Wednesday,13 December, 2017
Current issue | Issue 1308, (18 -24 August 2016)
Wednesday,13 December, 2017
Issue 1308, (18 -24 August 2016)

Ahram Weekly

Refuting the sceptics

President Abdel-Fattah Al-Sisi was firm in his refutation of critics of government policy this week in a speech opening the Egyptian Ethylene and Derivatives Company in Alexandria, the largest in the Middle East, writes Galal Nassar

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Al-Ahram Weekly

President Abdel-Fattah Al-Sisi’s campaign to refute sceptics who question the value of the country’s new mega-projects has entered its second week. In addition to some opposition voices at home, the scepticism is to be found in some western media outlets, among them the UK magazine the Economist which recently published a lengthy analysis of the Egyptian economy. The magazine also took a stab at Al-Sisi himself, claiming that he is driving Egypt to destruction, and it also proposed a ban on selling weapons to the country’s military.

Al-Sisi is determined to counter such claims. Last week, this paper reported on the president’s remarks on the occasion of ceremonies marking the first anniversary of the inauguration of the New Suez Canal. Last Saturday he was just as firm in the remarks he made on the inauguration of the largest petrochemicals complex in the Middle East. This took place on the eve of the agreement in principle between Egypt and the IMF, a development that triggered rumours predicting “tough measures” ahead for the Egyptian economy.

In his speech inaugurating the Egyptian Ethylene and Derivatives Company (ETHYDCO) complex in Alexandria, Al-Sisi addressed the need to reduce the country’s budget deficit. “The deficit means borrowing and taking out loans,” he said. In order to reduce the deficit, it was essential to decrease the gap between the country’s income and its expenditure and particularly to rein in the subsidies and regulate them more efficiently. This would not necessarily signify a rise in fuel prices, he stressed, but rather a drive to ensure that the subsidies benefitted their intended recipients. “It doesn’t stand to reason for someone to own a car that costs a lot and still get subsidised goods,” he said.

At the same time the president took the opportunity to stress that the public would be informed of whatever actions the government intended to take in this regard. “I hope rumours don’t start circulating and getting people worried needlessly. Whatever measures we take will be announced transparently,” he said. He was keen to answer the Economist’s statistics with statistics of his own. Egyptian experts and people close to the government believe that the magazine manipulated its statistics, whether fabricated or derived from sources in Egypt, to paint a distorted picture of the situation.

Of the second generation of new cities, four of which are in Upper Egypt, Al-Sisi said that “we will complete the construction of 800,000 to a million new apartments by 2018 and of 150,000 housing units for inhabitants in risk areas by mid-2018.” About 1.2 billion m2 of land have been allocated to the construction of the new cities. He also took the occasion to laud efforts to assist limited-income sectors of society, the Solidarity and Dignity Programme launched in March 2015, and the government’s raising pensions by 35 per cent over the past two years.

The president said that two of the four tunnels beneath the Suez Canal into Sinai would be completed by 2018, as well as two large fisheries, a livestock farm that will be one of the largest of its kind in the region, and one of the largest greenhouse projects in the region.

As is his custom in such speeches, Al-Sisi addressed a particular message to the country’s women. “Please stand by Egypt now, because Egypt is rising… and it will become [an international power],” he said, alluding to the role women can play in controlling domestic expenditure.

He then turned to the economic situation in general and the package of stringent measures required to remedy it. He underscored the magnitude of the challenges, noting that the economic straits affected all sectors of public services, from education and healthcare to infrastructure and projects that create job opportunities, and he stressed that challenges of this magnitude demanded the collective efforts of all the Egyptian people.

The economic capacities of the state have been gradually eroding since the 1967 and 1973 Wars. The economy had been greatly damaged by these wars because they required huge amounts of money and had turned the national economy into a war economy for many years, Al-Sisi said.

He said he had asked former prime minister Hisham Qandil (who served during the period of Muslim Brotherhood rule) to be frank with the people and explain the economic situation to them. However, Qandil had not heeded that advice. He added that all previous governments had been cautious about introducing economic reforms for fear of negative public reactions, alluding to the first attempt at serious reform measures in 1977 and the subsequent retraction of these following the eruption of riots.

