Liberalisation seems to have sidestepped Egypt's fertiliser industry. Wael Gamal explores the sector's peculiarities In a clear-cut deviation from the official economic ideology and policies of the past two decades, the fertiliser industry remains entrenched in a state monopoly of production, a central pricing system, antiquated distribution quotas, and major restrictions on exports. The government is not even considering privatisation for the time being; in fact, it is actually investing heavily in building new factories for itself. While other sectors, like banking and insurance, have not been liberalised to a great extent, they have at the very least been responding to the mechanisms of the market. Total production of fertilisers amounts to about 10 million tonnes per year, mainly produced by public companies. Nitrogenous fertilisers are the most important. Although two companies have been privatised, only one Abu Zaabal fertilisers is really owned and run by the private sector. The other, Abu Qir fertilisers, which was privatised in January 1996, is still under state control 33 per cent of its shares are owned by government organisations; 62 per cent by the main four public sector banks; and five per cent by the companys employees. The government considers any private company with 25 per cent or more in public ownership as sufficiently public to warrant an audit by the Public Auditor. Abu Qir fertilisers has a 70 per cent share of the local market, and turns out 52 per cent of its production. The government rather than the market also has the say in allocating production. Until recently, the Agricultural Credit and Development Bank monopolised the distribution of fertilisers. Under pressure from producers and distributors, the government returned to an old quota system: 35 per cent for cooperatives; 35 per cent for the public sector; and 30 per cent for the bank. To make matters even more restrictive, the government banned the export of fertilisers as a tool to deal with the shortage in the local market. That ban was later amended to allow three per cent of production for export. This was despite the fact that Egypt has been a major exporter of fertilisers, producing nearly 12 per cent of international exports, driven by its abundant supplies of natural gas, which provide the industry with a distinct competitive advantage on the international market. These market-phobic imbalances tend to drive the private sector away. Abu Zaabal fertilisers chairman Sherif El-Gabali, who also heads the fertiliser traders and distributors association, as well as the chamber of chemical industries at the Federation of Egyptian Industries, said it was only natural that the private sector chooses to only invest in fertiliser plants in the economic free zones. There, they can both escape the odd situation of fixed low prices for the local market, and also enjoy the right to export. The local market price, which is determined by the state, is about LE500 per tonne (less than $100) while the price on the international market is about $260. Who would invest in that kind of industry? The state justifies the situation by the fact that the fertiliser market has been crisis prone over the past decade. Despite the fact that local production exceeds local needs, a nearly 20 per cent market shortage exists due to growing exports driven by the differences in price. The shortage has been highly disruptive to the agriculture sector as a whole. Investment Minister Mahmoud Mohieddin admits that the sector is imbalanced. His plan to deal with the major obstacles of liberalisation in pricing, distribution and exports involves revising distribution restraints to end market chokes. We are working on the pricing issue on the basis that we are still committed to our policy of subsidising peasants, but this has to be directly, and not at the factorys expense. Exporting is also a major strategic goal for the government. The problem is that it creates a shortage problem, so we are trying to increase efficiency, productivity and the number of factories. These changes wont take place for at least another two years due to technical problems at the factories. A new factory takes up to 30 months to begin production. Market mechanisms and the private sector will remain in the margins till then. According to Mohieddin, however, our strategy will be that the state will lead, and will then leave to provide room for private investments. In the short term, the only thing we can do is continue importing, and create signals that we are serious about dealing with all these unjustified imbalances.
