Sunday, 18 September 2022

What the wood and furniture industry thinks of state privatization plans

Wood + furniture manufacturers weigh in on the state’s privatization plans: As part of its state ownership policy document, the government is currently looking to exit the wood products and furniture industry as it aims to transform the sector into a more lucrative investment avenue for foriegn investors. Stakeholders in the industry gathered late last month to voice their opinions on what the sector needs to thrive and to lay out recommendations on how to bring the private sector on board.

The key takeaway: The biggest challenge facing private sector players in the industry remains the shortage of raw materials, according to several sources speaking with Enterprise. But beyond that, manufacturers are also struggling in the face of the high industrial land costs and competition with informal workshops that operate in the shadow economy, industrial players tell us. The policy document is a “strong indicator” that the government is serious about encouraging private sector participation in the economy, which is a critical message for international investors, Nabolia CEO Eslam Zein El Abdin told Enterprise. Attracting international investment partners significantly increases local players’ chances of tapping export markets abroad and securing more revenues, he said.

A refresher on the state’s privatization drive: Every Sunday and Tuesday, workshops are held as part of a series of public consultations over the policy document — which lays out privatization plans on specific industries. These come as the government seeks to widen private sector involvement in the economy over the next three years, and aims to draw new investments worth some USD 40 bn over the next four by selling stakes in state-owned assets to local and international investors. You can refresh your memory of what went down with the pharma industry, engineering and automotive industry reps, FMCG players, the printing and packaging industry, and textile and garments manufacturers in our previous editions of Inside Industry.

Raw materials shortages remain top of mind: Furniture manufacturers rely heavily on imported materials, Furniture Export Council member Eslam Khalil told Enterprise. Finding a way to set up a framework that would ensure material availability would go a long way for the industry, agrees Federation of Egyptian Industries’ (FEI) furniture manufacturing division member Alaa Nasr.

So moving towards making these materials available locally is critical: Making wood products and materials available locally is one of the main requirements to ensure the stability of furniture manufacturing, says Furniture Export Council member Mahmoud Abou Shousha. This could be achieved by expanding Egypt’s tree planting, while relying on wastewater treatment plants for irrigation, suggests Osama Zaitoun, managing director of Egypt-Kuwait Holdings-affiliated Nile Wood Company. Between expanding the production of wood locally and the existing direction of using recycled agricultural waste to produce wood boards, we could entirely eliminate the need for imported wood by the end of 2023, Zaitoun predicts.

On the flipside, there’s a huge window for exports: There’s an untapped window of potential to export Egyptian furniture and wood products, says Nasr. Africa in particular could be a strong potential export market, considering incentives currently in place to ship products to the continent, Nasr tells us.

New incentives driving private sector investments would go a long way to improving competitiveness on a global scale: Providing the private sector with investments related to industrial land prices and allocation through a usufruct framework would be a welcome form of support for the wood and furniture industry, agree Tarek Habashy, undersecretary of the FEI’s furniture manufacturing division and SAI Solutions Chairman, and Samir Aref, a member of the Egyptian Investors Association. Usufruct agreements for industrial land are helpful for manufacturers because it’s cheaper than buying the land, and that price difference can be directed towards capital investments, expansions, and improving product quality.

There’s also a shortage of trained laborers, which Nasr says is a critical challenge for the industry to create a diversity of products. He suggests that it’s important to expand on vocational training for the industry to support the labor market.

The sector still needs more state support + regulation to improve its performance: Part of that state support is formalizing the shadow economy, which industry players tell us is difficult to compete with because informal workshops don’t have the same tax or regulatory burdens. Zaitoun suggests government incentives for the informal industry to go legit. Other regulatory oversight the sector needs is tightening customs regulations for imports of production inputs to ensure they meet global quality standards, says Assal Furniture CEO and board member of the FEI’s furniture division Hussein Assal.

As is the case with many industries, public-private frameworks and more cooperation would be very welcome: Expanding public-private partnerships in the furniture and wood products industry and offering up projects under a build-operate-transfer (BOT) framework could also help to open up new export markets by tapping into the public and private sectors’ individual strengths, suggests Alsnosy Balbaa, vice president of the Arab Academy for Science, Technology, and Maritime Transport.

Your top industrial development stories for the week:

  • Elsewedy Electric opened the second phase of its USD 50 mn Kigamboni industrial complex. The factory has an annual production capacity of 2.5k transformers.
  • Chinese mobile maker Oppo will set up a USD 20 mn mobile phone plant in Egypt. The facility will have an initial production capacity of 4.5 mn devices per year and create some 900 jobs within the next three to five years.
  • Emirati fertilizer company CFC Group will start contracting in February for its USD 400 mn industrial complex in Qena Governorate.

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