28 November 2012 13:23 [Source: ICIS news]
LONDON (ICIS)--Egypt’s renewed political unrest and its proposal to secure a $4.8bn (€3.7bn) loan from the International Monetary Fund (IMF) will only worsen the long-term difficulty faced by its converters in accessing credit, industry sources said on Wednesday.
“It is normal – we have been living this situation for the last two years,” one Egyptian converter said.
“It is not that bad. Normally, converters shut down their factories, [but on] Friday, people are going back to the square,” another told ICIS.
On Tuesday, thousands of protesters from Egypt’s non-Islamist opposition groups crowded the central Tahrir Square denouncing Islamist President Mohammed Mursi’s recent announcement aimed at expanding his powers and protecting his decisions from judicial review until the election of a new parliament, which is expected in the first half of 2013.
“Frankly, I don’t see anything bad. I’m from the opposition – he is just doing what they normally do. The normal bureaucracy is going on – neither bad nor good,” the second Egyptian converter said.
Meanwhile, earlier this month, the IMF reached a preliminary agreement with the Egyptian government on a $4.8bn, 22-month loan. The IMF board is expected to review the loan on 19 December.
“The idea of borrowing money and more money is rubbish. You cannot pay back it. The best way is to reduce our subsidies – petroleum is subsidised. Not one or two or 10 IMF loans will help the economy,” the second converter said.
Both the political unrest and the economic debt are unlikely to raise Egypt’s profile among foreign investors or improve the Central Bank of Egypt’s (CBE) standing with banks abroad, the source said.
First, a lack of much-needed foreign investment will adversely affect the start-up of new companies in Egypt, and consequently the country’s manufacturing sector and its polyolefin demand, the second converter said.
“The political situation always affects the economic situation. [Mursi] comes up with these announcements and it affects new investments”, the second converter said. “But for already set-up investments, it is no problem.”
Second, CBE’s poor standing will continue to mean difficulties for converters in opening letters of credit (LCs) recognised by banks abroad, the source added.
“It is not easy to be an Egyptian and ask for credit, say, from China, because your banking in Egypt has gone down. Egypt, because of the revolution for two years, is going down,” the second converter said.
“You have higher fees for opening an LC. The banks in Hong Kong or Taiwan ... do not trust the Egyptian banks. The risk is high for them, so then you have to pay a higher fee to open the LC, as you need to get the support of a class-A bank such as JP Morgan.”
Egypt produces homopolymer raffia PP and high density polyethylene (HDPE) locally, but has to import the remainder of its polyolefin supply from the Middle East and Asia. Most importing PE and PP producers include LCs in their terms and conditions, in order to ensure their payments are guaranteed.
Some of the converters with enough cash flow are finding ways to get by, and choosing to pay with cash, rather than open an LC, according to a distributor that sells PE and PP into Africa.
Problems with credit extend across the board, the distributor added: “Converters selling to the Egyptian government have had a difficult time getting their payments.”
Last week, another distributor selling into northern Africa described markets in the region as “open credit markets”, where converters have to rely on flexible credit terms from importing PE and PP producers.
Local Egyptian PP producers include Egyptian Propylene & Polypropylene Company (EPPC) and Oriental Petrochemicals Company (OPC), while Sidi Kerir Petrochemicals Co (SIDPEC) produces HDPE.
($1 = 0.77)
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