Egypt: Resuming building construction

Safeya Mounir , Friday 9 Oct 2020

The government has allowed the construction of buildings to resume with positive consequences for the materials sector

Construction resumes
photo: Reuters

Following a suspension of five months, the cabinet has given the green light to the holders of valid building permits issued before the decision to stop construction taken on 24 May and people who had already started building before that date to resume construction provided that any buildings built are not more than four storeys high.

The government had earlier halted construction in Greater Cairo, Alexandria, other large cities, and the capitals of the governorates, announcing that the decision would be effective for six months.

“Resuming construction will help the building materials sector, including cement manufacturers, to improve sales,” said Dina Abdel-Badie, an analyst at Prime Holding.

Egypt’s cement sector has been suffering from woes such as oversupply and high production costs that had rendered local cement more expensive than that on international markets, leading to a halt in exports.

Such issues will not be solved by the decision to resume construction, especially since the cement companies will not benefit from a possible reduction in Egyptian natural gas prices since the majority of them use coal, Abdel-Badie said.

Solomon Baumgartner Aviles, CEO of Lafarge Egypt, said it was difficult to accurately assess the effect the decision would have for valid building permit holders because the majority of four-storey buildings were private buildings and there were no statistics about the percentage of these in the construction market.

He expected most people to wait until new building regulations were issued before they committed themselves to new investments. The government is set to announce new building regulations before 24 November, the deadline of the six-month suspension.

Meanwhile, difficult conditions in the marketplace and the competitive environment of the cement sector have dealt cement producers a financial blow, Aviles said, adding that any change in policies that would lift the pressure from the sector would be welcomed.

The cement sector had been stagnant even before the government’s decision to suspend construction due to the Covid-19 pandemic, said Medhat Estifanos, head of the Cement Division at the Egyptian Federation of Industries, adding that resuming construction would help to finish buildings that had already been part constructed.

The government’s decision to suspend construction was aimed primarily at stopping haphazard building. The decision to resume construction for valid building permit holders will mostly affect individuals constructing buildings over four storeys high. People with permits to construct six-storey buildings or higher would have to wait until the new building regulations were issued, Estifanos said.

The cabinet approved a bill to amend the building laws in March, with the amendments extending building permits from one to three years, facilitating procedures, reducing the time needed to obtain a permit, and toughening penalties for individuals violating the codes.

The suspension decision in May excluded construction in the new cities or on mega-projects, these comprising 50 per cent of the sale of building materials and therefore reducing the losses suffered by cement and steel companies, Estifanos said.

Sales of cement and steel have been declining in Egypt since 2016, dropping by 25 per cent over the past four years. Cement and steel sales had decreased by 10 to 15 per cent over the past year alone due to the coronavirus outbreak and the decision to suspend construction, Estifanos added, with the latter decreasing construction material sales by five to six per cent.

During a meeting of the Cement Division of the Egyptian Federation of Industries, the cement companies said the government should intervene to find “radical solutions” to ensure the survival of the sector in the light of oversupply and the building stoppage, the Al-Shorouk newspaper reported.

Estifanos said demand for cement was expected to decrease to 43 million tons. Since the annual capacity of Egypt’s cement factories is 83 million tons, 40 million tons of oversupply may drive investment out of the market.

The Arabian Cement Company said earlier this month that it expected local demand for cement to drop to 45 million tons, compared to 49 million tons in 2019.

*A version of this article appears in print in the 8 October, 2020 edition of Al-Ahram Weekly

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