Sunday, 29 January 2023

Could more industrial players gain access to government support programs?

First there were golden licenses for industry. Now, diamond and silver licenses are coming into play: Since the Madbouly government last year made fast-track gold licenses for industry easier to obtain, we’ve seen a surge in interest among industrial players looking to get their hands on the license. Now, there could be at least two new tiers of licenses, alongside some new incentives, introduced to help capture some of this action and to support ailing industrial players.

A quick refresher on golden licenses: The golden license — also known as a single approval license — was introduced in the 2017 Investment Act to streamline implementation of key industrial and infrastructure projects. The licenses allow investors to obtain a single approval for all phases of a project, from land allocation through operation. The one-stop-shop license is given to investors working on strategically valuable national projects and those aligned with the government’s development strategy.

We’ve already seen a number of facilities awarded the licenses in recent months: Golden licenses were late last year awarded to some 9 big ticket projects including a USD 5.5 bn green ammonia plant in Ain Sokhna and a EGP 8.8 bn (USD 356 mn) home and electrical appliances manufacturing and assembly facility group in Menoufia, our sources at General Authority for Investment and Freezones (GAFI) tell us.

And there could be more of where that came from with more tailored licenses on offer: GAFI is currently evaluating proposals to expand the licenses offered to investors to include diamond and silver-tiered licenses that would be issued depending on each sector’s priorities, GAFI head Hossam Heiba tells us. In addition to new license tiers, GAFI and the Industrial Development Authority are working on soon releasing a new investment map with an estimated 1k available plots of land and 86 pilot projects in key industries up for grabs.

And more incentives down the pipeline: Though there used to be a minimum capital requirement of EGP 200 mn for businesses looking to apply for golden licenses — a rule that has since been scrapped — more incentives for a broader range of sectors could be in the cards, our sources tell us. The Industrial Development Authority has already unveiled new incentives that include six-month grace periods for current industrial projects that have entered their implementation phase, exemptions from up to 50% of previously owed fines, a seven-day cap on licensing waiting periods and a 15 day limit for so-called “high-risk” licenses.

Also in the works: New avenues for investment in existing projects across key industrial sectors, along with new land and licensing offerings, are in the works, our sources tell us.

Investors so far seem welcoming of these new measures: There are positive steps being taken and changes being made to outdated procedures, which calls for optimism about an improved investment climate in Egypt, Chairman of the Egyptian Businessmen Association’s (EBA) industry committee Magd ElDin El Manzalawi told us. Offering different tiered licenses containing various benefits and reducing the time it takes to obtain licenses has been among the industrial sector’s most urgent demands, El Manzalawi added.

Expanding incentives on offer will be good for domestic investment and FDI: The eligibility criteria for golden licenses has been fairly strict and therefore only applicable to relatively few projects. Putting on offer other means of support like tax incentives and procedural relief will have a positive impact on investment, Ahmed El Zayat, a board member at the EBA tells us. Domestic investors need to see security and stability so that they can help lure FDI back into the country, he added.

A new draft law might be needed for these new licenses to fully take shape: Amendments to the Investment Act will be necessary for the incentives offered by these new licenses to kick into gear, El Manzalawi explained. “We spoke with GAFI Chairman [Hossam Heiba] about the steps and procedures required, and the authority is currently studying them,” he said.

Added value could determine project classification: One of the ways the new licenses could be offered is by basing eligibility on a project’s potential added value and its use of local components in their manufacturing processes, SMEs Union head Alaa El Saqty told us. This way we might see more small businesses absorbed by the formal economy — through incentive packages tailored to each industrial sector, he added.

It's a good start but there’s still a long way to go: Although the policies being applied to different industrial sectors are seemingly in sync it’s still a long way before foreign investors are confident in the investments on offer, El Zayat told us.

EGP devaluation still casts a shadow over investment in Egypt: While interest rates and exchange rates will likely continue to be the strongest forces influencing investment decisions in Egypt, the new investment map, restructured economic policy and improved coordination between the authorities tasked with supporting local investment, will be crucial tools to get through the current economic crisis, El Zayat told us.

The most important thing to investors is how these policies will be put into practice: Despite a generally optimistic outlook on these new programs, industrial sector players are still waiting closely to see how these policies will be implemented and whether coordination between various government entities will actually be achieved. Putting these new incentive schemes into practice will be crucial in re-instilling confidence to local and foreign investors and strengthening the industrial sector in Egypt.

Your top industrial development stories for the week:

  • A new industrial park: The state-owned Holding Company for Food Industries (HCFI) is done with 40% of the construction work in its new industrial park in Sadat City comprising 10 factories in partnership with the military-owned National Service Project Organization. (Al Mal)
  • An EGP 160 mn fertilizers plant: The state-owned Egyptian Sugar and Integrated Industries Company (ESIIC) is mulling the establishment of an EGP 160 mn fertilizers plant in Nagaa Hammadi. (Al Borsa)

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