Middle East and North Africa Cement Industry- Effect of the Covid-19 outbreak

Tanmoy Ghoshal, Pomet Engineering

  • 26 March 2020
  • Author: Jon Shelbourne
  • Number of views: 159
  • 0 Comments
Middle East and North Africa Cement Industry- Effect of the Covid-19 outbreak

The world is reeling under the coronavirus threat and all industries are battling hard to get over the current situation and trying hard to maintain long term sustainability.

The coronavirus, Covid-19 has hit the Middle East and North Africa at a time when the region was already burdened with multiple problems, including a series of long-running conflicts, sectarian tension, economic crises, and widespread political unrest.

IRAN

An economically hamstrung Iran has become the epicentre of the Covid-19 crisis in the Middle East. So far, Iran has announced that more than 18,400 people have tested positive for the virus, and 1,284 have died from the disease – although the real figures are likely to be much higher. The Iranian authorities have struggled to contain the epidemic and have come underextensive scrutiny at home and abroad for their delayed response and lack of transparency. It is reported “50 new cases of infection are detected every hour and one death recorded every 10 minutes”.

The crisis has also highlighted the devastating humanitarian consequences of US sanctions on Iran, which have impeded the flow of urgently needed medical equipment and humanitarian goods into the country. This week, as the death toll climbed, the US administration introduced further sanctions despite European governments’ reported requests for the White House to relax these measures.

Iran cement industry was highly dependent on its exports. The current situation with deadlock condition in international logistic system will add further stress to the cement industry in Iran over near term. All major cement plant is now under shut down.

Possible diplomatic opening created by the crisis has been in the clear expressions of solidarity with Iran from some members of the Gulf Cooperation Council (GCC). Qatar announced that it is sending urgent medical supplies to Iran. The United Arab Emirates has facilitated flights for the World Health Organisation (WHO) to deliver aid to Iran. The Emirati foreign minister has had a rare phone conversation with his Iranian counterpart – about the response to the virus. Kuwait has announced that it will donate $10 million to Iran’s healthcare fight. While it seems unlikely, a similar move by Saudi Arabia – and perhaps a GCC-Iran technical-level dialogue to coordinate medical and scientific efforts to combat the coronavirus could open up a much-needed avenue for reducing tension between Tehran and Riyadh.

This will give long term benefit to Iran in its industrial comeback.

THE GCC STATES AND YEMEN

With more than 1,000 confirmed cases of Covid-19 between them, the monarchies of the GCC have begun applying stringent measures to contain the spread of the pandemic. The countries can rely on their healthcare systems – which are some of the most efficient in the region and are freely and easily accessible to all citizens. As such, the GCC monarchies will likely be able to manage Covid-19 from a healthcare perspective, in light of the stringent social distancing measures they have applied throughout the crisis. However, the contagion risk is far higher in communities of foreign labourers, many of whom lack access to healthcare and live in conditions in which social distancing is not an option.

A major concern for the GCC authorities is the implications of the virus for international tourism and mega-events. The UAE is anxious about the likely impact of the crisis on Expo 2020, due to begin in Dubai in October. Saudi Arabia is concerned about the potential impact of the virus on its current presidency of the G20, a role of paramount importance to the country’s leadership. Oman, whose strained budget increasingly relies on international tourism, is already counting on major losses from the crisis.

Construction work and further cement demand likely to face big impact in coming quarters. The connection between the pandemic and the collapse of the oil market is even more significant for GCC countries. The fall in demand from a disease-hit China, the top export destination for Saudi Arabia’s oil, was the initial reason that Riyadh sought an agreement to cut production with other energy producers. Russia’s refusal to play along led Saudi Arabia to unilaterally cut its export prices by nearly 10 percent. For a time, this strategy, combined with the economic slowdown caused by the pandemic, caused the oil price to plummet. This is problematic for all GCC monarchies, which rely on energy revenue for the lion’s share of their budgets. The situation presents an especially significant challenge to countries whose public finances are in a dire condition, such as Bahrain and Oman. These two states have not announced stimulus packages to weather the crisis – in contrast to Qatar, Saudi Arabia, and the UAE, which have allocated billions in support to private businesses.

The entire regional cement industry will see huge capex and opex cut down with major shut down of cement plant in near to medium term.

NORTH AFRICA

So far, the coronavirus has had a fairly limited impact on North African countries, most of which have swiftly implemented containment measures. Nevertheless, these countries generally have fragile healthcare systems that may struggle to deal with the spread of the virus. In the long term, Covid-19’s most serious effects on North Africa are likely to be economic, given that the region is dependent on trade and tourism, and already struggles with widespread youth unemployment.

