Egypt Industry Development

Introduction

The Egyptian economy had, for a long time, especially after 1952 revolution, relied heavily on public sector enterprises. For about forty years, public enterprises were the keystone in running the Egyptian economy. In 1991, the Egyptian government started the economic reform and structural adjustment program with support from International Monetary Fund (IMF) and the

World Bank (WB). The key economic sectors that needed reform and adjustment are privatizing public enterprises, trade liberalization and export development, and promotion of an environmentally sound technology 1. The Egyptian government has, in the last ten years, done tremendous efforts towards liberalization of economy and building strong infrastructure.

The academia has identified three main dimensions of sustainable development. The three dimensions are economic, social, and environmental dimensions. The future committee of the

Friedrich Ebert Foundation introduced a similar concept for sustainable development which is a triangle of three elements:

Economic performance

Social stability and social cohesion

Environmental sustainability .

Performance of Manufacturing Industry in Egypt:

The Egyptian manufacturing sector is concentrated on quite a few industries. Seven industries account for over 80% of establishments in the manufacturing sector. The three largest industries are textiles, food and beverages, and furniture followed by non-metallic minerals, metal production, chemicals and basic metals. The manufacturing sector is the keystone for economic and social development and therefore, the Egyptian government looks at manufacturing as the key-player in increasing the growth rate and improving the performance of quality and productivity of the industrial sector. Industry is the dynamic engine for growth essential for rapid economic and social development. In 2000-2001, manufacturing output represented more than 20% of the Gross Domestic Product (GDP), employing about 20% of the active labor power. Industrialization is also an effective mean for modernizing the society.

Industrialization in Egypt depends on utilizing technology, natural resources and labor. Egypt is a country with very limited natural resources. Most of manufacturing technologies are imported.

The comparative advantage that Egypt has is the abundant labor. Labor-intensive exports represent a significant portion of the exported manufactured goods.

Importance of Manufacturing:

Manufacturing has great importance in any society and in Egypt in particular for many reasons such as:

Creating jobs for people and decreasing the negative impacts of unemployment.

Developing the skills and knowledge of workforce of different industries.

Achieving high added value.

Achieving economic prosperity and raising the standard of living for all individuals.

Increasing the production and service capacity in the society

Contributing in decreasing the need for imports gap.

Manufacturing is an inevitable matter for Egypt. With the continuous increasing in population

and scarcity in resources, there is no other way but to invest in manufacturing.

The Role of SMEs:

There are many definitions and classifications for small and medium size industries and they may vary from one country to another. According to the data obtained (July 2001), from the

General Organization for Industrialization (GOFI) 7 which is affiliated with the Ministry of

Industry, there are four categories of the size of the establishment according to the amount of investment. These categories are:

1. Micro: less than 2 million LE 2. Small : from 2-5 million LE

3. Medium: from 5-10 million LE 4. Large: more than 10 million LE.

The Egyptian government has paid a lot of attention towards micro and small enterprises. The aim was to create young entrepreneurs and to encourage them for private activities. This was

very essential because of the old policy of the government to find governmental and public sector jobs for all graduates that made them reluctant to develop small businesses and to prefer governmental jobs. One of the main goals of the Egyptian Social Fund for Development is to promote entrepreneurship, especially in SMEs and micro enterprises8.

In addition, the micro, small, and medium size enterprises are financed through governmental organ loans and grants especially from the USAID. There is 170 thousand entrepreneurs working on micro and small projects with a total finance of 685 million LE based on a revolving fund allover the governorates of Egypt. The average loan for each plant is 4000 LE. However, the number of clients that is interested to get this service and did not receive it is estimated to be

2.15 million Clients with a ratio of 93% of the total number of clients. If the clients of the social fund are included, this number will reach 89% of the total fund 10.

The financial gap to cover all the interested clients will be 8.5 billion Egyptian Pounds. One of the projects working on this revolving fund is the Businessmen Association in Alexandria which is working on lending small workshops to get the necessary finance to promote, or innovate or expand the existing project. In addition, the National Bank for Development has some projects in this field.

Recent information regarding the industrial development of the registered enterprises at GOFI 11 regarding the period 1991-2001 has been obtained.

Location:

Regarding the location of industrial establishments, it can be seen that 41% of the industrial production by value is concentrated in Greater Cairo, 17% in Delta, 16.8% in Alexandria, and 14.2% in Canal Zone. This means that from Cairo and north 89% of the industrial production is located, while for northern, central, and southern Upper Egypt only 11% of the industrial production is located. This is the reason why the government policy is encouraging investment in Upper Egypt with tax exemption up to 20 years.

-Production Value:

According to the information obtained from the General Organization for Industrialization

(GOFI), the production value has reached until June 2001 a gross value of LE 168 billion with a 299% rate of increase over 1991 figures. The major surge having been realized during 95/96 where the percentage increase exceeded 102%, then the increase proceeded to reach 229% during the year 2001.

