What the Russian Industrial Zone means for Egypt

CAIRO – 24 May 2018: With the Russian Industrial Zone (RIZ) set to decrease unemployment in Egypt, increase foreign direct investment (FDI), increase production and establish Egypt as a trade hub, Egypt Today analyses the deal, looking at what RIZ is expected to bring to Egypt and how it will affect Egyptian-Russian trade.

Egypt and Russia signed Wednesday an agreement for a $7 billion RIZ on Wednesday, according to a ministry statement. RIZ will be established in the East Port Said region.

During the signing ceremony, Minister of Trade and Industry Tarek Kabil explained that this 50-year agreement will give Russian companies rights to develop a 5.25 million square meter stretch of land in the Suez Canal Economic Zone into an industrial zone for Russian companies that will be built over three phases, giving them a solid, strategically-located base in Egypt to export to the rest of the Middle East and Africa.

Industrial projects and buildings will be built over a space of 2.8 million square meters, while the rest of the land will be used to build residential units as well as commercial and entrainment facilities for the zone’s staff. Stretching over 461 square kilometers, the zone extends through the three Suez Canal governorates of Suez, Port Said and Ismailia, and will include six maritime ports, to be completed by 2045.

Manufacturing air conditioners, motors, construction equipment, glass, ceramics, electronics, medical supplies and plastic are among the industries targeted by the RIZ.

Russian Deputy Minister of Industry and Trade Georgy Kalamanov said in July that the RIZ will act as a platform for Russian products to enter the Egyptian and African markets. “I see it as a hub. I believe it is a first stage in shaping basic platforms for spreading Russian goods in African countries, “ Kalamanov had announced.

Building on Kabil’s comments, Denis Manturov, Acting Minister of Trade and Industry of the Russian Federation, stated, “The signing of this agreement comes as a culmination of intensive discussions between the two ministries of industry and trade in the two countries over the past two years.”

RIZ is expected to give Russian companies an edge over other international companies, as it will be easier and less costly for them to export to the Region, meaning that their prices are likely to be more competitive on a global level; they will also take less time to arrive at the intended importing country and will leave less carbon footprints.



Development works of the first phase, involving 1 million square meters, will start this year and will be carried out by a Russian developer who will also work on attracting Russian investors and companies during 2018 and 2019. This phase will create 7,300 jobs in the construction field, decreasing unemployment rates in Egypt.

The second phase will develop 1.6 million square meters and will be finished by 2022, creating 10,000 jobs, while the third phase will develop 2.65 million square meters and generate 17,000 jobs, once again, decreasing unemployment rates in the region.

The three phase is expected to be finished by 2031, when Russian companies will start operations, providing some 35,000 direct and indirect jobs, the statement said.

The Egyptian and Russian sides have agreed to establish a company under the name of Moscow Economic Zone to be responsible for the zone’s operations and construction works. The project, which will be supervised by the two governments, will be funded by the Russian Direct Investment Fund (RDIF) and a number of Egyptian banks.

Chairman of the Suez Canal Authority (SCA) Mohab Mamish said in the statement that the RIZ would help cover East Port Said’s needs for industries as well as the needs of the domestic market. He further added that the zone would serve as a gateway for Russian companies to European and African countries.

Mamish added that the land granted for the RIZ is on a usufruct basis and the condition for establishing projects and industrial complexes inside the Suez Canal Economic Zone is that 90 percent of the workforce is Egyptian. This would help the economic zone realize its target of creating 1 million jobs, according to the sustainable development strategy “Egypt Vision 2030,” Mamish said.

In October, Mamish announced that negotiations between Egypt and Russia on the industrial zone have been successful. Trade between Egypt and Russia increased to about $2.5 billion in the first seven months of 2017, from about $2.2 billion in the same period of 2016.

The project is part of ongoing efforts to encourage foreign and domestic investments in the Suez Canal Economic Zone, which is set to include an international logistics hub and areas for light, medium and heavy industry, as well as commercial and residential developments.



