When Palestinians breach­ed the border wall separating Gaza from Egyptian Sinai, one of the unintended outcomes was a testimony to the capitalist laws of supply and demand, and, even more unintended, to the fact that in times of economic crisis there develops a conflict between the innate desire of merchants to make the highest-possible profit with a popular expectation of the state to maintain a “moral economy”.

Or, to put it in other words, the shops and markets of the North Sinai governorate, far removed from the main population centers on the Nile and counting only a little over 300,000 inhabitants, were not prepared for a sudden influx of tens (if not hundreds) of thousands of Gazans trying to buy as much as possible before the border would be closed again, and thus prices skyrocketed.

As residents and reporters on the ground observed, prices for basic commodities on average increased three-to-fivefold, and in some cases to over 10 times of what they had cost just the day before the border breach. 

Overall, during the two weeks of the border breach, Gazans spent $480 million in Egypt, buying everything from foodstuffs and construction material to motorcycles and satellite dishes. Soon, rumors started to spread that the inflation, and accompanying shortage of goods, had reached the Suez Canal governorates. This and the angry reaction of local Egyptians, many of whom saw their average monthly income of EGP300 being eaten away by this sharp price hike, was one of the reasons for the Egyptian government to close the breach as quickly as possible and force all Palestinians back to Gaza. However, the concomitant policy of not letting any supply trucks east of the Suez Canal until the border was resealed — the idea behind this decision that, once the stores in the Sinai are empty, the Palestinians would voluntarily return to Gaza — also meant that the Sinai residents had to wait with their purchases of everyday goods. How the Egyptian government wants to get out of this “damned if you do, damned if you don’t” situation, should another border breach occur, is anyone’s guess.

Moroccan national holding company Société Nationale d’Investissement (SNI) has purchased one-third of the investment group Societé Maroc-Emirats Arabes Unis de Développement (SOMED), it confirmed on February 1. SNI spent $161.9 million on shares owned by institutional investors and the Abu Dhabi Fund for Development (ADFD) in SOMED, which has interests in tourism, real estate, metals and food. In 2006, the firm reported a net income of $26 million on a consolidate turnover of $181 million. It is controlled by Morocco’s royal family and was founded in 1982 as a joint venture between Morocco and the United Arab Emirates with the aim of luring foreign capital and expertise to major projects in the kingdom. After SNI’s investment, ADFD’s share in SOMED has dropped from 50% to 33.9% and the Moroccan treasury retains its 33.25% stake. The deal represents a new era for SNI, which has traditionally had a portfolio of significant investments, but not non-majority investments. It has not played an operational management role in its holdings in the past, though it has been actively involved in strategic planning in various capacities. The deal shifts control into Moroccan hands and is seen as an opportunity for SNI to tap into the fast-growing areas of the economy in which SOMED operates.

Cracking the whip

A statement by the national holding company specified tourism as “a sector that is vital to the Moroccan economy,” giving SNI “an opportunity to put our financial resources to work.” SNI’s intentions toward SOMED’s other holdings remain opaque, but the real estate division has synergies with the tourism wing, while food and metals are two of Morocco’s stronger export-oriented industries. SNI’s purchase of a share in SOMED has been widely praised as good business. “Everyone is a winner in this deal,” said one investment analyst privy to the purchase. “The investors have realized a good return and SNI has made a good investment.” According to analysts at BMCE Capital, the firms are a good match. “SOMED is henceforth controlled by Moroccan interests that should provide a serious crack of the whip for the development of this holding, which is known for its discretion and prudence in investing,” they said in a statement. “Ultimately, this deal raises other questions concerning the opportunity to realize certain synergies between the two groups, notably in the sphere of telecoms, real estate, metallurgy and trade.” For the time being, however, the focus remains on tourism. SOMED has been heavily involved in developing the industry in line with King Mohamed VI’s Vision for 2010, which aims to increase visitor number from 7.4 million last year to 10 million by 2010. In accordance with this, the number of visitor beds is set to increase to 160,000 from fewer than 140,000.

