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Egyptian President Abdel Fattah al-Sisi last Saturday ordered $6 billion worth of cuts in petroleum and natural gas subsidies, raising their prices by up to 78 per cent. The newly published changes set the price of natural gas at nearly double the previous prices and will see electricity prices double to $0.06 per kilowatt hour within five years.
Egypt has significantly cut billions of dollars worth of subsidies that kept energy prices at rock bottom levels, raising production costs for its manufacturers.

The move offers Kenyan industrialists some relief from cheap consumer goods imported from the North African nation. However, costs will still remain relatively lower in Egypt which retains close to $14 billion in energy subsidies.

Egyptian President Abdel Fattah al-Sisi last Saturday ordered cuts in petroleum and natural gas subsidies, raising their prices by up to 78 per cent. These are part of measures to plug Egypt’s huge budget deficit, which has grown in the past three years as political turmoil destroyed economic activity.

The cash-strapped government spent 144 billion Egyptian pounds ($20 billion), around a fifth of its budget, on energy subsidies in the fiscal year that ended on June 30.

The increases came just days after the month-old Sisi government raised electricity prices, which have long remained below the cost of production. The average price for a kilowatt hour, currently around 0.23 pounds ($0.03), is expected to reach almost 0.51 pounds after gradual increases over five years.

Under the new pricing, 95-octane gasoline increased to 6.25 pounds per litre from 5.85 pounds and 80-octane, which many drivers favour, rose 78 per cent to 1.60 pounds from from 0.9 pounds.

Diesel fuel, used in trucks and minibuses, was raised 64 per cent to 1.80 pounds from 1.10 pounds.

Natural gas will now cost Sh700 per million thermal units for the cement factories and Sh610 for the iron, steel, aluminium, copper, ceramic and glass industries or nearly double the previous prices.

The changes are expected to affect imports from Egypt into Kenya. The two countries are members of the 19-country Common Market for Eastern and Southern Africa (Comesa) bloc, which allows preferential terms of trade. They also have a free trade area (FTA) pact that allows for exchange of goods without payment of duty.

Firms such as Colgate Palmolive and Procter & Gamble have taken advantage of the FTA arrangement to move their manufacturing operations to Egypt where they cheaply produce items like toothpaste, washing powder, sanitary towels and diapers for shipment to Kenya. Such goods only have to meet a 35 per cent local value addition rule.

Kenyan industrialists described removal of Egyptian subsidies as a game changer for local firms.

“The future looks good. The removal of subsidies makes it possible to effectively compete with Egyptian imports,” said Jaswinder Bedi, a former chairman of Kenya Association of Manufacturers.

“I can see more of our manufactured products finding their way into Egypt and other low-cost markets such as South Africa and India as Kenya continues to address energy and labour costs which have held us back.”

In addition to subsidised gas and fuel, Egyptian manufacturers have enjoyed power that are five times cheaper than Kenya’s Sh17.4 per KWh.