Egypt, Djibouti, Ethiopia, Somalia, Sudan and South Sudan are among the major markets in Africa, particularly the East Africa. These six countries have a combined population of about 290 million or 21% of the total Africa population of 1,373 million people (2021 est). This area has a very rapid population growth of 3% per annum. Despite their sizeable population, these markets particularly Sudan, Eritrea, and Somalia are consistently affected by conflict, politically and economically. Despite the struggles, its strategic geographical location and valuable natural resources have attracted global power to compete at the ground.
Egypt, Djibouti, Ethiopia, Somalia, Sudan and South Sudan are also important destinations for oils and fats including palm oil. Egypt, Ethiopia and Sudan needs substantial volume of oils and fats to feed its huge population. These markets consumed at 3 to 3.6 million MT of various edible oils over the last five years. Out of the total domestic oils and fats consumption, 92% was sourced through imports.
Palm oil and palm kernel are mostly consumed in these markets as it is the main fats source for food industries. It accounted for 41% of the total oils and fats consumption there. Sunflower and soybean oil accounted for 20% and 24% respectively. The remaining includes groundnut, butterfat, corn oil and others.
Palm oil has assumed it importance in the market as it is mainly used in the food manufacturing industries, HORECA sectors, and industrial applications such as soap, personal care products, and detergent.
Oils and Fats Consumption (‘000 MT)
| 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Palm Oil & Palm Kernel Oil | 1,326.10 | 1,493.10 | 1,545.70 | 1,480.70 | 1,444.20 |
| Sunflower Oil | 499.80 | 757.50 | 719.20 | 664.40 | 711.50 |
| Soybean | 847.40 | 561.00 | 660.30 | 815.90 | 936.30 |
| Others | 497.1 | 490.7 | 510 | 510.1 | 468.1 |
| 3,170.40 | 3,302.30 | 3,435.20 | 3,471.10 | 3,560.10 |
Oils and Fats Import
Palm oil, sunflower oil and soybean are three main components of vegetable oils import by these market. These three, accounted for 96% of the total oils and fats import in 2020. Palm oil accounted for 60% or 1.99 million MT of the total volume.
Cumulative palm oil imports by these markets went up from year 2016 to 2018 before declining in 2019 due to lower imports by Ethiopia and Djibouti. Ethiopian economy was severely affected by the country’ forex shortage, trade especially imports was constrained. Slower demand from Ethiopia also reflected in lower Djibouti imports which is the main gateway to Ethiopia. COVID 19 pandemic also affected palm oil imports in this region as the pandemic seriously disrupted the HORECA sector for an extended period of time. With the traveling restriction lifted and traveling activities resume in countries such as Egypt, imports of palm oil at the end of 2021 has shown some improvement.
Palm Oil Import (‘000 MT)
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021E | |
|---|---|---|---|---|---|---|
| Egypt | 790 | 953 | 999 | 988 | 967 | 1,070 |
| Ethiopia | 460 | 458 | 454 | 295 | 369 | 420 |
| Djibouti | 296 | 303 | 403 | 224 | 330 | 372 |
| Sudan | 132 | 170 | 186 | 184 | 168 | 50.40 |
| Somalia | 114 | 148 | 119 | 143 | 149 | 74 |
| 1,791 | 2,032 | 2,161 | 1,834 | 1,983 | 1,986 |
Source: Oilworld
As imports are recovering, logistic issues are still the deterring factors, with less frequent ships plying to most of the destinations including the MENA region. As a result, importers are afflicted with higher freight cost. Such higher cost has added up to the price of palm oil. Besides that, less frequent ships has resulted in shortage of supply and longer delivery period.
Malaysia and Indonesia, are two main suppliers of palm oil to the region, mainly to Egypt and Djibouti. Both Egypt and Djibouti are also the export hub to the neighbouring countries. In 2021, Malaysia exported 456,773 MT of palm oil and fats to these market.
As of 2022, the situation looks promising for Malaysian palm oil as the volume exported to these five countries during Jan – May 2022 was 99.45% higher with significant growth observed in Egypt and Sudan.
