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Paul Cochrane, in Cairo and Imen Bliwa, in Tunis, report on the future potential for the coatings sector in north Africa
Egypt was one of the fastest growing paint markets in the Middle East and North Africa (MENA) in 2021 and early 2022 but the depreciation of its currency on foreign exchange markets, surging inflation and an economic downturn over the past year is now depressing the sector.
“The Egyptian market has been excellent in terms of growth opportunity but challenged by currency devaluations and new importation procedures,” said Christopher Sharkey, Director, Infrastructure Sales Middle East, at Danish paint major Hempel.
Like many paint companies, Norway’s Jotun had been anticipating the Egyptian market would continue to be one of the fastest growing in the MENA, forecasting growth in 2022 and 2023 at 10–11%. That was, however, prior to the first round of devaluations of the Egyptian pound (EGP).
India and US-based Industry ARC predicts that Egypt’s decorative coatings market will be worth US$950M by 2027, after growing at a CAGR of 6.2% from 2022 to 2027
In March 2022, under International Monetary Fund (IMF) conditions to meet a requested US$3bn loan – Egypt’s fourth loan from the lender in six years – the country allowed its pound to fall 14%, to EGP18.27 to the US dollar. The currency depreciated again in October and in January 2023 to EGP32, while black market rates reached EGP40 – a loss of more than half of its value against the US dollar over the past year.
“The Egyptian market was marked by a series of dramatic devaluations of the Egyptian pound, while suppliers importing their material to Egypt have been subject to a new bureaucratic process which was difficult to navigate when it was first implemented,” said Sharkey.
The result is likely be a softer Egypt paint and coatings market in 2023, with slower growth – but the size of this sector is still significant. India-based Uniquesdata told PPCJ that in 2022, sales amounted to US$820M.
Germany-based Statista predicts that paint, wallpaper and related supplies sales will generate US$1.22bn sales in 2023. India and US-based Industry ARC predicts that Egypt’s decorative coatings market will be worth US$950M by 2027, after growing at a CAGR of 6.2% from 2022 to 2027.
Bumps in the road
This is despite the fact that in May (2022), the Central Bank of Egypt required businesses using foreign currency to obtain letters of credit from banks instead of trading directly with international suppliers. This resulted in businesses struggling to pay for imports due to the shortage of foreign currency and led to a backlog of some US$15–16bn worth of goods at Egyptian ports. Imports have only started to be cleared since December, according to the Egyptian government.
“All markets have been affected by Egypt’s tough import controls. Most importers of materials have reported challenges in navigating the economic disruption presented in 2022. There has been evidence of inconsistent supplies in the building material market, particularly in the early phase of the changes. However, the widely held view is these challenges are a bump in the road and the longer-term view of the market remains positive. Smaller suppliers with limited access to facilities may struggle to weather the storm,” said Sharkey.
Larger companies are not simply better placed to deal with such problems, they already dominate the Egyptian market: Sipes Egypt, the International Group for Modern Coatings (MIDO), Pachin, GLC Paints and Scib Paints (Asian Paints) are key players, said India-based market researcher Mordor Intelligence. The marine, energy and infrastructure coatings segments together are estimated to be worth US$63.7M, and the decorative sector US$106.2M, according to Hempel.
With the IMF predicting Egypt’s post-Covid recovery will slow to a 4% GDP rise this year, decorative paint sales may be impacted. One key reason for this is the country is experiencing its highest inflation rate in five years, reaching 32.9% in February, according to the Egyptian Central Agency for Public Mobilisation and Statistics (CAPMAS). While Sharkey said these price rises have yet to spark an immediate shift in the market due to price sensitivity, “The medium-term impacts of the recent economic developments need to be monitored carefully over the coming months.”
Meanwhile, demand for paint in Egypt continues to be driven by major investments by the public sector. With the government splurging on major infrastructure and other construction projects, with total new building output expected to reach a value of US$44.34bn by 2025, according to the Oxford Business Group, paint and coating purchases will be expanded. Longer-term projects include US$45bn for a new administrative capital city 45km east of Cairo and US$88.5bn being spent on anew railway system, according to government data.
“The construction market itself is strong, with many projects at execution stage and a healthy pipeline of projects at pre-execution stage. The segments Hempel is active within are largely being driven by public sector projects, with the split 70:30 public to private sector activity,” said Sharkey.
Housing development projects to meet Egypt’s burgeoning population, growing by 1.5M people a year, to the current 104.39M, are also driving the market, with US$40bn earmarked for housing projects over the next decade, according to CAPMAS figures.
So, despite this year’s wobbly economy, “The Egyptian paint market looks healthy in the longer term,” said Sharkey. “We expect to see strong growth in the projects part of the market, led by large-scale governmental spending in both energy and infrastructure segments over the next three to seven years,” he added.
Looking west in the region, Tunisia, a smaller but more developed market, holds similar long-term promise for the paint and coatings sector. Its paint, wallpaper and related supplies segment is expected to generate revenue of US$152.30M in 2023 for a population of 12.2M, according to Germany-based statistical service Statista. It estimates that this Tunisian paint and wallpaper market will grow by 2.51% each year from 2023–2028.
International majors play a key role in this market. For instance, the Netherlands-based AkzoNobel has had a majority stake in Tunisia’s Astral since 1998. Astral is a strong local brand, having been in business since 1931 and still offers more than 5,000 paint colours throughout Tunisia at retail outlets, many manufactured in Tunisia. An independent local rival is SOGIP (Société Générale des Industries de Peinture), selling its Luxtral line of paints, making up to 100t of paint and coatings per day, but focusing on exports – with just 14% of sales secured in the domestic market.
In the meantime, the government is seeking to modernise the sector in Tunisia by drafting a law banning the use of lead in paints sold in the country, which is still pending discussion and authorisation by the country’s parliament, which started sitting in March (2023) for the first time since its predecessor was dissolved in 2021. Some companies are moving ahead to a lead-free future anyway, for instance Astral, which has been a leader in ensuring “all its products are free of lead,” a spokesperson told PPCJ.
The company has been keen to demonstrate its sustainability by creating an ‘Astral Academy’, which supports artisanal painters and offers free training courses to paint service professionals in the sector to boost their technical abilities, helping younger Tunisians boost their chances of employment. Astral also sponsored the Chokri Belaid World Forum for Arts and Culture, staged in Tunis this February, seeking to be associated with a cultural event that supports artists from different countries. Such innovation will be important as the Tunisian paint and coatings sector looks for prosperity in a country where annual inflation as of February exceeded 10% and 2023 growth is forecast by the World Bank to be just 2.3%.
For more information, contact Keith Nuthall, International News Services:
Tel: +44 (0) 207 193 4888; email: [email protected]
The Middle East Coatings Show takes place in Cairo on June 19-21 this year. More information can be found here: www.middleeastcoatingsshow.com