Egypt has been the worst-hit North African country, reporting many cases connected to cruises on the Nile. As of 19 March, Covid-19 had officially infected 210 people in the country (around half of whom were Egyptian nationals), resulting in six deaths. But the true figures could be significantly higher. The virus could spread quickly through Egyptian cities (above all, Cairo) due to their high population density. There are also widespread concerns about its possible impact in Egypt’s overcrowded prisons. Egypt suspended all flights to and from its territory on 16 March, initially until the end of the month. Government officials estimate that the country’s loss of income from tourism could reach $1 billion per month – in valuable hard currency – if these measures remain in place.

Libya, which has been protected by the relative lack of foreigners entering the country, has not reported any cases of Covid-19. However, following nine years of state deterioration, a long period of competition between governments, and a year of conflict in the country’s most populated region, people in Libya are highly vulnerable to an outbreak. This is especially true of those who live in precarious conditions in the country, including hundreds of thousands of IDPs housed in makeshift shelters, and an estimated 700,000 migrants and refugees, most of them from sub-Saharan Africa. Both the Government of National Accord (GNA) and its counterpart in eastern Libya have taken measures to encourage social distancing, such as school closures, and launched public information campaigns. The GNA has also announced the creation of a $358 million fund to combat the virus (although the lack of an accompanying strategy suggests that the money could go astray). Covid-19 may spread through Libya as thousands of Libyans return home, and as mercenaries and foreign forces continue to circulate through its territory.

In Tunisia, the coronavirus is the first major test for a government that only came to power in February, following an election late in 2019. So far, the new leadership’s actions to combat Covid-19 seem to be effective and to enjoy public support. Despite only reporting a couple of dozen cases, Tunisia has imposed strong containment measures: a curfew, a ban on international flights, and the closure of its land borders. Yet, even if it limits the spread of Covid-19, Tunisia is already struggling with persistent economic problems that the virus will only exacerbate, given the resulting collapse in income from tourism and likely decline in trade with Europe.

Morocco will also take a major economic hit from the virus, at a time when years of economic inequality and regional disparities have generated significant public discontent within the country. Morocco has implemented a series of flight suspensions and containment measures – which are largely voluntary, at this stage, but most Moroccans appear to be observing.

Algeria was identified by the WHO as being at unusually high risk from the coronavirus, because of its extensive links with China. However, only a few dozen cases have been reported in the country. Algeria has instituted a series of containment measures, suspending travel and closing schools and mosques, while importing equipment to support its strained healthcare system. The biggest obstacle to countering the virus in Algeria concerns the government’s lack of political legitimacy. Official measures designed to limit public gatherings are widely seen as an opportunistic attempt to end the year-long protest movement that demands change in Algeria’s political system. However, many people with influence over the protest movement have called for the suspension of the demonstrations to protect public health. And there are signs that protests may at least diminish in the coming months, as the movement’s supporters look for other ways to show their opposition to the regime.

Impact on construction projects:

The impact on work force and supply chain continues to be detrimental to progress on site. Many construction professionals and site workers were on vacation in China celebrating Chinese New Year when the outbreak occurred.

As a precaution, mainland China implemented certain safety measures prohibiting outbound travel, meaning these workers are unable to return to the region and continue work.

There will be force majeure invocation shortly which will create immediate burden on capex and timeline of undergoing projects.

Cement manufacturers are going to face considerable challenges and demand consolidation.

Global supply chain severely disrupted

Logistics have been impacted and factory output has been reduced. It has meant material and equipment suppliers have been unable to meet their obligations. This in turn has adversely impacted progress on construction sites and has resulted in delays.

However, with little sign of an immediate cure to the coronavirus, there remains a significant risk of further delays and cost overruns.

Future outlook

We are in uncertainty because of Covid-19 epidemic. Nobody knows when world will recover from this situation. We feel short term disruption will come for cement manufacturers, project company and cement equipment suppliers. Capital expenditure projects will be halted and considerably postponed considering stress on liquidity.

Although there is massive uncertainty, it is likely we will see a quick recovery in the sector. We also feel in short term after recovery cement price will spike under the pressure of heavy infrastructural demand and resumption of halted projects.

 

Note: The opinions expressed in this article are the responsibility of the author and do not necessarily reflect the view of INTERCEM….

Print
Tags:
Rate this article:
No rating

Please login or register to post comments.