Sunday, 8 May 2022

Why are some of Egypt’s manufacturers lagging behind when it comes to industrial automation?

What’s behind the gap in Egypt’s shift towards industrial automation: Although a number of manufacturers are accelerating their adoption of industrial automation — with many reporting successes as a result, as we reported last monthPart 1 of our series on automation also found that a lot of manufacturers are still behind on the transition. What’s standing in the way of manufacturers, and what needs to be done before we see more of them making the shift?

Refresher: Automation equipment has a hefty price tag: We reported in Part 2 of our automation series that the average cost for new equipment can range widely from USD 28k for a standalone robotic arm to hundreds of thousands of USD and upwards for a complete industrial automation system.

Labor costs here are still cheaper: High initial costs are definitely a bottleneck for many companies, especially SMEs, Industrial Development Group Marcom Director Monica Salama told Enterprise. Labor in Egypt is still cheaper than the machines and equipment needed for automation, so many companies tend to rely on old-school, often secondhand, machinery and human labor to do the job, Salama added.

The main driver for manufacturers to automate tends to be eliminating human error rather than multiplying revenues, Schneider’s North East Africa & Levant Cluster President Sebastien Riez told Enterprise. This can prevent many manufacturers from maximizing their gains out of automation, Riez added. Manufacturers could instead multiply revenues by adopting automation tools when the performance of older assets is maxed out, especially considering the difficulty of fixing or replacing older control assets, he explained.

Who’s lagging behind again? SMEs, as well as plastics and metals makers, are among those lagging behind on the transition, likely because these industries are tied to market prices that make them less risk averse when it comes to shelling out large investments, Polaris Parks General Manager Bassel Shoirah told us.

Long-term gains don’t make up for short-term losses in this case: Even though the investment would pay off in the long run, it would be economically infeasible for SMEs and smaller Egyptian companies to make that investment in the short term without a clear incentive, Salama explained.

But this could change with the new minimum wage: A positive change that could help accelerate the shift towards adoption is the new private sector minimum wage, Shoirah told us. There’s a benchmark now for wages, which means they’re not as cheap as before and this is allowing manufacturers to consider automation more seriously because the costs are equalizing, he explained. The new EGP 2.4k private sector minimum wage came into effect at the start of the year.

No, this does not mean robots will replace human labor: New jobs requiring a different set of skills will emerge, rather than an absolute lack of new openings, according to a recent report by the United Nations Industrial Development Organization (UNIDO) (pdf).

But a lack of digitally skilled labor poses an issue, UNIDO says. There is a higher probability (a 55% chance) for workers to be displaced by automation when they have low-to-medium levels of education (which is identified as a lack of a bachelor’s degree or those who completed high school and have some professional experience), a 2018 McKinsey report (pdf) shows. Egypt was among six countries identified by McKinsey where more than half of the workforce holds a high school diploma or less. The probability of being displaced by automation more than halves to 22% for employees holding bachelor or graduate degrees.

And it’s a challenge for manufacturers too: Digital thinking and culture does not come overnight, LaFarge Egypt Industrial Director Niels Ledinek told us. We have not been facing difficulties finding talents with a digital background like data analysts or scientists, he says, but we still require a cultural change in the organization to get everyone thinking about automation — and this takes time.

Another reason automation is lagging: Volumes as of now are not high enough to call for “maximum automation,” Chief Manufacturing Officer at GB Auto Ramez Adeeb explained. GB Auto automates a big portion of its assembly lines and regularly recalculates its need for automated equipment as volumes increase, but with relatively low motorization rates in Egypt (in comparison to the size of our population), and the amounts of imported cars available in the market that compete with locally assembled models, a fully robotized plant right now is not necessary.

This applies to other industries too: Automotive components industry players are not automating their plants because production volumes are not high, CEO of Teriak Group Kirolos Teriak told us. In fact, if anything, there’s overcapacity at our factories, Teriak explains. This could change down the line when the automotive strategy is announced, and volumes are driven up, he added. Back in March, the Madbouly cabinet reviewed the latest version of a new automotive strategy — which has been in the works for years and is expected to be unveiled imminently. The strategy aims to increase local vehicle manufacturing and assembly. Check out our inaugural Inside Industry story for more on the strategy and how local industry players are receiving it.

Beyond the automotive strategy, an Industry 4.0 strategy is needed: On the policy side, Egypt is lagging behind other countries in that we don’t have a cohesive vision for the Industry 4.0 transition, Salama said. UNIDO also highlighted the need for a developed policy framework that addresses things like technology infrastructure, resources, suppliers, production, technology providers and logistics to help guide the transition to Industry 4.0, identifying this as one of the main challenges facing Egypt’s manufacturing industries. “Technology and innovation are still viewed as separate topics and there is no integrated framework to prepare the manufacturing sector for the future of production,” the organization wrote.

What would that strategy look like? “A successful Industry 4.0 roadmap requires a dedicated, structured and multi-year approach that outlines clear goals for Egypt to achieve coupled with quantifiable and measurable targets (KPIs),” UNIDO wrote. This strategy should incorporate input from stakeholders from the government, industry players, business associations and groups and subject matter experts, it explained.

Wider industry integration is key: There are many different vendors and technologies that need to connect to find the right solution for each situation, Riez said. “The power of being able to leverage a broad ecosystem of partners using open technologies can facilitate a much faster and easier transformation,” he said.

Your top industrial development stories for the week:

  • Support for local industries: The government will provide fresh incentives to local manufacturers — including SMEs — to develop local industries and reduce imports, President Abdel Fattah El Sisi said in a speech before the Eid break.
  • A new spinning mill in El Mahalla that is set to be the largest in the world will begin operations next year, said Public Enterprises Minister Hisham Tawfik. The state has already launched the distributing company that will sell its products, NIT, which is currently in talks with retailers and shopping malls on opening branches to sell its wares.
  • Ezz Steel has lowered steel rebar prices by 4%, marking the first drop in price since Russia’s invasion of Ukraine sent the cost of building materials soaring. The company will now sell a ton of steel rebar at EGP 19.17k, down from EGP 20k.
  • Elsewedy Electric partners with China’s Wolong Electric on electric motors + service center: The two manufacturers signed an agreement to distribute electric motors, establish one of the region’s biggest service centers, and explore ways to develop the local industry,
  • Locally made ventilators to be distributed to university hospitals: The Higher Education Ministry, BioBusiness, and Arab Organization for Industry Hospital have successfully produced 50 entirely locally made ventilators, and have begun distributing them among university hospitals.
  • The Trade Ministry has granted 3,904 new building and operating licenses in 1Q2022, and has issued 1,737 new permanent and fixed-term industrial records.

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