Interview: Tawfeek Laham
How are Egyptian manufacturers taking advantage of trade agreements to export to Africa?
TAWFEEK LAHAM: Egypt is in many ways a very competitive base to export from. It was expected that the manufacturing sector would benefit from the currency floatation in 2016 because of the increased competitiveness of products when priced in foreign currencies. This was true to some extent: in addition to increasing clarity for businesses that no longer had to deal with multiple exchange rates, Egyptian products have become more competitive. However, for a large number of industries the increased cost of importing materials has resulted in the benefit being negated. Despite this, exports have become more important as they balance out the local market, where there is greater pressure on margins.
The government has taken a number of steps to support exports since 2007, when it began subsidising costs for port-to-port shipments in Africa. International transport costs are high and this subsidy makes it possible for Egyptian manufacturers to compete with local players in export markets. Trade agreements are also an important part of the government’s efforts to continue to drive growth in trade. However, it is the implementation of these agreements and the awareness at all levels that will determine the outcome. Financing and export guarantees will have a key part to play, especially in expanding initial contacts between parties where taking on the risk of loss might be a hurdle to exports.
What steps are being taken to localise supply chains and increase competitiveness?
LAHAM: Supply chain localisation is one aspect of the broader picture of increasing cost efficiency. Building capacity in feeder industries will help strengthen our manufacturing base and reduce costs for businesses that are able to transition from importing source materials and components to relying on local suppliers. For example, in glass manufacturing, sand is the largest component and this can be sourced locally, but 80% of the additives that affect the specific attributes of the glass and the quality of the final product must be imported. Due to this limitation we must boost efficiency through economies of scale and other means. The challenge in changing suppliers for large-scale manufacturers that work with international brands is the demand on quality. The importance of maintaining consistency means that in some areas building the capacity locally will take time and investment. Egypt has an advantage in terms of labour costs, so industries like the ready-made garments industry that require large numbers of human labour are doing well.
For the long-term strength of Egypt’s industries there will need to be increasing investments in automation and new technologies that are able to reduce cost through greater efficiency or lower operating costs. For example, with the gradual removal of electricity subsidies, energy costs are rising and there is growing interest in adopting solar energy to power factories. Most heavy industries still favour traditional sources of power generation, but this will not always be the case.
To what extent are new regulations to attract investment having an impact on day-to-day business?
LAHAM: We have seen a number of recent changes designed to promote investment and encourage manufacturers to expand their operations, including the new Investment Law of 2017 and the creation of a one-stop shop for investors to register and open their businesses. The challenge for businesses at the moment is that the pace of change can make it difficult to project future costs, so there will be a benefit as the pace of new regulations slows. Having uniform and consistent implementation of Customs, fees and regulations will also allow for better planning, and encourage greater confidence in investors. The transition to e-government services is a significant step forward in this respect, and as the number of services that can be accessed digitally increases there will be further benefits for businesses.
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