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Wednesday, 11 December 2019

Lack of funding is not the only problem facing Egypt’s manufacturers

The EGP 100 bn subsidized loan initiative will help solve the funding problem for manufacturers, but other problems remain: Government efforts to help manufacturers access funding only address one problem facing industries, with shortcomings in the current income tax law, bureaucratic hurdles, and a shortage of skills continuing to hamper growth, a panel of private sector executives said at a conference on Monday. The execs welcomed the EGP 100 mn subsidized loan program announced by the government last week, but nonetheless pointed to other areas of concern for the sector.

What do they have against the tax code? Businesses could face additional uncertainty after the government scrapped a clause in the 2005 Income Tax Act that placed restrictions on retrospective tax audits, Saudi Egyptian Industrial Investment Company CEO Ahmed Ata said. The original legislation contained a provision that compelled the Tax Authority to sign off on returns within five years of submission. With the clause removed, businesses face the prospect of being hit with unexpected tax bills on returns that have not been audited by the authority.

Red tape: Factories will continue to struggle through lengthy bureaucratic processes when they need to increase capital, acquire a license to operate, or change their line of business, Ata said.

The skills shortage: Cairo Cotton Center Chairman Magdy Tolba said that the industry is suffering from an inadequate supply of technically-skilled workers and a lack of training programs that would go some way to redress this.

Background: The government and the CBE announced last week a EGP 100 bn initiative to boost manufacturing by allowing medium-sized privately-owned factories with annual sales revenues of less than EGP 1 bn to access subsidized loans at a declining 10% interest rate. The initiative was seen as a positive development for the private sector, but calls for more support — primarily in the form of government debt relief (here and here) — have been continuing to make headlines this week as factories say they’ve taken a heavy hit following the 2016 currency float.

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