Government support for tourism

SNI’s investment in SOMED is indicative of the potential of Morocco’s tourism sector, as well as the government’s confidence in it. In 2007, the sector brought around $6.5 billion into the economy, an increase of 12% on the previous year. SOMED currently owns a total of 3,000 visitor beds through properties in Casablanca, Tangiers and Agadir; it controls hotels operated by the Sheraton and Palmyra franchises in Marrakech. The firm also has a number of key developments underway in Morocco at present. One such is the Raffles resort presently under development in Marrakech. The hotel at the center of this development is likely to contain around 150 rooms, 36 luxury villas and a spa, although final details have yet to be released. With Moroccan property developer Addoha, it is building apartments at several sites across the country, on a total of 250 hectares of land. SOMED has also partnered with Caisse de Dépôt et de Gestion du Maroc (CDG) to become involved  in the 3700-bed Mazagan project, part of Morocco’s Plan Azur, a six-resort strong “intelligent seaside tourism project” which will include eco- and health-tourism developments. Morocco’s tourism sector is a natural area of interest for investors, given growing visitor numbers and the government’s support. SNI will be hoping to capitalize on local knowledge, economies of scale and synergies with SOMED to make a formidable domestic player in the industry.

Moroccan minister of foreign affairs and cooperation Taiev Fassi-Fihri announced a new drive to strengthen and deepen relations with the European Union (EU) by securing “advanced status” with the bloc. Farri-Fihri told the EU Mediterranean Rim Cooperation conference that broadening market access and economic integration would benefit both Morocco and the countries of the EU. The conference was a “five plus five” meeting between EU members France, Italy, Portugal and Malta and Morocco, Tunisia, Algeria, Libya and Mauritania. Several European leaders, including European commissioner for External Relations and Neighborhood Policy Benita Ferrero-Waldner and Spanish foreign affairs minister Miguel Angel Moratinos have endorsed the concept, and negotiations are expected to commence in the spring. Ferrero-Waldner highlighted the important role that Morocco plays in the fight against terrorism and illegal immigration; trade ties between the EU and the North African country are also particularly strong. Some 60% of Morocco’s trade is with the EU, the world’s largest market. While 59% of this is currently accounted for by textiles, which Morocco exports in large quantities, growth sectors such as the automotive industry and agriculture are also exporting to the Union. In 2006, Morocco’s exports to the EU were worth $10.5 billion, with goods worth $15.1 billion going in the other direction. A large proportion of foreign direct investment in the North African country comes from the EU, and France in particular has been increasing its interests there over the past year, including in tourism. Millions of European tourists visit the country annually, and the government is aiming to increase numbers further.

New state of cooperation

“We must enter a new stage in cooperation between Rabat and Brussels,” said Benita Ferrero-Walder, noting that a working group on EU-Morocco relations established in July last year by the Morocco-EU Association Council, had already laid the foundations for strengthening ties. She praised Morocco’s history of commitment to security cooperation with the EU, including its involvement in ALTHEA, the bloc’s military operation in Bosnia-Herzegovina in 2004, as well as joint anti-terrorism projects. Moratinos asserted that the EU’s Mediterranean members would lead the push to award Morocco “advanced” status. The Spanish foreign minister went on to say that Spain would use its presidency of the EU in 2012 to cement the prospective agreement. While the call for “advanced” relations with the EU have made headlines, to a large extent it represents a reassertion of the integration process that is well underway. Morocco’s association agreement with the Union, signed in 1996, passed into force in 2000, giving Moroccan industrial products duty free access to the EU market. The Morocco-EU Association Council provides an ongoing process of discussions on trade, politics and regional security. In 2006, Morocco signed an open skies agreement with the Union, liberalizing transport links between them; dialogue on industrial and investment cooperation as well as the opening up of agriculture and fisheries trade, are already underway.

There is a real hunger among the Moroccan authorities to keep up the momentum. Youssef Amrani, director general of bilateral relations at the foreign affairs ministry, said that advanced status would give a boost to Morocco’s development and help the EU to tackle “increased risks in the region”, which it should view as a priority. King Mohammed VI has also thrown his support behind the increased cooperation, urging France to help Morocco achieve advanced status, which seems likely, given French President Nicholas Sarkozy’s strong Mediterranean policy. France takes over the EU’s rotating presidency in the second half of this year, giving Morocco — and indeed France’s other North African allies — the perfect window of opportunity to press their case.

While relations across the Mediterranean continue to strengthen, there is still a frustrating lack of progress across the Sahara; trade between Morocco and its Maghreb neighbors is still sluggish. The Arab Maghreb Union, which was founded in 1989, has more or less ground to a halt. At the conference, Moratinos encouraged the five countries to work on the creation of a common market, adding that the other countries could then benefit from Morocco’s advanced status. Spain and Morocco are now leading calls for another “five plus five” to discuss Maghreb economic integration.

