The government is focusing on the development of new industrial zones in order to attract foreign direct investment (FDI), create new employment opportunities and increase the sector’s value, which was estimated at 27.8% of GDP in 2018.
International Cooperation
In May 2018 the government signed a 50-year deal with Russian authorities to establish a 5.25m-sq-metre industrial zone in Port Suez, within the Suez Canal Economic Zone (SCEZ). The location was chosen as part of the government’s plan to attract manufacturers aiming to export across international markets. The total cost of building the new area is expected to reach $190m, but the authorities hope the zone will in turn be able to attract as much as $7bn in manufacturing investment. Construction will be partitioned into three phases and is expected to last until 2031. The first phase of development will cover 1m sq metres over 2018 and 2019. The second will add an extra 1.6m sq metres by 2022, and the third will focus on the remaining 2.65m sq metres.
Similar agreements with other countries are reportedly in the making. In May 2018 the head of the Egypt-France Business Council, Fouad Younes, told local media that the countries were looking to establish a joint industrial zone near the Port of Alexandria, covering 10.5 ha of land.
Additionally, in mid-2018 the Egyptian-Turkish Business Association said it was involved in negotiations to acquire a 1m-sq-metre plot of land to house Turkish manufacturers, although no conclusive information about the potential deal was available as of March 2019.
In 2017 the Ministry of Investment and International Cooperation reported that it was in negotiations with Singapore to establish an industrial zone. The zone will likely be located in the SCEZ, and focus on attracting companies operating in maritime activities, food processing and urban development.
New Cities
The development of industrial zones will be pushed forward by plans to build new cities in order to alleviate pressure on Cairo. In May 2018 China’s CGCOC Group began negotiations with Egypt to create of a sustainable industrial zone in New Alamein City, an urban centre under development on the Mediterranean coast.
The industrial zone will include a General Electric wind turbine manufacturing plant and a Siemens maintenance unit, and aims to operate using only sustainable utilities, including renewable energy and water sourced through desalination plants.
Regional Development
Industrial zones have the potential to reduce regional disparities in economic opportunity. The authorities have announced plans to create 10 new industrial zones in Upper Egypt, in the country’s south. Although situated further away from the traditional economic centre in the north, Upper Egypt has its own advantages for industrial development.
Labour costs are lower and the region is well connected to the Red Sea ports via a recently updated road network. In 2016 Egypt signed an agreement with the World Bank to receive a $500m loan to finance projects to update industrial zones in the governorates of Qena and Sohag. In order to expand the use of the Nile River for logistics proposes, the authorities announced the launch of the construction of a river port in Sohag in June 2018, the first to be built in this region. Planners were also looking for a private operator to manage the port’s infrastructure. The tender for the building of another river port, in Qena, budgeted at between $50m and $100m, was launched in April 2018, and the foundation stone was placed in the same month.
Leveraging Suez
A major move towards strengthening the role of industrial activity came with the establishment of the SCEZ in 2015, linked to the recently completed Suez Canal expansion project. The zone has a total area of 461,000 sq metres and includes four ports and four industrial areas along the Suez Canal, which has an annual traffic of roughly 17,000 cargo ships.
The zone is under the purview of the General Authority for the SCEZ. Through this management structure, investors are able to secure the necessary licensing, deal with tax collection, access utilities and resolve any potential disputes directly with the zone’s management. This helps investors avoid difficult or time-consuming bureaucratic procedures that tend to impact the country’s business competitiveness. Because of its size, the SCEZ will cluster different industrial activities around specific areas; as such, textile, ICT and agro-industrial activities are set to be located around Ismailia, roughly midway along the Suez Canal. Meanwhile, renewable energy generation and heavy industry will be positioned near Ain Sokhna, on the Suez Canal’s southern end, connected to the Red Sea. The SCEZ has already proved capable of attracting FDI. As of May 2017 the zone had leased out 23m sq metres of area for new industrial investments reaching between $15bn and $20bn, including an oil refinery, a petrochemical plant, manufacturing units for renewable energy technology, vehicles, textiles and processed food.
Challenges
One key challenge for the long-term development of the SCEZ, however, is its proximity to several cities with relatively low population numbers, which might impact the zone’s ability to tap into a large enough pool of human resources.
The country’s industrial development policy is also likely to be tested by the global environment, in which an escalating trade conflict between China and the US might reduce global exports to the US. Headwinds could also come from the fact several emerging markets which compete directly with Egypt also saw their currencies depreciate in 2018, bolstering their relative competitiveness on export markets. Under difficult external conditions, the fact that Egypt is improving its internal industrial competitiveness through new manufacturing zones will likely pay off over the long term. Industry executives have already identified the advantages that the current trade environment may be able to offer them. “The recent instability in global trade creates an opportunity for Egypt to capitalise on its strong relations and trade agreements with Europe and the US. Following the devaluation, Egyptian products in the textile and clothing segments are cost competitive with China,” Mohamed Khalifa, chief investment officer of textile exporter and retailer Arafa Holding, told OBG.
By strengthening its focus on industrial zone development, Egypt bets on its potential to expand its manufacturing base and regain its position as an attractive locale for FDI. Easing time and costs constraints to set up new factories will be critical.
Read More from OBG