Al-Sisi intends to depart from that course, and he is banking on his strong popularity in order to do so. “We need to bring government expenditure under control. This includes the subsidies, so we can ensure they reach their intended recipients,” he said, adding that he was determined to take the tough decisions which had been put off for decades. Egypt could not continue to sustain such a high level of debt, he said. It must begin to pay back its debts and reduce its reliance on loans. “The Egyptian people are a very good people. They will not allow such challenges to keep their country from the place it merits in the world,” the president said.

A major challenge has been the blows delivered to the Egyptian tourist industry following the crash of the Russian passenger plane in Sinai last year. These blows had been aimed at undermining the Egyptian state and preventing progress, Al-Sisi said. Another challenge was corruption, which had also drained the Egyptian economy, but which the government was determined to fight. He also brought up the economic impacts of the revolutions that the country has seen since 2011. Revolutions had pros and cons, Al-Sisi said, and we needed to recognise this in order to remedy their detrimental effects.

“After the 25 January Revolution, the economy was negatively affected by the appointment of 900,000 employees to the government bureaucracy, and this at a time when the country did not need one extra civil servant... Increasing the government payroll by LE150 billion in a single year without an increase in resources placed a very heavy burden on the state,” he said.

Bringing the government’s income and expenditure into balance was a major challenge that had been put off for decades. The domestic debt alone had risen from LE800 billion to LE2.3 trillion, and salary hikes for public-sector employees had caused an LE600 billion spike in domestic debt, he said.

 

POSITIVE REACTIONS: Gamal Bayoumi, secretary-general of the Federation of Arab Investors, lauded Al-Sisi for the many tough yet economically beneficial decisions he had taken since assuming office. One of the most important had been the decision to invest in the petrochemicals sector with an eye on generating added value to the petroleum that Egypt produces, instead of exporting it in crude form, he said.

A second crucial decision taken by the president had been “to revise the subsidies plans, not to lift the subsidies as some have been saying,” Bayoumi said. He explained that the president’s plans focused on ensuring that the subsidies reached their intended recipients, namely the poor and limited-income sectors of society, as opposed to the well-to-do. “These are plans designed to ensure the realisation of social justice,” he said, adding that “we can’t go on subsidising fuel, two-thirds of which goes on embassy cars, the cars of the rich, and businesses.”

Mahmoud Suleiman, chair of the investment and investors committee in the Federation of Egyptian Industries, echoed the president’s views regarding the fact that tough decisions should have been taken a long time ago. Previous governments had consistently deferred such decisions for fear of public reactions, he said, causing economic problems to accumulate and leading to the consequences that have been straining Egypt for years.

Suleiman underscored the need to raise public awareness on this matter, enabling people to realise that these decisions worked in their favour because they helped to realise the concept of social justice in its broadest sense. The most important decision taken by the president had been to restructure the subsidies system, he said, “because this entails restructuring tax burdens, pensions and incomes in a manner that achieves social justice.”

According to Medhat Yussef, an international energy expert who has previously served as deputy-director of the General Petroleum Authority, the decision to reduce the energy subsidies bill, whether for electricity or petroleum fuels, had been one of the most important of the many difficult decisions taken by the president.

“There were no other possible solutions available to save the economy,” he stressed. He went on to explain that the “economic value of these decisions is that they seek to regulate consumption and reduce the balance of trade deficit by lowering imports and averting pressure on the country’s dollar reserves, especially in this critical phase when Egypt has had difficulties regarding the availability of hard currency.”

The inauguration of the giant petrochemicals complex in Alexandria was intended to convey at least one major message to sceptics and others, which is that development in Egypt is proceeding on two parallel courses. On the one hand, there are the mega-projects that will benefit future generations and that are laying sturdy foundations for the economy. On the other, there are major new projects, such as the petrochemicals complex, that will inject rapid revenues into the Egyptian economy.

Minister of petroleum and mineral wealth Tareq Al-Mala told the Weekly that “the Ethylene and Derivatives Company in Alexandria is 100 per cent Egyptian and is the fruit of cooperation between the petroleum sector and the Egyptian national banks.”

With 51 per cent of the shares held by the petroleum sector and 49 per cent by the national banks and other organisations, the company will have production volumes of 480,000 tons, of which 400,000 will be polyethylene, 60,000 ethylene and 20,000 betadine. The total investment in the project is US$1.925 billion, according to Al-Mala, who added that the company would generate around 10,000 jobs.

