Egypt's chemicals industry investing in local capacity

The chemicals and plastics sector has a long history in Egypt, and it is becoming an increasingly important component of the country’s industrial output and export base. With strong demand for a range of industrial chemicals and for plastics to serve the thriving fast-moving consumer goods market, the sector is likely to become an industrial heavyweight in the coming years. According to Mohamed El Kheshen, chairman of Evergrow, a fertiliser company, “The chemicals sector is one of the most stable and oldest segments in Egypt, and there are some interesting trends when it comes to new integrated chemical projects, such as in fertilisers.”

Legacy & Potential

The first petrochemicals plant in Egypt, an ammonia facility, was established in Suez in the 1940s. As of 2013, the petrochemicals sector accounted for 3% of GDP and 12% of the industrial sector. In 2013/14, the plastics and petrochemicals industry was worth $7.5bn, according to the Egyptian Industrial Development Authority. This strong performance is being driven by both high demand for fertilisers from the agricultural sector and a high level of plastics consumption in the country. As of 2012, plastic consumption per capita stood at 25 kg, with demand growing by 6% per year.

However, there remains substantial room for growth, given that the current European average stands at 136 kg per capita. Similarly, for agro-chemicals, there is likely to be a sharp uptick in domestic demand. Indeed, the government is working to bring more land under cultivation across the country. For example, in the Western Desert in August 2015, the government expanded a land reclamation project for agriculture to approximately 600,000 ha.

Export Oriented

These moves should ensure that there is a large and ready-made market for a range of petrochemicals and finished products. Furthermore, manufacturers are not simply catering to the domestic market. At a time when the industrial sector has been suffering and exports have been falling, the plastics industry is growing its sales to foreign markets. In 2014, Egyptian plastic exports reached LE10.6bn ($1.4bn), an increase of 21% on the previous year. The Egyptian Indian Polyester Company was the largest exporter, with LE1.5bn ($204.5m) worth of overseas sales. It was followed by the Egyptian Propylene & Polypropylene Company, with export revenues of LE1.3bn ($177.2m) in 2014, according to the Egyptian Chemical and Fertilisers Export Council.

Although issues surrounding access to power, gas and foreign currency persist, these figures suggest that the sector is continuing to excel. The country is certainly helped by its location, due to its proximity to many high-consuming markets.

Strong Interest

Given these numbers, it is unsurprising that foreign players are looking to increase their investments in petrochemicals and plastics production within Egypt. In April 2015 the local press announced that Indian chemicals firm Sanmar plans to expand within the country. The company is looking to extend the Trust Chemical Industries plant in Port Said, with ambitions to turn it into the largest producer of PVC and caustic soda in the Middle East and North Africa region. Sanmar will invest $350m to this end, bringing its total investments in the country to $1.45bn, according to the Egyptian daily Al Ahram.

These private sector moves will be supported by the government’s National Petrochemicals Plan, a 20-year programme that is entering its third phase. Under the strategy, Egypt is expected to bring more than 3m tonnes per annum of additional capacity to the market by 2020. This will involve a range of products from ethylene and polyethylene to olefins and aromatics. Given the difficulties facing industrial development in the country, it is as yet unclear whether these plans can be executed on time. Nonetheless, the prospects for the sector are healthy and investment should continue to flow into the sector.