Figures recently published by CETO (The Association of French Tour Operators) and FRAM travel agency appeared to paint a rosy picture of the Tunisian tourism sector in 2007. CETO’s figures showed an increase in French tourists of 3.8% for Tunisia, compared to a decline for Morocco by 2.8%. By comparison, FRAM’s figures had French tourism to Tunisia up 5%, and Morocco down between 2% and 3%.

However, all is not well in Tunisian tourism. Behind these apparently impressive figures lie some worrying trends. Arrivals from other European countries were down — Germany by 6% to 514,000; Italy by 4.3% to 440,000; and the UK by 11% to 312,000. Moreover, average spending per head in Tunisia is only $333, well under half of Egypt’s $850 and less than a third of Morocco’s $1,040. Growth in the sector is down to just 3% annually.

Tunisia’s problems are primarily structural. The poor level of returning tourists is often attributed to second-rate service and badly maintained facilities in many hotels. Even the country’s monetary authority, the Central Bank, said in its annual report that, despite efforts by the public authorities results remain below target and “operators in this sector need to focus more closely on improving the quality of services, which remains the key to non price competitiveness.”

The need to diversify

Other experts see different problems. Fitch Ratings believes Tunisia’s tourism sector now suffers from the massive drive to increase bed numbers which has resulted in a non-diversified over-capacity, based almost entirely on seaside hotels, and the hoteliers’ resulting dependence on international tour operators for selling their rooms. One industry insider told OBG that “despite diversifying, Tunisia has not been able to shake off its image as a mass tourism destination.” Constrained by its seasonality, Tunisia must further diversify tourist activities and infrastructure by maximizing its resources. “The means and abilities exist but Tunisia does not develop and promote its tourism sector efficiently enough at the international level,” the same observer said. Poor promotional schemes have also brought criticism from the Federation Tunisien des Hoteliers. Federation president Muhammad Belajouza says promotional budgets are not an expenditure, but an investment, which is profitable even in the very short term. For each 1,000 dinars ($770) invested in tourism, he said “we can get at least double back in convertible currency. This has been proved in the past”.

The national tourism authorities know the sector must do better, and are attempting to tackle the problem. The National Tourism Office and the Ministry of Tourism have set up three working groups with the hotel federation, focusing on quality, training programs and the sector’s financial situation. The national Mise à Niveau (upgrading) program has also turned its attention to tourism, with 45 hotels selected for the first phase of the project. Ultimately, 150 hotels will be renovated as part of this program. President Ben Ali has turned his attention to the sector also, calling for the development of a national strategy to take the industry up to 2016.

However, if Tunisia truly wishes to compete with Morocco, it must diversify beyond seaside tourism and make more of its enviable cultural heritage. Currently only about 10% of foreign visitors take the time to step outside their resorts, while the consumption of cultural heritage isn’t much better among the Tunisians themselves. The historical site of Carthage port is currently little more than a ditch, and tourists wishing to sample the delights of the Punic coast must contend with taxi touts and poorly regulated “guides”.

Steps have been made in this area: in 2001 the World Bank financed a $25 million Cultural Heritage Project, and more recently $30 million has been allocated for the development of Carthage-Sidi Bou Said National Park. Compared with the billions earmarked for real estate developments half an hour down the road in Tunis, these are distinctly small fry. A truly forward strategy by the government would see much more money invested into these sites, and more work done to promote them.

It is certainly possible, and there are signs that Tunisia may be heading in the right direction. On the picturesque island of Djerba — Homer’s Isle of the Lotus Eaters — one has a plethora of over-priced, second-rate and poorly-maintained mass-market seaside hotels to choose from. Or, for less than $30 a night including breakfast, you could stay in a renovated funduq such as the Erriadh in Houmt Souk, and experience some authentic Tunisian charm.

Algeria is moving to strengthen its position in downstream energy industries, part of a program to further develop the value added component of its energy and natural resources and increase local employment opportunities, especially in outlying regions. Total investment in the energy sector over the next four years is expected to reach $45 billion.

Over the past 18 months, Algeria has launched a series of projects to develop new petrochemical plants or to upgrade existing facilities. One of the major planks in the campaign to expand downstream capacity is a massive ammonia and urea fertilizer production plant to be located at Arzew in the country’s west.

