Manufacturers in Egypt Turn to Local Sourcing

In green fields near Egypt’s Mediterranean coast, PepsiCo is harvesting its first crop of potatoes produced from local seeds to make a leading brand of chips.

Like other big manufacturers in Egypt, the global food and beverage giant is sourcing more of its raw materials locally to keep a lid on costs and limit price rises as consumers struggle with food inflation running at above 40%, Reuters reported.

The cost of imports has soared in Egypt since the country abandoned its currency peg of 8.8 pounds to the US dollar in November, imposed restrictions on imports and increased tariffs on more than 300 products to curb a gaping trade deficit.

“Localizing raw materials is extremely important at this time. We cannot depend on a dollar-based cost structure with an Egyptian pound revenue streamline,” PepsiCo’s North East Africa General Manager Ahmed El Sheikh told a recent conference.

Egypt has long relied on imports, with even local producers sourcing most components and raw materials abroad. The resulting trade deficit, coupled with the flight of tourists and investors following the 2011 uprising, has left the economy perpetually short of dollars, putting pressure on the Egyptian pound.

It has halved in value since floating last year and inflation has hit consumers’ purchasing power, making it difficult for companies to pass more costs onto the public. Instead, manufacturers, including several major listed companies, are looking to replace imports with local supplies.

Delays in clearing imports as a result of the new rules have also been a problem for major manufacturers, adding to costs and creating bottlenecks, encouraging firms to cut back on imports.

“We continue to face an issue with the clearance process in Egypt,” Mars general manager for North Africa and Levantm Ahmed Seddik, told Reuters.

Juhayna Food Industries, Egypt’s largest dairy and juice producer, is among other listed companies to pursue a similar strategy.