In statements to Sputnik news agency Wednesday prior to the signing of the agreements, Kabil said, “Post the signing today they will start developing the contract between a Russian developer who will manage the development of the area and the economic zone of the Suez Canal. So that contract will include the details of the construction and power required, very nitty-gritty details. So probably I would expect in the neighborhood of six months to finish the contract and the approval of the parliament. After that then the developer is free to start preparation.”

Kabil further pointed out that he had the chance of meeting some 60 Russian companies who are interested in investing in the RIZ, including some big companies like Kamaz. “Between the developer and the companies, there are many companies who said yes we are interested. The good thing is that they’ve already studied the Egyptian market, the export opportunities out of that particular area. So it would be premature for companies,” stated Kabil.

The Russian Investment Zone is expected to be the first of many other zones established around the Suez Canal, with negotiations on-going between the Egyptian government and their Chinese and Italian counterparts.



Business between Egypt and Russia

Registering an unprecedented $6.7 billion, the volume of trade exchange between the two countries increased by 62 percent in 2017, compared with the same time in 2016, according to Russian trade representative in Cairo Nikolai Aslanov. Russian exports to Egypt recorded $6.2 billion, while Russian imports from Egypt stood around $505 million, according to the Federal Customs Service of Russia.

Breaking down the trade exchange between the two countries: Egypt imported wheat (23 percent of total Russian exports to Egypt) and metals (11 percent of total Russian exports to Egypt), at a value of $1.4 billion and $703 million, respectively. Meanwhile, Egypt exported fruits worth $209 million to Russia, constituting 41 percent of total Egyptian exports to Russia; and vegetables worth $180 million, accounting for 36 percent of Egyptian exports to Russia.

Russia’s cumulative investments in Egypt totalled $4.6 billion by the end of December 2017, 60 percent of which went into petroleum and gas sectors. There has also been an increase of delegations between Egypt and Russia over the past two years, with 54 Russian delegations visiting Egypt in 2016, 80 Russian delegations visiting Egypt in 2017, and even more this year.

Total Russian investments in the Egyptian market are valued at about $62.8 million across 417 projects in various fields, according to the Trade Ministry.

On the expectations for the end of 2018, business and trade exchange between Egypt and Russia is expected to increase by some ten billion US Dollars, predicts Mikhail Orlov, Chairman of the Russia-Egyptian Business Council under the Russian Chamber of Commerce and Industry. “Trade is growing dramatically…It was about six billion US dollars last year and is likely to be even more this year: I think we can make up to ten billion US dollars,” Orlov told TASS on the sidelines of the Kazan Summit international economic event.

According to Orlov, bilateral trade has a potential of reaching $25 billion. To achieve this, according to Orlov, Egypt and Russia need to work on simplifying procedures of mutual financing of projects, harmonize phytosanitary standards and remove administrative barriers in the pharmaceuticals sector, a sector that is seen as a huge potential for both countries.

Commenting on trade exchange between Egypt and Russia and the expected size of trade at the end of 2018, Kabil told Sputnik news, “2017 it [trade between Egypt and Russia] reached the highest level of trade, excluding the military since the Soviet Union. So there is a significant growth happening in 2017 and that growth continued in 2018. We believe it will be 2017, but again we cannot specifically tell because it is related all to private sector, other than wheat, which the government in many cases gets involved. The rest are purely private sector but the trend is very positive between the two and partially, part of the objective of this joint committee meeting is increase the growth level, increasing the trade growth level comes from many areas. Part of it comes from elimination of barriers like agriculture between both of us.”

In line with Orlov’s calls for barrier removal between the two economies, Kabil said, “That is one of the barriers. So eliminating barriers on the Russian side and on the Egyptian side improve the flow hence increase the trade level. The discussion about doing our b2b [Business to Business] businesses also help in increasing trade. So major part of the objective of this meeting is two things, increase investment, increase trade. Honestly both of them are linked together.”