The new plant is a joint venture between Algeria’s state-owned hydrocarbons company, Sonatrach, and Orascom Construction Industries (OCI) of Egypt. The Egyptian firm will act as lead project developer, with a 51% stake in the development and total investment is expected to be $746 million. When completed in 2010, the plant will produce 1 million tons of ammonia/urea fertilizer a year, along with an additional 700,000 tons of ammonia. Local press reported on January 28, 2008, that as many as 7,000 jobs will be created during the construction phase of the project, more than twice the original estimate. The 33-hectare site of the facility is located close to the port of Arzew, which has been extensively developed since the 1960s as a hub for Algeria’s petrochemical industry. The site is home to several large gas liquefaction and LPG units, which will ensure the new ammonia plant will have access to the necessary hydrogen feedstock. Last year a joint venture, Sorfert, was incorporated to manage the operations of the facility. The company brings together two of the biggest players in the Algerian economy: Sonatrach, the state-owned gas and petroleum operator, is the country’s largest company, while Orascom is one of the leading foreign investors in Algeria, with holdings totaling around $10 billion.

Poised to become leader in production

Ammonia and urea are produced by taking nitrogen from the atmosphere and lining it with hydrogen from hydrocarbons, a method known as the Haber process. Natural gas is the most cost effective and environmentally-friendly feedstock for this process. Algeria, with strong gas reserves, has the wherewithal to become a market leader in fertilizer production — domestic gas costs are around 12% of those in Europe or in the States.

According to Osama Bishai, OCI’s director of projects, rising gas prices are resulting in the shifting of gas-based industries from the developed world to developing countries.

“Lots of plants in Europe are being shut down and their markets are being served by new plants in Algeria, Egypt and the Gulf,” Bishai said in an interview with local media last December. OCI’s involvement in the fertilizer industry is fairly recent. In October 2005 it gained a 50% stake in Middle East Petroleum Company (MEPCO), which is currently constructing a 2000 ton per day ammonia plant in Ain Sukhna, Egypt, through its 60% owned subsidiary Egyptian Basic Industries Corp (EBIC). This $540 million plant is due in early 2009.

Algeria already has a chemical fertilizer industry. An existing ammonia production facility, sited at Arzew, has an annual output of 365,000 tons and an associated urea plant able to turn out 146,000 tons per year. However, the original facilities were built in the early 1970s and, though upgraded in the late 1980s, do not have the same capacity or modern technology as the new plant.

Demand for chemical fertilizers is growing, and OCI and Sonatrach are confident their joint venture will be a profitable one. In addition to the advantage of low production expenses, it will benefit from Algeria’s proximity to European markets, meaning that Sorfert can keep shipping costs down. Bishai said that OCI was looking at an annual return on its investment of between 16% and 18%. “There are good margins now and we are very optimistic about the future,” he said. “Once we are in production, we expect to enjoy relatively good margins, and if shipping costs continue to be high we will have a major advantage.” With global fertilizer prices at near record highs, prompted by increased demand due to the drought conditions experienced in many parts of the world and soaring gas prices, Algeria’s policy of investing in downstream industries could result in a rich harvest.

For three years now peace has reigned in Juba, administrative center of South Sudan, which as a result has expanded rapidly, as people from all of southern Sudan’s numerous and varied ethnic groups are drawn to the new capital. But whatever the tribe — pastoralist, agriculturalist or a mixture of the two — everyone wants at least one cow to be slaughtered for their wedding. “The problem is that a good bull can cost over $1,200 and even a cow something like $500,” a local government official said. Similar figures are cited all over town and other parts of the south are only moderately cheaper. Even for the newly moneyed southerners, those who have attained government contracts or who form part of the massively oversized, oil-funded civil service, a cow for the wedding feast is a major expense. The problem is, explained the official, that southerners would rather keep or trade their cows for marriage than sell them for cash. It is an attitude the southern government is trying to change into a more capitalist perspective as semi-autonomous South Sudan struggles to join regional and international markets after decades of civil conflict.

