Sunday, 15 January 2023

Could things be looking up for our industrial sector in 2023?

Could 2023 be a golden year for local industry? After a particularly challenging year for businesses who were up against FX shortages, rising raw material prices and record high inflation, some local players are optimistic that 2023 will be more forgiving to the industrial sector in Egypt. At the center of this view sits a set of government policies designed to incentivize manufacturing in key sectors and mitigate some of the logistical bottlenecks that have cropped up in previous years. While there’s much more to be done — especially with regards to financing — insiders we spoke to are finding that these policies are a step in the right direction.

Government-led initiatives are driving the positive outlook: The government last year identified nine priority sectors — which include building materials, chemical industries, pharmaceuticals and textiles — that will be getting a hand from its EGP 200 bn import substitution program. These nine industries alone are responsible for some 140 products and accounted for 23% of our import bill in 2019 (some USD 17 bn). Other policy programs like granting more land to manufacturers under a usufruct system and various other incentives are also in the pipeline.

Getting rid of L/Cs was one of the most important steps: The removal of the requirement at the end of last year for businesses to use letters of credit (L/Cs) to finance imports has been a huge source of optimism for insiders we’ve spoken to. The recent FX shortage made it difficult for importers to access L/Cs and left them unable to bring goods and raw materials into the country, resulting in shortages of industrial and consumer goods.

And there are several other measures industrial players are hoping for to make their lives easier still: Allowing businesses to access imports, reopening shuttered factories, and helping to tap new markets for Egyptian exports are all crucial for getting the ball rolling in the upcoming year, sources we spoke to told us. What insiders are hoping for this year are more incentives and more financing options.

Addressing productive capacity: Finding a solution to the problem of declining productive capacity at manufacturing facilities should be one of our top priorities, Chairman of the Federation of Egyptian Industries’ (FEI) engineering industries division Mohamed El Mohandes told us. At the heart of the productive capacity crisis is the shortage of raw materials, and resolving these shortages would help unlock industries’ potential, El Mohandes said.

High borrowing costs are a major problem: One of the most significant hurdles industrial players are still plagued with is the high cost of capital, economist and Arab Alloys CEO Medhat Nafie told us. Amidst a high interest rate environment, new solutions for financing industrial facilities will become necessary over the coming year if we seek to really build out a strong industrial sector and retain local investors, Nafie explained.

And there might be some steps we could take: Allowing one-year extensions on golden licenses, creating a special industrial fund, and offering tax cuts to factories that utilize more local components than imported ones could be measures that help give the sector a boost this year, Nafie told us. Re-drafting legislation and reducing fees is another key area to address tin the new year, Bahaa El Adly, the head of the FEI’s electrical appliances division told us,

The Egyptian Industry Strategy: Manufacturers are eagerly waiting for the chance to give input on the Egyptian Industry Strategy unveiled last September, head of the FEI’s customs and tax committee Mohamed El Bahy tells us. Though no draft of the strategy has been made available, some are anticipating that it will become another positive measure from the government’s arsenal of support mechanisms for industrial production, El Bahy said.

The most important part is making sure that there are no surprises: Factories need to start running at full capacity and industrial support must be carefully studied before being implemented to avoid triggering any market shocks, El Bahy said.

And more incentives for local manufacturing are on their way: The government is soon expected to announce major incentives that could include industrial land offerings and other measures targeting sectors that utilize local components in their manufacturing processes, a source at the Trade Ministry told us.

Your top industrial development stories for the week:

  • Upping fiberglass production: China’s Jushi has started operations at its new USD 320 mn fiberglass production line, raising the capacity of its factory in the TEDA trade zone to 250k tons from 50k tons.
  • An industrial park in New 6 October? Elsewedy Electric is in talks with the government to build a EGP 20 bn new industrial zone in New 6 October City.
  • More relief for importers: Goods worth a combined USD 645 mn — including production inputs — were released from ports last week.

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