MPO Position in the Markets
| Malaysian Palm Oil Export | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | 2021 | Jan – May 2022 | Jan – May 2021 | Change (MT) |
Change (%) |
|
| Egypt | 67,338 | 84,950 | 155,747 | 219,719 | 159,539 | 46,109 | 113,430 | 246.01% |
| Djibouti | 216,190 | 52,316 | 122,390 | 162,890 | 99,497 | 70,121 | 29,376 | 41.89% |
| Somalia | 77,929 | 93,456 | 101,595 | 54,413 | 26,858 | 25,334 | 1,524 | 6.02% |
| Sudan | 4,359 | 7,457 | 25,926 | 7,695 | 10,569 | 4,231 | 6,338 | 149.81% |
| Ethiopia | 148,647 | 64,757 | 20,080 | 12,056 | 3,172 | 4,436 | (1,265) | -28.51% |
| Total | 514,463 | 302,935 | 425,739 | 456,773 | 299,634 | 150,231 | 149,404 | 99.45% |
Source: MPOB
Egypt and Djibouti are two main importers of Malaysian palm oil in the region. While Egypt imports mostly to cater its domestic requirement, 10 percent is exported to neighbouring markets such as Sudan and Iraq. Djibouti, on the other hand is the gateway to Ethiopian market since Ethiopia is a land-locked country. Currently, Djibouti is the main entry port of palm oil into Ethiopia and the country relies on Port of Djibouti to handle about 95 percent of its foreign trade turnover; and 70 percent of the cargo at the port is Ethiopian trade.
Trade Facilitation through the Establishment of Palm Oil Warehousing in the Area
Trade facilitation in this area is an important element in sustaining the business and to ensure cost savings and efficiency. The establishment of storage and warehousing facility in the area are ways to complement the needs of small and medium size players to operate efficiently. Delivery time within the region will be reduced and business entities can better managed their cash flow. As inventory management is crucial for small businesses, palm oil warehouse in the destination country could support small business from carrying excess stock and avoid putting too much capital on stock. Faster inventory turnover will minimize losses due to market volatility and potential contract default as a result of price fluctuation. Since most of the countries in the region are part of the regional cooperation, doing trade with the members’ countries is easier and perhaps they got to enjoy some free trade arrangements.
By having a dedicated storage and warehousing facility, Malaysian company could have joint cooperation with local companies and it will facilitate MPO branding effort. Malaysian palm oil dedicated storage and warehousing facility could provide better traceability for quality control and assurance. While the region is moving towards environmentally sustainable products, the effort can be easily facilitated by Malaysian Palm Oil Sustainable Certification.
In view of ports infrastructure, logistic networking and security, Egypt and Djibouti are two destination countries could be considered for Malaysian palm oil warehousing investment and joint cooperation. However, Egypt will be a better option as the warehouse can cater its domestic requirement as well as for re- export to the neighbouring countries. Egypt population stands at more than 100 million people with rapid population growth of 2% annually, or an additional of 2 million people annually. Tourism industry is an important economic contributor to Egypt where the country is expected to receive 14 million tourists in 2022 onwards, the number recorded during pre-covid time.
Palm oil has now been included in the Government Subsidy Program and with the inclusion of 10% palm oil into the program, it could add up another 100,000 MT of palm oil going into the country. With the establishment of Malaysian palm oil warehouse facility, it could facilitate Egyptian Government to ensure a sustainable supply of Malaysian palm oil into the program.
Egypt is part of COMESA (Common Market Agreement for Eastern and Southern Africa), GAFTA (Greater Arab Free Trade Area), African Continental Free Trade Agreement, and Egypt – European Union Partnership Agreement where the country has preferential access to African, Arab Countries and European. These trade agreement will enable Egypt products going into those member states at zero duty or at any preferential tariff arrangements.
Conclusion
In view of the market size and rapid population growth in the area, oils and fats demand will continue to escalate. It is timely for Malaysian companies to seriously consider the market as a hub to expand in the region.
Investing in infrastructure which could facilitate trade efficiency and cost savings is worth considering in view of delayed shipment and supply disruption which occurred during the recent pandemic. A proper planning through a systematic storage and warehousing set up will be a steppingstone for Malaysian palm oil to sustain its market presence if not expanding.
Prepared by Fatimah Zaharah
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