Algeria's petrochemicals market is likely to come under increasing pressure with slower growth in demand. BMI's Country Risk team has become more negative on the near-term macroeconomic outlook for the country, having revised down its 2014 GDP growth forecast from 4.4%, to 3.2%. Indeed, we now feel that the economy will grow below potential over the medium term. Given continued delays in investment in the energy sector, net hydrocarbons exports will remain flat over the coming years. The government's inability to liberalise the economy and declining public revenues will also constrain both private and public investment. We project real GDP growth averaging just 3.6% over the 2014-18 period. Against this deteriorating backdrop, we feel that it is right to adopt a cautious near-term stance. We now believe that new vehicle sales could fall by around 3% in 2014, before a recovery begins in 2015.
- This quarter, BMI is less upbeat about the prospects for growth in the Algerian petrochemicals market in response to a downgrade in GDP growth and the continued slow pace of industrial growth. We now feel that the economy will grow below potential over the medium term. Declining hydrocarbon exports will ensure that the economy expands below potential, a trend which we expect to continue over the medium term.
- While the domestic market will absorb some of the rise in output that is due to come from new plants, the successful expansion of the sector is predicated on growth in the European market, which has remained in the doldrums. New capacity will still be rudimentary by contemporary standards and will lack sufficient processing capacity, leaving the country dependent on imports of semi-finished and finished plastic products.
- Algeria has focused on low added-value production, relying on commodity chemicals that are highly price responsive to market fluctuations and easily undermined by capacity elsewhere in the world. The industry is some distance from competing on equal terms with European petrochemicals producers with regard to product diversification.
- Having risen from 10th to ninth place in BMI's Middle East and Africa Petrochemicals Risk/Reward Ratings (RRRs) matrix in the previous quarter as a result of its score rising 7.6 points, Algeria's score and rank remains unchanged this quarter. Its score has stabilised at 48.2 points. However, this could be put at risk if there are further delays to the Arzew petrochemicals complex and expected growth in methanol capacity in 2014. It lies 0.7 points behind Turkey and 3.5 points ahead of Egypt.
811734 456970## Political uncertainty will continue to affect the Egyptian economy in 2014 as the country continues through its rocky transitional period towards democracy. However, the announcement by Field Marshall Sisi in March that he would run for president - a post BMI believes he will almost certainly win - should serve to reduce political risk. We believe that his victory in the upcoming elections will provide a veneer of political legitimacy, thereby releasing US aid flows, and should help the economy get back on track.
Increased security would help in reviving tourism, and other industries, and serve to boost container volumes through Egypt's ports. Equally, should investment start flowing into the country once more then dry bulk volumes for infrastructure projects could also see an uptick.
The presence of the Suez Canal in Egyptian territory provides an important source of income in fees and associated businesses to the Egyptian economy; those ports and transit routes expected to see strongest growth in 2014 are those located near to the canal, such as East Port Said and roads leading to it. However, should instability bring danger to these ports then these could see volumes affected. On the upside, continued delays to the opening of the widened Panama Canal are boosting throughput on the Egyptian waterway.
Headline Industry Data
- Air freight handled at Cairo International Airport is set to grow by 3.7% year-on-year (y-o-y) in 2014 to reach 320,980 tonnes. Over the medium term to 2018, growth will average 4.4% per annum.
- Rail cargo will enjoy expansion of 1.9% in 2014, with growth projected to average 2.3% over the medium term.
- Total tonnage throughput at East Port Said is forecast to grow by 3.5% to 26.51mn tonnes in 2014, and to average 5.4% per annum to 2018.
- Total trade is forecast to see a growth in real terms of 4.0% in 2014, picking up in 2015 to 8.2%.
Key Industry Trends
UASC's A-E Strategy Moves Ahead With East Port Said Container Investment: United Arab Shipping Company's (UASC) increased focus on the Asia-Europe trade route continues to develop, with the shipping line set to invest in a planned second container terminal at Egypt's East Port Said. The port already operates as a box transhipment hub for the Suez Canal, playing a vital role on the Asia-Europe container route. UASC's shipping focus has expanded beyond regional trade, with the company seeking to play a bigger role on this major East-West trade link, having ordered a fleet of the world's largest container vessels that it will utilise on this route.
Transportation Ministry To Invest EGP67mn To Dredge Damietta Port: The Egyptian Ministry of Transportation is set to invest EGP67mn (US$9.6mn) in the dredging of the Damietta Port in order to house huge ships, reports Daily News Egypt, citing Minister Ibrahim Al-Damairy. The project, which is a joint operation between the Damietta Port Authority and Suez Canal Authority's subsidiary Timsah Shipbuilding Company, includes dredging of nearly 1mn cubic metres.
New Canal Rules Favour Big Ships: New rules for the Suez Canal, implemented in February, could save large container vessels on the back voyage to Asia from Europe as much as half a day in sailing time. The vessels will now be able to, for a fee, join the second southbound convoy of the day. This has been made possible by work in the Ballah bypass, which has enabled it to accommodate TEU carriers up to 13,000 capacity.
Key Risks To Outlook
Risks to our outlook for Egypt stem from both the domestic and global fronts. Domestically, the transition to democracy remains rocky, and it is hard to predict with any accuracy exactly what may happen yet after two years of rapid political change in the country. Globally, Egypt is particularly exposed to the eurozone crisis, and any unexpected escalation in that sphere could impact upon our forecasts.
Algeria is set for a surge in petrochemicals output growth this year, provided plans go ahead as scheduled. With a lacklustre domestic market, producers will be reliant on export markets to fill the order books.