Rachid expects LE 85 bln from industrial investments
By Annelle Sheline / Daily News Egypt
First Published: February 4, 2010

CAIRO: Minister of Trade and Industry Rachid Mohamed Rachid expects Egypt’s new industrial zones to attract investments totaling LE 85 billion ($15.5 billion). 42 million square meters in Borg Al Arab, Sadat City and Tenth of Ramadan City will be made available for industrial development. Rachid told reporters that both foreign and domestic investors will be considered, public and private.

Foreign direct investment (FDI), once one of the bastions of Egyptian revenue, will be hard to come by in 2010 with credit scarce and competition steep.

Magdy Sobhy, economic expert at the Al-Ahram Center for Strategic and Political Studies, believes that Egypt will see little interest from traditional investors in the US and Europe towards Turkey, China and potentially Malaysia.

Sobhy speculated that while Turkey may remain ensconced in the textile sector, China and Malaysia could be looking to manufacture machinery, such as car parts and heavy drilling equipment such as for petroleum extraction.

“They need Egypt as a hub for exports to Africa or Europe because of Egypt’s free trade agreements. Most of [Egypt’s] exports to Europe are now free of tariffs,” he explained.

The General Authority for Investment (GAFI) lists Egypt’s other assets as a destination for investment: large consumer market, developed infrastructure and preferential tax rates are several significant advantages.

Egypt emphasizes industrial “clusters,” either for ease and efficiency of production, as in the case of sector-specific clusters, or for overcoming cultural barriers, in the instance of nation-specific zones.

A statement from the ministry expanded on the current emphasis on industrial development and the specific strategy of clustered industrial zones.

“As experience has shown, the creation of industrial zones allows for large factories to invest in Egypt surrounded by smaller ones that act as suppliers. Having main manufacturers in the same vicinity as their suppliers is beneficial in several ways: the first is that it creates a steady flow of business for medium and smaller factories as suppliers for larger ones that are within the same vicinity. This, in turn, allows for the reduction of cost in transporting products from medium and smaller factories, making their products more competitively priced.

“The second advantage is that this close proximity cuts the overall cost of the final product produced by the larger manufacturer,” the statement read.

Another advantage that industrial clusters can offer, according to the ministry’s statement, is the access to amenities for all industries within the cluster. “For example, setting up basic infrastructure and services for the entire industrial zone can be more efficient and cheaper than ensuring that basic infrastructure and services are available to industries that are dispersed throughout a larger geographic region.”

The statement also mentioned the benefits of “one-stop-shops” for permits and licenses as well as centrally located training centers, identified as a priority by the Ministry of Trade and Industry.

For the three industrial areas currently targeted for investment, the benefits of clustering have already manifested themselves. The chairman of the Industrial Development Authority (IDA) Amr Assal told MENA that 7million square meters will be allocated for Borg Al Arab near Alexandria, 9 million for Sadat City northwest of Cairo and 8 million northeast of Cairo in 10th of Ramadan. However, when establishing an industrial facility in a previously remote area such as Upper Egypt, none of the benefits yet apply.

Sobhy pointed out that Egypt is beginning to run out of land in the areas near the already established industrial zones.

“One handicap is land available for industry. As the Minister of Trade said, they are lacking available land in nearby areas to offer to investors, especially foreign investors… You need land near the industrial area, so you have ‘benefit externalities’, or roads, transportation and housing for workers.”

He explained that although 10th of Ramadan, for example, has been an industrial center for decades, it still faces logistical struggles with transporting laborers.

“Upper Egypt needs to be developed, in Minya, Beni Suef, and Assiut. These are the most unemployed people,” he concluded.

Yet establishing industrial zones from scratch carries more than an infrastructural headache; environmental concerns have become more apparent as industry continues to claim more land.

Amani Nadim, an environmental consultant with Environex, pointed to increasing complaints regarding soil and water contamination.

“In recent years it’s become more of an issue,” she acknowledged, pointing out that since the establishment of the 1994 legislation requiring all new developments comply with environmental standards, awareness has grown.

“You can’t just stop development because you’re concerned about the environment,” she said. “We need development and infrastructure that compliment care for the environment.”