Economic Update

21 Apr, 2021

– Egypt is at the heart of many global supply chains

– The industrial sector has the potential to its drive Covid-19 recovery

– Various initiatives will increase private sector investment

– Major infrastructure projects are set to expand exports

With the effects of Covid-19 still being felt in Egypt, industrial exports are shaping up to be a key driver of the country’s economic recovery.

Highlighting the importance of outward shipments, on March 20 Nevin Gamea, the minister of trade and industry, told media that Egypt planned to increase its exports to $100bn over the long term, up from pre-pandemic levels of around $30bn, by shifting its focus towards more EU, African and Arab markets.

The strategy that will drive this growth involves boosting national industries and increasing exports from small enterprises. In addition, export logistics will be enhanced, for example through the automation of import and export procedures.

The programme also involves developing Upper Egypt and various border areas, as well as supporting projects in the Suez Canal Economic Zone.

President Abdel Fattah El Sisi has also recently underlined the need to increase industrial investment and export levels.

The president called for domestic industrialisation and the localisation of technology to be bolstered, for the gap between exports and imports to be closed, and for the use of foreign currency for imports to be reduced.

In addition, he ordered a comprehensive review and inventory of land that had been allocated to industrial activities but not developed within the mandated timeframe.

Flagship projects lead the way

Economic reforms have been under way in Egypt since November 2016, when the country received a $12bn loan from the IMF and the currency was floated.

The fund identified private sector-led growth as a key priority, and reforms have largely been aimed at improving the business environment to attract private investment.

“Measures should be taken, when possible, to reduce business costs and ease access to financing because the private sector needs to be the engine of Egypt’s economic growth,” President El Sisi told OBG last year.

A significant move came at the end of 2019, when the government and the Central Bank of Egypt (CBE) launched a $6.4bn initiative to boost domestic manufacturing by giving medium-sized factories access to subsidised loans at a declining 10% interest rate.

A central focus of this drive has been the development of industrial zones, the largest of which is the Suez Canal Economic Zone, where the integration of logistics and the clustering of manufacturing value chains have been shown to improve efficiency and lower costs.

Both public and private industrial zones are competing over the infrastructure they can provide and their ability to integrate the manufacturing and export processes.

However, some issues have been reported with regard to the capacity of publicly funded industrial zones to connect incoming enterprises to infrastructure networks, particularly with regard to exports.

A deal signed earlier this year between the General Authority for Land and Dry Ports and the European Bank for Reconstruction and Development is indicative of efforts to overcome logistical shortcomings.

The deal is worth €1m, which will go towards advisory services on the construction of a dry port and logistical centre in the 10th of Ramadan City, a city outside Cairo with a substantial industrial zone.

This is part of a comprehensive plan to establish a network of dry ports and logistical centres across the country.

In February it was announced that five consortia were interested in a tender to build the 10th of Ramadan City dry port, among them the Elsewedy Electric-DB Schenker consortium, another led by Dubai’s DP World and a third led by the China International Marine Containers Group. The tender is expected to be formally issued in the middle of this year.

On a related note, in January it was announced that Egypt had signed a €19bn deal with Siemens Mobility and local companies to build a 1000-km high-speed rail network.

Work was set to begin forthwith on the 460-km first section, which will connect El Alamein on the Mediterranean to Ain Sokhna on the Red Sea, while also passing through the as yet unnamed New Administrative Capital, which is currently under construction.

Meanwhile, a new electric train is set to come online at the end of this year, connecting 10th of Ramadan City to the New Administrative Capital and Cairo.

Such efforts should go a long way to spurring private sector investment in industry, and driving a concomitant rise in income from exports.

“Looking ahead, Egypt is in a favourable position to promote growth in industries where it has comparative advantages and can add value,” Mohamed Al Kammah, CEO of Elsewedy Industrial Development, told OBG.
“In order to best leverage growth in these industries, key stakeholders should invest in industrial infrastructure in the near term to ensure long-term capacity along the value chain.”