Local monopoly steels self

for antitrust law 

ABDALLA F. HASSAN | Business Monthly | January 2003

These days Egypt is doing its best to bring its economy—and the legislation governing it—into accordance with international norms. The result is often manifested in an official schizophrenia, with economic neoliberals, desperate for modernization, arguing with those who put social cohesion—a euphemism for “status quo”—before anything else.
 

Nowhere is this more apparent than in the current makeup of the ruling National Democratic Party (NDP), where young free traders vie with the “old guard” for the fate of the nation. And no single person embodies this paradox more than steel baron Ahmed Ezz, a leading member of the newly revamped NDP politburo and chairman of the People’s Assembly’s Planning and Budget Committee.
 

Within government and party circles, Ezz has been a champion of free-market economics, advocating a government fund to encourage exports, the privatization of public services like health care and education, and the elimination of state subsidies. Ezz has even suggested reducing the number of government workers by three-fourths in order to trim a bloated national budget and free up funds to invest in improving the government’s rustier administrative services.
 

His critics, however, call him a monopolist. 
 

Ezz Industries is an impressive business conglomerate with the dominance to influence market prices. The Ezz family has been in the steel business for more than 40 years. The Ezz Group got into manufacturing in 1994 by buying Albaraka Steel Mills, previously owned by a Saudi billionaire. In October 1999, the group consolidated its market position with the purchase of 20.89 percent of Alexandria National Iron and Steel Company (ANSDK), one of Egypt’s largest steel producers. 
 

Together, Ezz and ANSDK have fortified their market position, combining marketing and sales forces under the brand name EZDK. The two companies combined have a local market share of 66 percent, according to Ezz Industries investor relations manager Kamel Galal. 
 

Most observers agree that Ezz controls local prices. “Ezz and ANSDK can influence steel prices,” said one investment analyst at a major brokerage. “If they raise prices, others producers may raise prices as well. They are leaders in this sense. But they also compete with imports.”
 

“The fact that the new merger makes a single company that controls almost 70 percent of the total local market seriously discourages new players from attempting to enter the market,” said Ahmed Farouk Ghoneim, assistant professor at Cairo University’s faculty of economics and political science.
 

The country’s nascent antitrust law aims to settle these sensitive issues. The People’s Assembly has yet to pass the antitrust law, although a draft has been on the drawing board for years and the World Trade Organization has advocated its speedy passage. 
 

The draft antitrust law stipulates that “the management of more than one competitive entity may not be combined if they represent more than 30 percent of the total amount of the product in the market”—at least not without the prior approval of the antitrust regulatory body.
 

Pro-business lobbies have suggested increasing that percentage to 35 percent. Still, the draft law—which might be used to break up existing monopolies—puts the Ezz/ANDSK alliance at risk. Critics, however, argue that Ahmed Ezz’s new government position will shield him from the effects of such a law.
 

Article 3 of the draft antitrust law reads: “The law does not apply to strategic enterprises that are owned or administered by the nation. The goal would be to make available drinking water, natural gas, electricity and gasoline. This applies to other enterprises by presidential decree.” 
 

Recently, the company appears to be consciously nourishing its image as just such a “strategic enterprise,” hoping, perhaps, for the decree that would allow it to continue its market domination unimpeded. In television commercials, EZDK has aimed to reinforce its image as a social benefactor, with awestruck Egyptian families shown beaming at impressive infrastructure projects like the Bibliotheca Alexandrina and the Suez Canal suspension bridge. 
 

In response to “monopoly” accusations, Ezz’s Galal argued that major steel exporters around the world are also dominant domestic producers, giving them the economies of scale to be competitive in a global marketplace. “This is the case for British Steel, for example, which commands 80 percent of Britain’s steel market,” he noted. 
 

Provisions of the draft law against monopolies also exempt enterprises that are “designed for export purposes.” Last year, the Ezz Group exported 215,000 tons of steel to 15 countries, while Egypt’s total imports of steel amounted to merely one percent of global market share in 2001, Galal said. And this is at a time when the government is trying desperately to encourage exports. 
 

Some observers doubt that the law will open up the market for competition, regardless of what exemptions are doled out by the government. Ghoneim argued that Egypt does not need to pass an antitrust law, but it definitely needs to implement an antitrust policy. 
 

An effective policy, he explained, would involve not only new legislation, but a complementary regulatory environment that promotes competition, protects intellectual property rights, eliminates subsidies and non-tariff barriers to trade, and reforms investment and tax laws. “Institutional change never occurs in a vacuum,” Ghoneim asserted. “It alters the impact of existing laws.”