A plentiful supply

High meat-costs and unreliable sourcing also affect Juba’s larger camps and hotels, erected to provide accommodation for the capital’s thousands of new residents since the 2005 North-South peace deal. Many still fly in meat despite being hit with at least 56% import tax at the airport. Juba’s residents, used to paying $2.50 for a semi-warm beer and $1 for four tomatoes, may not find the sky-high cost of meat — a hand-sized lump costing $8 in the market — any more surprising. But post-conflict southern Sudan has no factories or commercial farms. Beer and tomatoes have to be trucked in on the bad roads that link it to neighboring Uganda. Cows, on the other hand, could hardly be more plentiful. John Ogoso Kanisio, director general of planning, investment and marketing at the Ministry of Animal Resources and Fisheries (MARF), estimates that there are probably 8-10 million cattle in the south, making their numbers equal to the human population that is still yet to be confirmed in an April 2008 census. This 1:1 ratio is probably the highest in the world.

Meat or marriage?

“You have to pay cows for marriage, you cannot get it for free or money,” said Awut Nyandeng, who lives in Juba but comes from the pastoralist areas to the north. She has been offered over 400 cows already, which she declined even though it is impressive. The man was too old and she wants to pursue her career before getting married. But for a woman of education, beauty or good family, negotiations between the future in-laws often result in bride prices of more than 200 head of cattle. The major challenge for MARF is to turn hearts and minds away from this stalwart and long-engraved position on cattle to one that can beef up an economy currently painfully dependent on crude oil. Peacetime has turned many minds to marriage, long waited-for during the more than 20 years of conflict. Others, with new jobs, think about a second or third wife. And many in-laws are demanding cows promised as bride-price during the long war years. This backlog, together with a sudden increase in ready cash, has sent the price of cattle sky high, explained Kanisio. “Marriage without cows is as stable and good,” ventured Festo Kumbo, MARF’s minister, at a press conference last year where he asked journalists to help him turn southerners’ to the meat market. He said that selling cattle to market was the only solution to what he sees as an upcoming problem of overgrazing. Swollen herds have already begun to damage some of the South’s extensive pastures in some areas. “We need to re-educate people about using cows for economic gain. Let us use our animals to bring us more money, rather than keeping them in high numbers.”

Uganda trade

The hike in southern prices has reversed a previous flow of cattle out of Sudan to Uganda. Since the January 2005 peace deal Sudanese have imported cows in unprecedented numbers. During the war, southern Sudan supplied northern Uganda with more than 2,000 head of cattle a month. Now cattle are coming in from Uganda. “We have more animals than Uganda but they are bringing them here. Our market is more lucrative because we have made them expensive,” Kumbo said, adding that Ugandans are free to bring in their cattle under a regional free trade agreement, COMESA. He also has other grumbles about the South’s dependency on Uganda. Southern Sudan’s great inland delta — the swampy Sudd — together with the vast Nile contains as many fish as Uganda’s intensely harvested Lake Victoria, he believes. But still, fish are being trucked up, despite the challenges of sometimes flooded roads served by rusting colonial bridges, to be sold in the South’s main towns. As the fish example shows, the lack of commercial animal trade in southern Sudan, massively alienated during the conflict years, is also partly a lack of experience and systems and not just attitudes. Others have said that the shift in cattle trade — with cows now being brought in from Uganda — may also have political roots. Continuing peace talks between the government of Uganda and the rebel Lord’s Resistance Army (LRA) together with a ceasefire agreement have resulted in vastly improved security in northern Uganda, the area that borders southern Sudan. Displaced people are moving back home and trade between Uganda’s north and the rest of the country has increased. Northern Uganda now has more options and is less reliant on meat from south Sudan and those with a surplus look across the border to sell.

Cow banks

South Sudan has a problem with cash liquidity, especially in regional areas just beginning to open up to development, explained Patrick Bettersworth from the southern-owned Nile Commercial Bank. Part of the problem, he thinks, is that for many southerners, the value of money in the bank is just not trusted. “People like to see their wealth. They don’t want a bit of paper saying that they are rich,” he said. Cows are still considered the best way to invest in some parts of the South. As Kanisio pointed out, “We lack banks, so the best way for people in the risky areas is to buy cows.” He sees the vast and river-fed plains of the South as ripe for raising cattle commercially, a practice that the South’s pastoralist tribes have been perfecting for thousands of years. Northern Sudan used to be dependent on the South for cattle and Kaniso sees the whole of drier northern Africa, like Egypt and Libya, as well as the Gulf as potential big buyers. “And our cows are 100% organic!” he brightly exclaimed. But serious investors will probably wait until the World Organization for Animal Health declares Sudan free of the cattle disease rinderpest. “Our hope is that the whole country is declared rinderpest free by end-2008.”