Heineken, Unilever Resume Egypt Operation
Feb 14, 2011 - Foreign businesses were Monday rushing to get their operations in Egypt back to normal, restarting factories and sending back expatriate workers evacuated during the recent turmoil, while tourism operators said they would resume tours. The moves come as the ruling military council called for the country to get back to normal in the wake of President Hosni Mubarak's resignation. However, in a worrying sign, there were protests and strikes by workers including the police, bank, textile and oil workers Monday demanding higher pay and better conditions. Still, companies including brewer Heineken NV, consumer goods giant Unilever NV, chemicals company Akzo Nobel NV and industrial giant Siemens AG said they had resumed near-normal operations in Egypt. (WSJ)
Implications
Multinationals are ready to get back to normal in Egypt, despite uncertainty over how a new government will fare. Business through the Suez Canal and SuMed look safe. Nevertheless, uncertainty remains in the Middle East, with protests continuing to spread- Iran's anti-government protests have rewakened and relatively stable Gulf countries such as Bahrain are experiencing unrest. The major wild card, both politically and economically, is of course Saudi Arabia. The government there has been good at subduing greivance so far using repression, propaganda, and patronage to divide and weaken any opposition, but most Saudis are eager for reform.
Background
As uprisings spread from Tunisia to Egypt, the region's most populous country and third largest economy, commercial concerns are growing. For companies with operations in affected countries, the first priority has been the safety of employees. Egyptian operations have suspended at most multinational companies, including Nissan, General Motors, Daimler, Akzo Nobel, Lafarge, Heineken, MetLife, Delloitte, Alcatel-Lucent, and Turkey's Sabancı. Some have evacuated expatriate employees and many have told local employees not to come into work. Unrest is expected continue to spread, with the Jordanian and Algerian governments facing major protests. However, since Egypt is the biggest Middle East destination for foreign direct investment (FDI) and the whole region receives less than 1% of FDI to developing economies, the overall impact on global chains will be relatively limited. This of course, assumes that the Suez canal remains open, the turmoil does not spread to major oil producing countries, and a measure of stability is restored in a timely fashion. All of these are far from certain.
Egyptian officials have taken extra measures to keep the Suez Canal and SuMed pipeline open, deploying extra troops along the length of the pipeline and increasing the number sentry points to 30. Nevertheless, with protests and staff shortage causing Egyptian ports to shut down, a disruption of the Suez canal cannot be ruled out. The canal hosts 8% of global sea-borne trade and 5.5% of global oil output. Sailing around Africa would increase transit times by two weeks, which would disrupt complex supply chains and increase transportation prices in the short term. A long-term closure would lead to an overall reduction in trade, and in particular between Europe and Asia. Most economies would suffer, but North American resin, chemical, and natural gas providers might gain a relative advantages, as might American and Mediterranean exporters to Europe.
Other Recent News and Information
Business halt operations in Egypt: Multinational companies Monday halted some operations in Egypt as an anti-government revolt raged into a seventh day, but businesses appeared poised to resume production as soon as calm is restored and a vital trade route remained open. (WSJ. Jan 31 2011)
