Egyptian shadow over Indian firms
While some Indian companies have suffered lags in manufacturing or sales in crisis-hit Egypt, a bigger problem could lie ahead if the political fever haunting the region leads to a blockade of the Suez Canal. Sumant Banerji and Vivek Sinha report. Suez linkbusiness Updated: Feb 04, 2011 01:41 IST
While some Indian companies have suffered lags in manufacturing or sales in crisis-hit Egypt, a bigger problem could lie ahead if the political fever haunting the region leads to a blockade of the Suez Canal — used by ships to link Europe and Asia. Maruti Suzuki, Bajaj Auto, Tata Motors, Dabur, Oberoi Group, Wipro and Infosys are among those with business interests in Egypt.
They have already in some way felt an adverse impact over the last fortnight. These companies say if events in Egypt — where strongman President Hosni Mubarak is facing hostile protests — finds resonance in other parts of West Asia and disrupts production or supply, their operations could be hampered."Egypt accounts for only 3% of our car exports, so to that extent the impact has been negligible so far," said Mayank Pareek, managing executive officer (marketing and sales), Maruti Suzuki India Ltd. "(But) the Suez canal is important as it accounts for 9% of global trade and is a major trade link between Asia and Europe.
If that is blocked then it will be very adverse as logistic costs would go up by three times.” Built in 1869, the 200-km artificial canal connects the Mediterranean Sea and the Red Sea. A link between India and the Rotterdam in Netherlands is 40% cheaper compared with the old route that went around Africa. Inflation could be vulnerable if imports turn costlier, and export competitiveness could suffer as well, if the Suez turns out to be a problem.
Crude prices have already crossed $100 a barrel. “The crisis in Egypt will have an impact on oil and commodity prices. Besides, transport costs could also significantly rise if the Suez Canal closes down and these two factors are critical for India Inc,” said Rajiv Kumar, director-general, FICCI.
The worst affected so far is hospitality major Oberoi Group, which has two hotels in Egypt and operates two Nile cruises. “The events of the last week have had an adverse impact on business. In the absence of reliable e-mail and telephone networks, we are unable to quantify the volume of cancellations,” an Oberoi hotels spokesperson said.Consumer goods major Dabur, which has a hair oil plant in Egypt, said it has suspended operations in the facility and also withheld plans to ramp up its production capacity in the country. "Egypt was a very rapidly growing market for us and we were doing feasibility studies to expand and invest more in the country," said a Dabur spokesperson. Software firms Wipro and Infosys have brought back their employees to the country.