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Wednesday, 26 February 2020

A boost for Egypt's stalled industry

Al-Ahram Weekly finds out what is new in the latest presidential initiative to save Egypt’s ailing manufacturing sector

Safeya Mounir , Friday 14 Feb 2020
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There are 3,500 stalled factories in Egypt (photo: Reuters)
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Measures to support industrial facilities that halted their activities in the wake of the 2011 Revolution have been set in motion to allow them to resume production as part of a programme announced following a meeting between president Abdel-Fattah Al-Sisi and the cabinet earlier this month.

The measures include agreements with the banks to allow factories to resume production by making financing for production inputs available via initiatives launched by the Central Bank of Egypt (CBE) that offer lower interest rates on lending. They also include lifting government penalties against such facilities and alleviating their financial burdens.

According to CBE Governor Tarek Amer, there are 3,500 stalled factories in Egypt whose problems are expected to be resolved within a year.

“Previous initiatives focused on lending, such as the industry initiative recently launched by the CBE. But this latest initiative is concerned with solving the problems of ailing factories and those that stopped production after 2011,” said Mahmoud Al-Shandawili, head of the Sohag Investors Association in Upper Egypt.

He explained that the initiative states that the facilities concerned will be exempt from accumulated interest payments and that owners may pay only half their debt and discharge the rest in installments.

Accumulated interest owed by non-functioning factories is estimated at LE31 billion. According to the new initiative, these will no longer be on the negative list of the Egyptian Credit Bureau’s I-score, and any lawsuits against them will be dropped.

The I-score provides credit information on borrowers. Tracking an individual or company’s transactions, it measures the extent to which a customer can meet their financial commitments. Classifying a customer on this list as a defaulter means that he is prohibited from dealing with the banks for five years, while rectifying his status on the I-score means that he can deal with the banks again and obtain loans.

The new initiative allows the CBE to offer facilitation agreements to businessmen in the industrial sector.

“The CBE governor has instructed the banks to immediately amend the deadline for ailing factories to allow them to pay 20 per cent [of the sum of their debt] by 30 June 2020 and the remaining 30 per cent no later than December 2020. The CBE decided to remove investors from its blacklist as well as that of the Egyptian Credit Bureau’s I-score, lift the freeze on dealing with these entities, and drop all lawsuits once an agreement on payment is sealed,” said Mohamed Khamis Shaaban, secretary-general of the Egyptian Federation of Investors Associations and president of the 6 October Investors Association.

Al-Shandawili believes that the initiative will put ailing factories back on track and allow them to restart production a week after striking a deal with the CBE.

However, Alaa Al-Saqti, head of the Badr Investors Association, said the initiative should provide funding for ailing factories and freeze their debt entirely. The problem was that the initiative required factory owners to pay a fraction of their debt, when in fact they would not be able to, he said.

“More important than dropping interest rates on the stalled factory owners is providing them with loans so they can resume production,” he said. He added that there was a need to conduct research on the ailing factories. If their stoppages were not the result of mismanagement or poor-quality products, they should be provided with funds.

He said that out of 400 factories in Badr City, 90 were ailing, adding that he had been able to pay off his debt and to obtain new materials to resume production.

In December, the CBE launched an initiative for the industrial sector worth LE100 billion at a 10 per cent rate of interest on loans, with the CBE and the government shouldering any difference in costs. Amer said that 96,000 industrial facilities with sales below LE1 billion would benefit from the CBE initiative.  

Moharram Hilal, first deputy of the Egyptian Federation of Investors, said the CBE committee formed to solve the problems of ailing factories even before the recent initiatives had solved 16 cases of large factories failing while owing debts of over LE10 million.

Amer, who heads the committee, holds more than a dozen meetings a day with companies in similar situations, and these have found solutions to the factories’ problems, Hilal said.

Egypt’s industrial growth has reached 16.2 per cent of GDP, being the largest contributor to GDP in 2018-19. The industrial sector provides 12.8 per cent of Egypt’s total employment, said Hala Al-Said, the minister of planning. Egypt plans to target LE84.4 billion of investments towards the industrial sector this year.

*A version of this article appears in print in the 13 February, 2020 edition of Al-Ahram Weekly.

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