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Monday, 30 November 2020

In support of manufacturing

The government is to offer subsidised loans to manufacturers as a way of supporting industry

Bassem Aly , Saturday 14 Dec 2019
In support of manufacturing
Subsidised loans could help existing factories expand
Views: 693
Views: 693

The government announced on 4 December that it would provide loans worth LE100 billion to the country’s manufacturing sector, which has suffered financial problems since the 25 January Revolution in 2011.

The loans will be available for factories that have a turnover of less than LE1 billion at a reduced interest rate of 10 per cent. Interest rates on lending currently average 16 per cent. The Ministry of Finance and the Central Bank of Egypt (CBE) will subsidise the lower interest rates.

No details have been released on the initiative and its implementation mechanisms, but priority will be given to industries that make the country less dependent on imports. 

The government has also decided to exempt more than 5,000 factories from accrued interest payments, estimated at LE31 billion, and remove their names from the CBE’s list of debtors if they pay 50 per cent of actual debts.

The initiative was announced during a press conference by Prime Minister Mustafa Madbouli and CBE Governor Tarek Amer. The loans aim at revitalising economic activity and ensuring continued growth, the head of the government said.

IHS Markit, a London-based global information-provider, announced in early December that the Egypt Purchasing Managers’ Index (PMI) had showed that the non-oil private sector had contracted in Egypt in November for the fourth consecutive month.

“Businesses responded with the fastest reduction in output charges in the index’s history,” said the PMI report.

Amer said at the press conference that the loans package would cover 96,000 manufacturing concerns, describing the work to be done by the CBE and Finance Ministry as a “great sacrifice” of revenue to cover the cost differences in the interest rates. He urged the banks to join the initiative, which will primarily be implemented through the public-sector banks.

To Ihab Al-Dessouki, head of the economics department at the Sadat Academy for Administrative Sciences, the initiative is a “positive and important step”. He explained that the Egyptian economy is currently suffering from stagnation. “Whether making large or small profits, the loans will be useful for all factories; to develop and expand,” he said.

However, while they praised the good will of the government, investors did not seem to be fully satisfied with the new initiative. Speaking to Lamis Al-Hadidi’s Al-Qahera Al-Aan, a talk show on Saudi Arabia’s Al-Arabiya Al-Hadath TV channel, head of the parliament’s Industrial Committee Farag Amer said the initiative was “inapplicable”.

“The steps announced by the CBE and the government are unfortunately not enough. We have to work on a case-by-case basis and tailor a rescue programme that fits each factory,” he said.

Amer added that it would be impossible for the owner of a factory that had been closed for years to pay half its debts if they had not had the money when it was open.

As an alternative, he suggested classifying factories into two types. The first type would be those which had stopped functioning, in which each case would be considered on its merits. “Those factories cannot be saved,” Amer said.

The second type, consisting of factories that were working but at reduced production capacities, could “possibly be saved. But we need to make sure that they function at the maximum capacity and that their workers get their jobs back. Then we can discuss how to open new factories,” Amer said.

Al-Dessouki, argued that not every factory deserves a loan. Some may be having trouble because of the poor quality of their products or even lack of market demand for their goods, he suggested. Those do not need to be saved, he stressed. “The loans should only go to those who have financial problems.”

Moreover, he believes it is easier to assist factories passing through a rough time, as opposed to new ones. “It takes less capital to operate an already existing factory,” he explained.

The initiative is part of the government’s strategy to back the private sector in Egypt. Three years ago, the CBE announced that 20 per cent of its loans would go to small- and medium-sized enterprises (SMEs).

That initiative, according to Al-Dessouki, had implementation-related problems. He hopes the new initiative will not face the same problems.

Following the 25 January Revolution, and partially due to the security vacuum and political unrest at the time, a large number of factories ceased operations due to financial problems.

In 2013, former minister of manpower Kamal Abu Eita said an estimated 4,500 factories in Egypt were standing idle. The figures were based on a survey conducted by the independent NGO the Centre for Trade Union and Workers Services.


*A version of this article appears in print in the 12 December, 2019 edition of Al-Ahram Weekly.



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