CAIRO: Lecico Egypt was one of the 40 companies recently included in the new energy pricing strategy, and the announcement was anything but welcomed by the company. "We think it's quite unreasonable for us [to be included]. Energy is about 10 percent of our production cost, we are not like cement or steel where their major source of advantage is energy, our major source of advantage is labor, Taher Gargour, Lecico's business development manager, told Daily News Egypt. "We feel we're being penalized simply because we have a large factory rather than an energy-intensive process, he said. With three factories in Egypt - two in Borg Al-Arab and one in Khorshid - Lecico is a key player in what is considered globally to be a small industry. It works to improve its product offerings to become a pioneer in the sanitary ware and tiles domain, said Gargour. The energy increase will be applied to the Khorshid factory, which features a tile plant and a sanitary ware plant. "If you separate the two productions then the new energy pricing strategy would not apply, it's just because we are under one legal entity, he said. "This means that 40-50 percent of our production will have this new energy cost, one third of our sanitary ware and almost our entire tile [production]. This constitutes a 3 percent drop in profit margin over the course of that increase, he explained. Gargour identifies the problem as hastiness on the part of the government. "They have been quick to find ways to reduce their deficit and make more money. Most of that has had a direct impact on the average Egyptian's quality of life, but not enough has been done to improve that quality of life, he added. Everything the government takes away - and the 40 energy-intensive companies are a minor thing - "won't have a large impact on the average citizen's pocket book. However, a move like raising the price of petrol and diesel last year led to most of the double digit inflation. "I have not seen a matching commitment yet to put the money back into the pockets of those who need it most, he said. With the growth the economy is experiencing, the upper class is experiencing a boom in opportunities, jobs and salaries. Meanwhile, the average worker - including lawyers and teachers, not just blue collar labor - have had none of those benefits, which widens the gap between classes. He argues that most industries will pass the higher energy prices on to the consumer. "The government must establish a popular mandate to overcome the aura of dissatisfaction among the public. For example, following the privatization of huge property, there should be visible public spending of some of the profits gained on the people, in terms of schools or hospitals. Don't take away subsidies until you give them something [in return], he said. Lecico is one of the world's largest sanitary ware producers and a significant ceramic tile producer in Egypt and Lebanon. Over its 48-year history, the company has developed into a major exporter by producing competitively-priced sanitary ware to exacting European quality standards. Today, it is one of the largest suppliers of sanitary ware to the UK, France and Ireland. "Last year, Lecico gained $100 million in revenues, this year we made $130 million and with the expansion we are hoping to achieve $200 million, Gargour told Daily News Egypt. Lecico Egypt announced its program to build a new tile plant in Borg El-Arab to produce Gres Porcellanato (Italian for porcelain stoneware or porcelain tiles). "This is a totally new business for us. Tiles for us have always been red-body tiles, made purely out of local materials which aren't suitable to export to Europe because they absorb too much water. We've used red-body tiles to compliment our sanitary ware in the Middle East, he said. The expansion into a product that is designed for export to Europe "is a new market segment for us. We're familiar with tile and the basic principles of production are the same, but marketing is going to be very different, he added. Producing tiles is vital in order to compete as a large market player in the Middle East, since tiles and sanitary ware are sold together in Egypt and the Middle East. "In Europe, they are sold separately, so it's a totally different customer, he explained. There are many benefits to producing in Egypt: "The cheap costs of energy, labor and land will mean we can be very competitive and our location to serve Europe gives us an advantage over any other place. The plant will cost around $12.5 million to build. It is expected to begin production by mid-2010 with an annual production capacity of 3.8 million square meters. Sanitary ware needs a lot of skilled labor, especially if it is going to conform to global standards - 60 percent of Lecico's revenues come from exports. The low cost of labor in Egypt gives producers a comparative advantage, and since the corporate ability to produce quality is there, Gargour said, it promises to be a winning combination. "That is the heart of our success story, we take advantage of the Egyptian cost base and are able to produce quality products, he said. There is an accepted level of deviation and distortion in the industry globally, which is why sanitary ware producers scrap or recycle around 10 percent of their production. "It's a constant effort to maintain export quality; it took us decades to get where we are today and it is a constant effort on our part, he said.s
