* Study estimates over 4,500 factories shut since revolution
* Power cuts, strikes, poor security, financing difficulties
* Government pressured into hiking industrial fuel price
* Currency depreciation should be boon to exporters
* But operating environment too poor for many to profit
By Asma Alsharif
MADINAT ELSADAT, Egypt, Feb 27 The blue steel
gates of Abu al-Makarim factory, once busy with staff carrying
Egyptian carpets for export, are now rust-encrusted and bolted
shut after worker strikes and financial problems forced the
plant out of business eight months ago.
The abandoned facility in Madinat Elsadat, near Cairo, is
one of thousands that have fallen victim to the instability of
post-revolution Egypt. Many that remain open are plagued by
power cuts, strikes, poor security, and difficulty securing
loans in credit markets where they are squeezed out by an
The plight of Egypt's industrialists points to the wide
range of ways which the economic environment has deteriorated in
the two years since Hosni Mubarak was toppled.
Because of endemic political conflict, foreign investment
has shrunk and foreign currency reserves have slid to critically
low levels as President Mohamed Mursi's Muslim Brotherhood
prepares for parliamentary elections starting in late April.
At Madinat Elsadat, 75 of the 525 factories that once
operated in the complex have shut down since the revolution,
according to a report by the Centre for Trade Union & Worker
Services. Up to half of the factories are struggling.
Countrywide, the report estimates over 4,500 factories have
shut since the revolution, swelling by hundreds of thousands the
ranks of unemployed in a nation where two-fifths of the people
live on or around the poverty line. The unemployment rate is
around 13 percent, according to official data, but private
analysts believe the actual rate is much higher.
The Abu al-Makarim Group, which had employed more than 4,000
workers at seven factories, had been struggling even before the
uprising against Mubarak erupted in January 2011. The wave of
industrial action that ensued was the final nail in its coffin.
"There were strikes, asking for raises. Each day cost
hundreds of thousands," said Hassan Abu al-Makarim, who ran the
company before the revolution. "There was also a shortage in
financing to buy material."
It is a complaint echoed by many other businessmen. The
government is borrowing heavily to finance a budget deficit
forecast to hit 10 percent of national output this fiscal year.
That is soaking up the money available to industry.
The risks of doing business are heightened by a security
vacuum which the police have been unwilling or unable to fill
since Mubarak's rule ended.
In Madinat Elsadat, set up in the 1980s to shift population
out of Cairo, police are few and far between. Gangs intercept
shipments and steal goods on their way out of the industrial
"Some investors closed up and left because of the lack of
security and stability," said Ahmad Shaheen, owner of a facility
where fruit and vegetables are stored and frozen for export.
He said his clients had in many cases hired armed guards to
protect trucks during transit to and from the depot.
For some business owners, the security risks come from their
own employees. Workers at one Madinat Elsadat clothing factory
detained the owner overnight after salary payments were delayed
for two months, said Abdulaziz Ghaslan, who used to work there.
"There is no control over workers anymore. They were under a
lot of pressure before the revolution so when everything became
so loose, they became people who do not want to be controlled,
asking for their rights," he said. Ghaslan lost his job at the
factory following work stoppages.
Workers demanding better salaries barricaded the gates of
their cement factory with concrete blocks during one recent
burst of industrial action.
In some ways, the revolution still promises to benefit
industrialists. By sweeping away some of the entrenched business
interests and corruption that surrounded Mubarak, it offers new
freedom and opportunities to investors.
The slide in the Egyptian pound, down about 8 percent since
late December to record lows against the U.S. dollar, is a boon
to some exporters. Egyptian investment firm Citadel Capital
, which owns stakes in companies which export over $300
million a year in various industries including food, says it is
"Currency devaluation is affecting our business positively.
If you are investing in an exporter or import substitute, then
you'll benefit," Citadel founder and chairman Ahmed Heikal told
Reuters, predicting that exports would rise substantially.
But many or most Egyptian companies feel they are in no
position to take advantage of the positive changes because the
operating environment is so poor.
Energy shortages, for example, have resulted in gas supplies
being diverted from businesses to the national pipeline;
factories that depend on gas to function have either cut back
their output or shut down altogether.
The cost of subsidising imported fuels sold by the state
below market prices is becoming unsustainable for the
government, and this is creating further uncertainty.
Last week, the government announced a 50 percent increase in
the price of fuels used by some industries, triggering protests
by brick factory workers whose sector was one of those affected.
In coming months the government hopes to secure a $4.8
billion loan from the International Monetary Fund, easing the
financial pressures on it, but to obtain the deal it is expected
to have to commit to further subsidy cuts.
Foreign investors were excited by the opportunities that
Egypt had to offer just after Mubarak was toppled, said Mohamed
Talaat Khalifa, a financial analyst. Would-be investors now list
concerns about everything from logistics to security; some are
postponing projects until the situation is clearer, he said.
"There are problems with shipping, problems with the
logistics and even security in transporting goods from the
factory to the port," he said.
As a result, insurance premiums and other costs have risen
to levels where projects may no longer be economically viable.
"They're definitely eager to invest in Egypt. Just as the
Gulf has oil, Egypt's oil is its people...but there cannot be an
appetite unless there is stability."
(With additional reporting by Mirna Sleiman in Dubai; Editing
by Tom Perry and Andrew Torchia)