revolution.

The continuation of such practices, even under the name of protecting local industry, is unacceptable, Al-Naggar said this week. He was referring to a 7.3 per cent temporary tariff imposed on imported steel in October 2014 at a minimum rate of LE290.

The problem with the tariff is that it has come at the request of major steel producers, including Ahmed Ezz, a steel mogul and Mubarak-era businessman, who between them produce two thirds of Egypt’s steel.

The move, seen by many as giving producers exceptional protection from foreign competition, pushed producers to reduce local prices by more than LE150 per ton in a bid to halt the uproar the imposing of the tariffs stirred.

The tariffs on imported steel were imposed after Egyptian producers claimed that they could not compete with cheaper imported steel.

But Al-Naggar described such claims as nonsense in light of the advantages given to local steel producers, starting with low energy costs (only a third of the price on international markets), cheap labour and the fact that final prices do not include the cost of transportation included in imported steel prices.

“With all these privileges, the insistence of local producers to set their prices higher than those of imported steel just reflects their thirst to realise undeserved and exceptional profits,” Al-Naggar said. He hinted that it was not a coincidence that the new tariffs coincided with the acquittal of Ezz of the charges laid against him last August.

Ezz, who owns controlling stakes in Egypt’s largest steel producers, faced investigation over monopolistic practices both before and after the Revolution.

Al-Naggar said producers’ claims that they face unfair competition from imported steel appears to be without foundation. The Central Agency for Public Mobilisation and Statistics (CAPMAS) reports that the price of local steel in September 2014, when there were no protecting tariffs and producers were supposed to be facing fierce competition, was, in fact, six per cent higher than the year previous.

The situation is no different in the cement sector, where production is concentrated in the hands of foreign companies. Cement prices in Egypt have jumped since the Revolution, in the absence of monitoring bodies and an increased demand for building on agricultural land.

The official price for cement was LE780 per ton in September, 21 per cent higher than the 2013 price. Meanwhile, the actual selling price was as high as LE800. The higher costs was not caused by the distributors or traders, as the producers claim, Al-Naggar said, but was the responsibility of the producing companies which set high ex-factory prices.

In many cases, cement producers provide large traders with the bulk of their production at exceptionally high prices and then share the profit, an unfair trading practice well known in Egypt and the rest of the world, Al-Naggar said.

He said that since the government is the main consumer of locally produced cement it could boycott the companies for a period, to pressure them to lower their prices to the LE475 threshold, a tactic that would be effective if the government also banned cement exports.

The cement and steel sectors are not the only sectors where big producers control prices, and in fact the trade in most commodities is characterised by monopolies. According to Gouda Abdel-Khalek, a former minister of social solidarity, just five traders controlled the entire supply of rice in Egypt in 2012.

The weakness of the present anti-trust laws is that monopolistic practices attract few or marginal penalties, Al-Naggar commented. The fines faced by Ezz, for example, charged with monopolistic practices, were reduced from LE100 million to LE10 million by the Court of Cassation in November.

A court ruled in 2009, after more than two years of investigation, that the Ezz Steel Group was not involved in monopolistic practices.

Al-Naggar said that despite amendments to the laws in 2008, 2011 and 2014, monopolistic practices are still widespread in Egypt.

In July 2014, President Abdel-Fattah Al-Sisi approved amendments to the laws, setting the fine for violations at a minimum of two per cent and a maximum of 12 per cent of revenues realised due to monopolistic practices. If it was impossible to know what the revenues were, violators would be required to pay at least LE500,000, with a maximum of LE500 million, compared to the LE300 million previously.

The modifications also exempted whistleblowers reporting anti-competition practices from charges, encouraging traders to exit cartels and report them to the proper authorities.

But they have been criticised for limiting penalties to fines, since in many other countries governments oblige violators to end monopolistic positions by breaking companies into smaller units.

Another criticism is that the law only gives the Ministry of Trade and Industry the right to file a suit against violators, which means that the Egyptian Competition Authority has a purely investigative role.

Al-Naggar said there is a need for effective tools to monitor the markets and deal with monopolistic arrangements, particularly since the economy is prone to inflation.

“Our economy depends on large cash inflows from remittances and services like the Suez Canal, while there is no growth in the local production of services and goods. This fact results in a gap between the demand for commodities and services and the limited supply, a situation that leads to inflation,” he said.

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