2020 in review: The year of supply chain disruptions and bouncing back: Covid-19 impacted many areas of infrastructure, but energy, construction, and shipping were the hardest-hit, thanks to supply chain disruptions and price volatility. Businesses reliant on physical proximity, like ride-hailing, saw service demand weaken.

Renewable energy: Supply chain disruptions caused substantial operational delays to many solar, wind, and waste-to-energy companies from March-June. Companies heavily reliant on imports from China, the largest producer of solar panels, were hit particularly hard by production slowdowns, a backlog of orders, and a two-week Egyptian customs quarantine period.

Delays and scarcity also created uncertainty about the future price of imported components: Possible long-term reductions to Chinese production capacity, a weakened EGP, or global trade policy restrictions could all lead to higher prices, sources told us at the time, while an economic slowdown and reduced energy demand could result in surplus equipment, causing prices to fall.

But anticipated price swings never really materialized: Transactions essentially came to a standstill between March and June, but with China’s production rapidly recovering and countries coming out of lockdown, supply chains bounced back.

Lower gas prices slowed the renewables transition: When the price of natural gas for the entire industrial sector was lowered to USD 4.50 / mmBtu in March to help businesses through covid, LNG became more competitive than renewables. The price point for solar and wind energy competitiveness is USD 5 / mmBtu, while for waste-to-energy it’s USD 6 / mmBtu, say industry experts. Some warned this would disincentivize subsidy removals and Egypt’s shift away from fossil fuel-based infrastructure.

But the slowdown seems temporary: Overall investment in renewables is likely to slow substantially in the next year. But an uptick is then expected as the underlying factors driving it remain in play: the LNG price dip was temporary and the government remains committed to subsidy reforms. Long-term, renewable energy prices are more competitive for industry, government, and consumers — and more stable. This actually strengthened the business case for renewables, say some energy leaders. Financial institutions like the European Investment Bank also remain committed to funding renewable energy infrastructure projects.

Oil and gas: Market volatility and reduced energy demand brought a shock. As oil prices fell, Egypt’s energy companies cut production and spending. Our LNG exports collapsed, with only one shipment completed between March and October, driven by weak global demand that saw a 9.4% y-o-y decrease as of July. The sector had been expected to expand in 2020, after Egypt’s LNG exports made up 1% of the global market in 2019.

Oil ricochet and a (slower) gas rebound: Egypt should see the largest petrochemicals investments of the MENA region between now and 2024, an Apicorp report (pdf) predicts, while the CDC Group termed our oil refining sector ”relatively robust.” LNG export recovery will be slow, with Apicorp predicting Egypt’s facilities “will remain heavily underutilized” and that we’ll export only 35% of our LNG production capacity between now and 2022. Still, the Damietta LNG plant’s planned reopening in 1Q 2021 bodes well, as it could lead to the plant’s first LNG exports during that quarter.

Construction: Projects saw delivery delays from supply chain issues and essential social distancing measures taken on site to mitigate covid transmission. The sector relies on imported materials and skilled technicians, but covid challenged both procurement and labor. This slowdown led to an industry-wide contraction, of 9.1% in 1Q2020 alone. Sectoral growth in the coming years will be weaker than previously anticipated, reports have predicted.

But risks identified near the outset of the pandemic — like widespread unemployment — haven’t materialized: Potential risks like unemployment, the likelihood of businesses going bust, and global supply chains undergoing fundamental changes were mitigated by government investment and megaprojects, helping to minimize unemployment and maintain liquidity. The sector lost only 288k jobs — less than half the 624k seen by the retail and wholesale sector. Egypt’s construction growth was expected to be a “still strong” 7.5% in 2020, down from a previous forecast of 9.7%, as of April — outpacing regional peers.

Shipping: Egypt saw shipping losses aligned with global figures, though traffic at ports remained at full capacity to carry essential goods. Inbound container traffic fell 20% y-o-y in April 2020. As of mid-January, it had already fallen 10-20% from where it was in December 2019. Globally, a 25% fall in shipping was expected for 1H 2020, with a 10% drop for the year overall. Shipping companies saw losses from Egypt’s ports ranging from 50-70% y-o-y in April alone. A steady stream of Egyptian agricultural produce, and a backlog of shipping from long-term contracts, somewhat mitigated losses — but companies that didn’t ship essential goods missed out.

But the industry seems on course for the rebound expected after lockdowns eased: Increased shipping, expected from mid-July, would be a crucial sign of recovery, said sources. A government announcement that the Suez Canal saw some 165 more vessels y-o-y in 9M2020 suggests the sector is getting back on track.

But ride-hailing apps and others reliant on physical proximity saw their business models fundamentally impacted: Ride-hailing startups saw an immediate drop in demand. Uber was so keen to reduce costs and avoid losses, it closed down food delivery wing Uber Eats in Egypt in May. Careem laid off 31% of its employees. Transportation platform Wasel saw its weekly number of trips falling by 50% in the first two weeks of Egypt’s covid-19 curfew. Mayday, which provides roadside assistance through an app, had seen orders decrease from around 50 per day to 7 or 8, as of late-April.

They had to diversify to survive, often by introducing service delivery: Uber set up Uber Connect, a delivery tech solution to transport goods, and saw an 80% recovery rate. It’s on track to fully recover next year, says its Egypt general manager. Halan started offering consumers products sold on credit to mitigate losses from reduced demand in mobility services. And Wasel adjusted its financial models to make services more cost-effective. All substantially increased sanitization, say representatives.

Gov’t stimulus and rate cuts kept things moving: Across sectors, government economic stimulus — including lower rates and cuts to energy prices — drew praise from industry representatives, who termed it key to weathering the storm. The central bank’s March interest rate cut of 300 bps was its biggest on record, followed by a further 50 bps cut in September that took place on the back of low inflation and key economic indicators stabilizing in July and August. Government support was strong, led by the prime minister and the central bank, said one construction industry leader: “Because we use working capital facilities to support some of our projects and our cash flows, reducing the interest rates associated with these working capital facilities helped us reduce our costs significantly.” Cuts to natural gas and electricity prices for factories, made early in the pandemic, cost the state at least EGP 10 bn this year.

NEXT WEEK- How infrastructure businesses adapted to the pandemic — namely digitization and diversification — which we will cover in part 2 of our Year in Review.

Your top infrastructure stories for the week:

• Sodic and Mobica will begin offering SMEs fully-furnished customized offices on a lease basis with a new service named Work-Plex.
• Green Tech Egypt may create a joint stock company to implement waste-to-energy plants in Shabramant and Abu Rawash and has created feasibility studies of the project as part of its MoU signed with the the Military Production Ministry in October, according to a cabinet statement.
• The government is looking to tap Siemens for the high-speed rail project that will connect New Alamein to Ain Sokhna, according to a cabinet statement. The German company expressed interest and said it would submit a bid for the project.
• Egypt received a fifth train from South Korea’s Hyundai Rotem as part of the EUR 317 mn agreement signed between Hyundai Rotem and the National Authority for Tunnels to supply 32 new modernized trains for Cairo Metro’s Line 3, according to a cabinet statement.
• The number of Egyptians subscribed to ADSL services rose to 7.99 mn, with 1.1 mn more subscribers in FY2019-2020.
• SolarizEgypt installed a photovoltaic (PV) system for Coca Cola, becoming the first independent power producer to install a solar rooftop for another private company.