ETHYDCO plans to supply the needs of the local market for polyethylene and its derivatives and hopes that small and medium-sized enterprises will turn to it for their needs. He stressed that the company’s strategy was to ensure that its operations were environmentally sound, to optimise local components, and to preserve resources. The petrochemicals industry overlaps with many other industries, including the manufacture of various types of plastics, water and gas pipes, construction materials and many of the hundreds of products that we use in our daily lives.

Addressing the environmental aspect of ETHYDCO, environment minister Khaled Fahmi explained that local and global environmental challenges meant that it was essential to take environmental impacts into account in all industrial projects, but that modern technologies had made it possible to reconcile industry with the environment. In an interview with the Weekly, the minister underscored the need to cut down energy consumption and to recycle wastewater. He also stressed that his ministry would be monitoring the environmental performance of the new petrochemicals complex by means of a modern system of environmental sensors.

“We have major environmental problems in Egypt. The environmental deterioration began some 50 years ago, but today we have the capacities and the know-how we need in order to improve the environment,” Fahmi said. He stressed that such improvement did not necessarily have to take a long time. It had only taken some 25 years to rectify the environmental situation of the River Rhine in Germany, for example, which had become a conduit for the disposal of European waste.

The Ethylene and Derivatives Company sets out to be an environmentally friendly project. It will be the first project in Egypt and the Middle East fully to recycle industrial wastewater. In addition to reducing the consumption of water resources outside the project, this will be in keeping with the petroleum sector’s strategy for achieving sustainable development, encouraging the use of advanced technologies and promoting industrial projects that do not adversely affect the environment.

The project is the most modern petrochemicals project in Egypt and a key project in the national development plan. It is being carried out by the Egyptian Holding Company for Petrochemicals on 175 acres of land in the Ameriya area of the Alexandria governorate.

 

WIDER LINKS: Some observers have wondered why Egypt is investing in a project of this size and cost under its current economic circumstances.

Ibrahim Zahran, an international petroleum expert, explained that ethylene and polyethylene, produced by two units in the new complex, are similar in chemical structure to methylated alcohol, what is more commonly known as “spirit” alcohol. However, “spirit” alcohol only has a single carbon atom, whereas ethylene has two, and polyethylene is a compound of ethylene molecules bound together like a ball of yarn. While ethylene is used in many industries, it is particularly important to the medical and pharmaceutical industries. Polyethylene, on the other hand, is used in the manufactures of textiles using artificial fibres.

While there is little doubt regarding the potential of these products, “the question arises of whether Egypt has thoroughly studied the various aspects that will ensure the success of the new complex, such as the availability of the raw materials from which ethylene and polyethylene are derived,” Zahran said. “Has the market for these products been thoroughly studied, especially in the light of Saudi Arabia nearby?” Saudi Arabia is the largest manufacturer of these products in the Middle East, and Zahran said he would like to have seen greater coordination. 

Petroleum engineering professor Ramadan Abul-Ela was more upbeat. The inauguration of the Ethylene and Derivatives Company in Alexandria, the largest petrochemicals complex in Egypt and the Middle East, was a “sign of hope,” he said, and an indication that Egypt was remedying past mistakes. In the past, the country had relied on the production of compounds instead of gradating the process by beginning with the manufacture of simple compounds and proceeding to more complex ones.

Abul-Ela said that Egypt possessed huge quantities of natural gas, the raw material from which ethylene and polyethylene are derived. “Importing these substances from abroad is very costly and puts a burden on the workers in these factories. It is to be hoped that the new complex will use Egypt’s natural gas resources to produce the substances.”

Ethylene and polyethylene “are used in all aspects of life, from medical uses such as the mixture that dentists use to fill our teeth to the manufacture of plasma screens and other electronic appliances,” he said. In fact, it was because ethylene enters into the production of so many things that people use in their daily lives that the government had been inspired to manufacture the substance itself, he said.

In a similar vein, Hani Al-Nazer, former director of the National Research Centre, underscored how central the petrochemicals industry was to the success of the pharmaceuticals industry in any country. “President Al-Sisi’s inauguration of the ETHYDCO complex will give a great boost to the pharmaceuticals industry in Egypt,” he said, adding that ethylene was used as a medium in the manufacture of many medicines.

The new complex “will make many substances used in the pharmaceuticals industry locally available, freeing us from the need to import them from abroad using hard currency,” Al-Nazer said. (see p.6)

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