- Export Trends:

Exports reached a value rate of LE 8.8 billion during 2001 with an increase rate of 126% over 1991 levels.

- Industry’s Percentage Share in the Gross Domestic Product:

The industrial sector percentage share in the gross domestic product was valued at 20.1% during the first six months of year 2001, and it becomes reflected from such significant share during the last ten years the marked role which industry plays in the national economy.

- Investments:

Investments allocated to the industrial sector valued L.E 144 billion at an increase rate of 89% according to current exchange rates compared to investments expended during 1991. The greatest percentage of industrial investment was with respect to the metallurgical industries (excluding the oil and mining sectors), which reflects the major importance of this sector in the national industrial strategy.

- Productivity Norms:

Labor productivity which stood during 1991 at L.E 8,049 reaching L.E 114,045 during year 2000 with a development rate of 130%. The pound productivity stood in 1991 at L.E 14.00, reaching L.E 20.00 in year 2000, at an increase rate exceeding 20%. Capital productivity which developed at a rate of 14% during the ten year period extending from 1991 till year 2000.

- Industrial Production Value:

The industrial production value amounted aggregately to L.E 164 billion in year 2001 with an increase rate of 113% with year 1991 as base year. The greater increase was with respect to the engineering industries sector in which such increase reached 250%, whereas the pertinent increase as to the metallurgical industries sector stood at 162%.

- Labor Wages and Labor Force:

Labor wages realized a 63% proportional increase compared to year 1991, and the increase in labor force working in the industrial sector rose at a 45% rate.

- Geographic Criteria in the Industrial Development Process:

The Industrial development norms (increase in the number of industrial firms) in upper Egypt amounted to some 29% over the ten year period from 1991 till 2000, the increase rate being predominant in the southern upper Egypt region, whence it reached 48 %, reflecting the state’s ever increasing concern to develop the upper Egypt governorates, with special emphasis on the southern upper Egypt region. This is an important action for sustainable development since most of the terror acts stem from Upper Egypt due to lack of job opportunities.

The comparative investments distribution over the different governorates was seemingly more

regulated, as investments allocated for the Cairo and Alexandria governorates were reduced, while investment shares allocated for the Red Sea, Beni Souef, Fayoum, Sohag, Aswan and

North Sinai governorates were increased.

- Industrial Sustainable Development Strategies:

The strategy of the Egyptian government regarding sustainable development in industry focuses on directing investments to new regions and granting incentives and relative advantages to remote areas.

This Strategy depends upon the following13:

Any new project must be subjected to an Environmental Impact Assessment before final approval;

All polluting activities are being relocated from residential areas to other, more suitable, sites; (e.g. tanning, leather, and Cement industries)

Industrial Zones are being established in all Governorates for the new investments;

Production technologies are being improved to minimize the use of raw materials, energy and, as possible, cans, which may be wasted in production;

Clean technologies and cleaner production will be used as pollution prevention procedures;

Production quality technologies are being adapted by applying ISO 9000 series and environmental system 14,000 series, whenever it is possible;

Cooperation is being supported and enforced between industry and scientific research centers, universities, and international programs and organizations in the area of environment and sustainable development.

- Public Sector Industrial Enterprises:

Regarding the strategy for public sector industrial enterprises, in 1991 a new Ministry of Public Enterprises was established aiming at the privatization of the public sector. Big progress has been done in this direction. At the beginning of the 80s, about 80% of the industrial production was public, now about 85% of the industrial production is in private hands.

- Privatization:

Egypt had started to transfer its public enterprises to private ones at the beginning of the

Egyptian comprehensive Economic Reform Program. This was a transformation from central

planning and semi-central planning to market economy and market mechanism starting from 1991, after a long series of partial transformations that started after the October War in 1973.

This partial transformation was activated in the 80s, but it was still partial.

From 1991 to 1996 a number of preliminary steps were taken. These steps included the preparation of public opinion, preparation of the legal framework and the beginning of privatizing a number of public enterprises through the Stock Market. Three enterprises were sold to a strategic investor. Egypt started with companies in sectors producing commodities and services before other sectors, such as banks, financial sector, insurance companies, communications and utilities for reasons related to the Egyptian culture.

- Industrial Development:

Industrial development in Egypt is characterized by two main trends, the first is the establishment of new technologically competitive industries, and the second is the expansion and renovation of existing industries to increase their productivity.

Industrial development is the mainstay for establishing production base and maximizing the export capabilities of the national economy. Hence, it is given top priority as a commanding factor in building a competitive economy in the face of international variables and economic groupings of industrialized states. A growth rate of not less than 9% in the fourth 5-year plan is targeted which would progressively rise to an average of 11% until 2017.

