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In Egypt, during the past 20 years, market entry into the industry was relatively high due to the high profit margins achieved. In addition, there was, and still is, lack of effective government regulation especially related to the marble extraction process from the quarries.
Evolution of the marble industry in Egypt
The ornamental stone industry in Egypt has witnessed a boom in the past few years due to the boom in construction whether for residential purposes or for the building of touristic villages along the Red Sea and the Mediterranean. Mega projects like the underground metro have also contributed to the boom of the industry as well.
The improvement in the quarrying technology made working in the quarries safer and invited more and more labor to work in the industry. Moreover, the advanced technology also decreased the waste generated during cutting and processing which increased the returns on the whole operation.
Characteristics of the marble industry: competitive analysis
1. Nature of competition
On the demand side, customers of marble factories are either contractors who implement construction works for a big project or from substantially smaller workshops. Marble workshops deal also directly with factories. There are also cases where the factories deal directly with the end user.
In this market, we have varying types of competition: quantity (capacity) competition exists where the suppliers that can provide big quantities and can operate their own quarries have a clear edge over others. However, there is also a tough price competition. Small suppliers sometimes dump the market by lowering their prices severely, just for the sake of selling their product and generating cash.
2. Barriers to entry
- Stone quarrying: No real barriers exist currently as the license is granted upon placing a request and following necessary procedures to obtain the license.
Several Korean and Asian Agencies became very interested in the Egyptian raw marble. For that purpose they used Egyptian middlemen to acquire the licenses in their names and then exploit the quarries freely to extract the Marble and export it. After being processed in China or Korea, this stone is re-exported from China to the international markets.
- Marble processing: A barrier exists to enter this industry in the form of a high investment cost needed to prepare the infrastructure for the factories and to acquire the processing machinery. To establish a factory in Egypt for marble processing, an investment of LE 8 to LE 10 million (1 US$=5.78 LE, 2005 year) is needed as initial fixed cost.
There are other 鈥渋ndirect or hidden鈥� economic barriers, such as:
- Lack of skilled labor.
- Cheap imports
- The industry is characterized by regional concentration of the factories within the same area. Acquiring such a big area in a region already settled by marble factories is not easy.
- The access to foreign currency is a necessity for importing the machinery
3. Use of technology
Though few factories in Egypt tend to acquire the latest technology, several factories still import second handed machinery, which is much lower in price.
Technologies for the marble industry in Egypt are bought from Italy, Germany, Spain, India or Turkey. The Indian and Turkish technologies are less competitive, but are much lower in price.
4. Current local regulations
- The fees for a quarrying license vary between LE 4,500 and LE 20,000
- A license to operate a quarry gives the license holder the right to get a certain quota of dynamite for marble extraction
- It is the responsibility of the applicant to provide necessary basic needs to workers in the quarry, as well as needed water and electricity.
- On every truck loaded from the quarries, the tonnage is registered and a fee is paid on the amount of extracted marble.
- There are no environmental waste regulations for marble extraction.
5. Needed regulations for the industry in Egypt
Some impediments still face the development of this industry in Egypt, such as:
- Misuse of the quarries, which results in lots of environmental waste
- Lack of infrastructure and attention given to the existing marble factories. An area like Shak El Thobaan, where over 80% of the marble industry is concentrated in Egypt, does not have minimum basic infrastructure,
- An inefficient marble producer who causes lots of waste to the country's resources by using cheap extraction techniques based on explosives can afford to offer the products much cheaper on the market causing price distortion
- No efforts to promote this industry in cities which lie closer to the quarries. This increases the cost of the final product
- Lack of technical data on types of quarries in Egypt and existing deposits of marble.
- Lack of organized training of manpower to service this industry.
- Lack of research and development that serves the industry.
Azza I. Kandil and Tarek H. Selim
Senior Financial Advisor, Industrial Modernization Center and Assistant Professor of Economics, The American University in Cairo respectively
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