An Industrial Leap Underway

CAIRO - 3 March 2018: Striving to become one of the world’s 30 strongest economies by 2030, Egypt's Ministry of Trade and Industry adopted a 2020 industrial development strategy that aims to increase the contribution of the sector in the gross domestic product (GDP) from 17% to 21%.

With the aim of achieving an 8% growth in the industrial sector this year, to reach 21% by 2020, the ministry has issued a new industrial licensing law, eased micro, small, and medium enterprises' (MSMEs) access to finance and submitted a draft law to develop these businesses in January to the House of Representatives for approval.

After embarking on a bold economic reform program that included floating its currency, introducing new taxes and removing capital control, to restore macroeconomic stability and bolster its economy, Egypt is hoping that its business and investor-friendly laws and legislation, along with the other reforms, would boost the industrial sector by promoting exports’ competitiveness, reducing imports and creating new jobs.

Exports on the rise after flotation

One key driver of the Central bank of Egypt’s (CBE) decision to free-float the pound in November 2016 was the need to curb a fast-growing trade deficit that was seen as a major threat to the economy of the most populous Arab nation.

Before the float, the trade deficit soared to $53 billion with Egypt’s import bill ranging between $70 and $80 billion, weighing on the country’s foreign reserves amid a sharp shortage in hard currency inflows at that time.

Thanks to the liberalization of the exchange rate, along with imposing restrictions on what the government considered as “unnecessary and luxury imports,” Egypt’s import bill plunged 15%, while exports jumped 10% over 2017, shrinking the country's trade deficit by 26%, a progress that experts and economists considered one of the early fruits that Egypt reaped from its ambitious reform program.

Egyptian exports are expected to stand at $22.4 billion at the end of 2017, with a 10-percent increase compared to the previous year, a report issued January 1 from the Ministry of Industry and Foreign Trade revealed.

Over the past year, Egypt's foreign trade has witnessed improvements, as exports reached $20.4 billion in the first 11 months, up from $18.4 billion in the same period of 2016, Minister of Industry and Foreign Trade Tarek Kabil said.

Meanwhile, imports have seen a major slip of about 20% in those 11 months, standing at $51 billion, compared to $61 billion in the same period of the previous year. For the whole year, imports are predicted to be $56 billion, compared to $66 billion in 2016.

Despite this improvement, the fact that the increase in exports was less than expected soon after the float aroused questions about the needed efforts to promote the local industries and their competitiveness to expand abroad and enter new markets.

The ministry argues that the jump in exports was curbed due to local manufacturers' efforts to increase their domestic sales to offset the imported goods.

The biggest improvements in exports and decline in imports came in the sectors of chemical industries, ready-made garments, engineering industries, textiles and food industries.

Egypt’s balance of payments (BOP) registered a surplus of $13.7 billion in fiscal year 2016/17, after a $2.8 billion overall deficit in the previous fiscal year, according to the CBE data.

Winners and losers

The chemical sector was the top gainer of the pound float as its exports skyrocketed by 32% in 2017 to reach $4.4 billion, up from $3.3 billion in 2016, the Chemical and Fertilizers Export Council announced in a January report.

“The section shaped around 19% of Egypt's non-petroleum exports during the January to November period, and the value of exports during December reached $500 million,” the chairman of the Council, Khalid Abul Makarem, said.

Abul Makarem added Egypt is now competing with China and Turkey in exports. “Fertilizers and plastics are our winning sectors in Egyptian exports, and the Council is focusing on increasing exports to Russia and African countries," he said.

Another gainer was the sector of ready-made garments, which witnessed a 13% increase in exports in the period from January to November, standing at $1.305 billion up to $1.155 billion in the same period a year earlier year, according to a monthly report from the Readymade Garments Export Council.

A report from the General Organization for Import and Export Control (GOEIC) revealed that the exports of eight export councils, including the two sectors mentioned above, soared by 31.8% during the first 11 months of 2017, recording a total of $3.942 billion, from $2.991 billion during the same period of 2016.

Electronic and engineering industries' exports also edged up 10.3%, reaching $2.362 billion during the first 11 months of 2017, against $2.142 billion the same period a year earlier. Exports of furniture rose 4.8% to $464 million from $443 million. Construction materials’ exports increased 4.5% to $4.623 billion from $4.424 billion.

The report showed that Egyptian exports of food products increased 4.6%, to reach $2.574 billion compared to $2.462 billion. Exports of textiles increased 4.6%, reaching $749 million compared to $716 million.

Agricultural exports rose 3.4% to $1.997 billion from $1.932 billion, according to the report.
On the other hand, the data showed declines in the exports of five export councils including furniture, which recorded exports of $299 million, down by 10% from last year. Exports of medical products fell by 8.9% to $420 million from $461 million.
Exports of leather products dropped by 10.6% to $107 million from $120 million, while exports of handicrafts plummeted 15.8% to $179 million.

The report said 25 countries receive nearly 78% of Egyptian exports, with a total value of $15.764 billion. The United Arab Emirates (UAE) was ranked first at $2.166 billion, followed by Turkey at $1.691 billion. Saudi Arabia came in third place with a value of $1.417 billion, followed by Italy with $1.294 billion. The US was ranked fifth with $1.164 billion.
Trade Minister Kabil assigned the Egyptian export councils last November with preparing sector plans that will include ways to increase Egypt’s exports globally.

List of achievements

The parliament's approval of the new industrial licensing law to combat red tape and reduce the waiting time for new projects, along with easing access to financing for SMEs, were the most important steps taken to put the sector on the right track.

The law's executive regulations will reduce the waiting period for obtaining industrial licenses to establish new facilities from 600 days to seven to 30 days.
To revitalize the sector, the Trade and Industry Ministry issued 28.5 million square meters of industrial land plots, including 2 million meters issued at no cost for 567 SMEs in Upper Egypt.

“We hired private-sector developers to work on developing other industrial complexes, and they successfully developed 12 areas, including 983 factories, at the cost of LE 24.5 billion,” Kabil added.

A number of 13 industrial complexes are also under construction in 12 governorates, totaling to 4,436 factories at the cost of LE 5.4 billion.

In 2017, the Micro, Small, and Medium Enterprise Development Authority (MSMEDA) pumped LE 4.8 billion to implement many projects, representing a 25% increase in funding, compared to 2016, according to the authority’s head Nevine Game’.

She said that the increase reflects the state’s focus on SMEs and support for small entrepreneurs, with financing industrial SMEs increasing by 11% in 2017 for existing projects and 40% for new ones. Game’ added that the MSMEDA has financed 224,000 micro and small projects with some LE 4.5 billion in 2017, providing around 305,000 jobs.

This figure is in addition to LE 321 million dedicated to financing community services and infrastructure projects, creating 33,000 job opportunities. The authority has also trained 27,000 members of the youth on various crafts to enable them to join the workforce, Game’ said.