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Sunday, 4 December 2022

Our future as a electronic design and manufacturing hub

Does Egypt have what it takes to become an electronic design and manufacturing hub? As the CIT Ministry has been working to localize the country’s electronics manufacturing industry for the past several years, the design element of the industry is a key focal point as a driver of added value. The electronics manufacturing and design program is one of the most important development programs part of the state’s plans for the communications and information technology (CIT) sector during the current fiscal year, which aim to achieve added value for the CIT sector. Although we have some experience when it comes to component and fully-finished production, case studies and sources in the industry indicate that there’s an outsized value in the design side of the industry.

Where do we currently stand? The CIT Ministry and its affiliated agencies and partners are working to promote and support the development of IT industries in Egypt through launching the Egypt Makes Electronics initiative — which aims to double Egypt’s exports of electronics — and introducing incentives for electronic design programs in efforts to attract foreign investments and support local players.

Egypt is no stranger to electronic exports — but design brings in more added value: Egypt already has a foot in the door when it comes to exporting electronic design services, courtesy of Egyptian electronics firm Sico Egypt, which gave us the first locally manufactured smartphone, sources at the CIT Ministry’s Information Technology Industry Development Agency (ITIDA) told Enterprise. Global business cases show us that electronic design has significant value added and places some companies at a major competitive advantage. For example, Largan — one of Apple’s camera lens suppliers — has a significant advantage and remains firmly rooted in Apple’s supply chain because the Taiwanese company has secured a large patent portfolio with intellectual property rights and has a “first mover advantage” in the space, making it difficult for other companies to catch up.

What’s in it for us? The program focuses on raising the added value of the implemented projects through the localization of technology and giving the industry the space to grow, especially in the manufacturing of chips and establishing integrated areas for this industry. The ministry recently signed agreements with 29 global firms to increase their investments in our outsourcing industry, which are set to generate an additional USD 1 bn a year in digital export revenues by 2025.

The program has three main axes:

  • Business outsourcing services.
  • IT outsourcing services, including programming and mobile applications.
  • High value services including electronic design.

Incentives will help the sector grow: ITIDA recently revised its incentives program to start distributing annual reimbursements on OPEX per new hire with a declining scale between 2022 and 2026.

Incentives will also push localization: The new incentives program will push companies operating in the sector to localize this industry, sources tell us. The incentives target those wishing to step foot or expand their operations in Egypt, foreign and local companies alike, with the aim of facilitating their investment process, provided that they export their services. Export-bound services are not subject to VAT.

What incentives?

  • Corporate tax reduction between 30-50%, up to 80% of the company’s paid capital.
  • Customs and tax breaks on machines and equipment located in tech parks.
  • Subsidies up to 50% on cost for design offices and manufacturing locations in tech parks.
  • A 5-10% export overhead rebate and a 50% freight-cost subsidy to African countries.
  • 15% local product cost advantage for gov’t purchases.
  • Funding for HR development, either locally or abroad for up to USD 10k per person and for up to a three-year period.
  • Grants of up to USD 320k for R&D projects.
  • Providing startups with incubators and offering them USD 65k in grants.

Ambitious goals: The newly-introduced incentives come with the aim of making Egypt a global hub for electronics manufacturing and design and pushing our electronics exports to African, Arab, and European markets to an annual USD 3.5 bn.

We’re making strides in IP rights: The soon to be established National Intellectual Property Authority will help make us a hub for the electronic and non-electronic design industry by protecting intellectual property (IP) rights, which will help draw in more international companies into our local scene. The government announced in September that it will establish a National Intellectual Property Authority in the coming two years as part of a five-year IP strategy, which provides a roadmap for putting into place an institutional framework governing intellectual property rights and streamlining policymaking.

It’s a very attractive sector for investments to come in: The pandemic-triggered global chip shortage has made the IT sector very attractive to global investors, Linatel Telecommunications CEO Hamdy El Leithy told Enterprise.

And can be a major driver of FX inflows for the economy: Electronic systems design and manufacturing is expected to bring in USD 4 bn in foreign investments over the coming period, El Leithy said. That investment can be unlocked faster and more efficiently if we start a conversation with international companies that may be interested in investing in our local electronics design and manufacturing sector to help draw them in, he said.

The Madbouly gov’t needs to pour more into our tech infrastructure: The state needs to work on its tech infrastructure in order to create an attractive environment for this industry, El Leithy said. The current fiscal year’s budget allocates EGP 68 bn for the CIT sector, El Leithy said, adding that this is a modest investment and the sector needs no less than an annual EGP 120 bn in investments to prepare Egypt to become a hub for electronics design and manufacturing.

Global disturbances may slow down the process: Linatel was in negotiations with a consortium of undisclosed Japanese companies over the establishment of tech infrastructure, design systems and software projects with investments of USD 100 bn over four years. The two sides hit the brakes on the negotiations until there is a clearer outlook for the local and global economy, he said.

Egypt is an open market for outsourcing services, Chamber of Information Technology and Communication head Khaled Ibrahim told Enterprise, adding that the country can invest in its youth by increasing their awareness of these vital sectors — programming and design — through paying attention to state-led training programs. He also called on the state to push companies to work in these sectors through qualifying close to an annual 600k graduates in the fields of electronic design and programming.

More to come: The education, higher education, and planning ministries are currently working to increase the number of youths qualified to work in this industry, Ibrahim added. The ministries are also working to create incentive programs for investors and individuals to increase the number of startups operating in this field.

Your top industrial development stories for the week:

  • Haj Arafa is planning to build a date packaging factory in Siwa Oasis — to export high quality Siwa dates to Africa and Asia — with investments exceeding EGP 100 mn in the coming year.
  • The end of subsidized loans to industry: Subsidized loans to industrial, agricultural, and construction companies will be axed, Deputy Central Bank of Egypt (CBE) Governor Gamal Negm said last week.

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