- Egypt’s Strategic Orientation:

The strategic orientation in this respect calls for a package of policies to be adopted, chief of which are as follows 15, 16:

1- Continue to provide conditions necessary to improve the investment climate, in conformity with the evolution of local and surrounding conditions in order to encourage Egyptian, Arab and foreign capital to invest in industrial activities.

These activities can attract advanced technology, particularly to the new communities and reinforce infrastructure there, allowing for wider spreading and entrenchment of industries.

2- Encourage small and medium-size industries and support their role as originators of finished products or as feeders or complementary to large- size industries. Provide for spreading these industries all over the governorates.

3- Provide research units at production sites, in collaboration with academic scientific institutions, specialized centers and the Scientific Research Academy, to upgrade production processes through modern scientific and technological applications.

4- Expand export-oriented industries, and give due attention to the study of foreign market needs for new commodities. Industrial product exporters are to be assisted in promptly obtaining the incentives prescribed under the Tax Refund and Direct Refund Regulations.

Attract multinational companies to direct investments for export. Make use of the advantages available to some Egyptian products in opening new markets for Egyptian industries.

5- Protect Egyptian industry against illicit competition caused by subsidies granted by certain countries to their products or market dumping. Provide for wider expansion of integrated industrial complexes of all types. Extend technical, management and marketing assistance to small and medium-size industries.

6- Improve productivity and quality standards for industrial commodities, by enhancing institutional and regulatory framework and utilize productive measurements of production factors. Provide for the exploration of idle production capacities in the industry sector. Direct industrialization to unconventional fields of production and embark into new industrial areas in line with world industrial progress. Allow for the achievement of technological advancement, exchange experience in the field of technology research, development and transfer in the industrial sector, with international institutions, with emphasis on the enlisting of Egyptian experts abroad. Create extension units for transferred technology in industrial activities.

7- Rationalize consumption of energy, by using energy-saving production techniques, periodical maintenance to minimize waste, and expanding the use of thermal insulation, thermally-closed circuits and new and renewable energy.

8- Upgrade and update database, particularly relating to geographically existing industrialization potentials, design potentials and feeder industries. Encourage the manufacturing of main components of major industrial projects. Create companies that can act

as main contractors, and direct them towards intensifying local industrialization.

Upgrade architectural design bureaus and engage them in the process of first sample making.

Provide necessary finance for this process from the development budget.

9- Protect the environment against industrial pollution by using clean technology.

10- Redistribute production and industrial activities in order of priority. Relieve production operation of procedural burdens. Expand export-oriented industries. Encourage investors to establish basic industries and give due attention to ongoing and specialist training for industry staff. Draw up basic rules and criteria to assess these policies through periodical measurement of sustainable growth rate in terms of productivity, profitability, development, innovation and provision of new employment opportunities.

11- Achieve appropriate regional distribution of industrial activities and optimum utilization of production capacity of existing plants. Technologically upgrade such plants and their ability to promptly respond to changing conditions, particularly in production varieties.

All the above will be possible especially in the light of the stability and economic liberalization already achieved, and entry into the field of modern petrochemical and chemical industries.

Expand pharmaceutical, engineering and electronic industries. Also, reinforce conventional industries, with emphasis on small-size, supplementary, software and other non-conventional industries.

References:

1- Country Service Framework – Egypt, UNIDO, April, 2001.

2- Friedrich Ebert Foundation, Three Goals One Path, Bonn 1998.

3- Economic Bulletin, Ministry of Economy, July 2001

4- Report of the General Committee of the Egyptian Parliament on Social Development,

June 2000.

5- National Bank for Investment, Commission of Deepening Domestic Industrialization,

“Towards Harmonized Path for Deepening Domestic Industrialization, 2000

6- Ministry of Planning, “The National Plan for Economic and Social Development”

2000/2001

7- General Organization for Industrialization (GOFI), Special Report, June 2001, Egypt.

8- Dr. H. El-Gamal, “SMEs and Micro Enterprises”: Strategies for Job Creation in Arab

Countries Illustrated by Case Studies, Arab Regional Industrial Forum, Nov. 1999,

Cairo, Egypt

9- Memorandum of the Technological Support Center, Social Fund for Development,

2001

10- Ministry of Economy and Foreign Trade, “The Situation of Financing Micro and

Small Projects in Egypt”, March 2001

11- General Organization for Industrialization, Report on Industry’s Achievements along

Ten Years, September 2001, Egypt

12- UNIDO 1999, African Industry 2000: “The Challenge of Going Global”, Vienna,

UNIDO

13- MSEA, EEAA, The Annual Report 2000-2001

14- Privatization in Egypt, Quarterly Review, April – June 2001 Privatization coordination support unit, Cairo

15- Report of the Committee of Industry and Energy in the Egyptian Parliament on

“Technology and Development and the threshold of the 21st Century”, Feb. 1999

16- Report of the General Committee of the Egyptian Parliament on “The Strategy of

Technological Development in Egypt”, June 2000.