Earlier this month, automaker Volkswagen Africa agreed with the government to work together to develop a feasibility study on a shared automotive paint facility within the East Port Said Industrial Zone.
The agreement, signed together with the Suez Canal Economic Zone (SCZone), the Sovereign Fund of Egypt (TSFE), and the East Port Said Development Company (EPSD), aims to localise the automotive industry in Egypt, said Waleid Gamal Eldien, chair of the General Authority for the SCZone.
The SCZone is adopting the concept of shared facilities to make it cheaper for investors to set up shop in Egypt, he said. Having a shared paint facility for automotives will attract other automakers to the area, with an investor setting up the facility and charging the factories that will use it like outsourcing some of production lines.
A similar shared facility can be set up for the automotive stamping process as well, he pointed out.
Establishing an automotive industry has been high on Egypt’s priority list. Last year, the government launched the Automotives Industrial Development Programme (AIDP) and created the Supreme Council for Vehicle Manufacturing to develop existing car assembly and manufacturing capacities and encourage new investments in the sector.
Egypt imports 220,000 cars annually, and by 2040 this number could reach 800,000. As a result, the country needs to localise the automotive industry, Gamal Eldien said.
Africa imports 1.5 million cars annually, and there is also interest from several automotive makers to set up in the area to meet the needs of the local market and export to the African continent.
The concept of shared facilities is also being adopted with green hydrogen production, also with the aim of localising the nascent industry. Instead of each factory setting up its own plant, there could be one servicing more than one factory.
The first factory to produce green hydrogen, located in the Sokhna Industrial Area (SIA), was inaugurated by President Abdel-Fattah Al-Sisi and Norwegian Prime Minister Jonas Gahr Støre during the Leaders Summit at the UN COP27 Conference in Sharm El-Sheikh in November 2022.
The plant is jointly owned by Fertiglobe, Scatec, Orascom Construction, and the Sovereign Fund of Egypt.
“Egypt is poised to become a hub for green hydrogen production,” Gamal Eldien said, pointing out that there are not many places that have the energy and infrastructure to make this possible, nor the shared facilities to make it profitable.
In addition, there are additional incentives for the hydrogen industry that have been approved by the cabinet and are now before parliament.
The SCZone has designated two areas for green hydrogen production, one is Sokhna extending across 29 square km and the other is East Port Said extending across 3.2 square km. The areas are designed to meet infrastructure needs and provide easy access to adjacent ports to facilitate transportation.
The cost of using solar or wind energy, needed in the production of green hydrogen, is more competitive in Egypt than elsewhere.
The SCZone has signed 19 memoranda of understanding (MoU) with investors looking to set up green hydrogen facilities. Of those, 11 framework agreements have been signed, paving the way towards implementation.
This is a new industry that will scale up over the next 10 to 15 years, Gamal Eldien stressed. “This is the fuel for the next 100 years. At first it will be expensive, but with scalability, price will drop,” he said.
Moreover, Egypt has a competitive edge in the industry because of its proximity to Europe. It can export green hydrogen to Europe by ship and in the future by undersea water pipes, he pointed out.
Europe needs green hydrogen as a fuel and to decarbonise its industries. It can also be used to fuel ships in the form of ammonia or methanol. Egyptian companies are also acting within the framework of the Carbon Border Adjustment Mechanism (CBAM) a World Trade Organisation (WTO)-compatible measure that encourages global industry to embrace greener and more sustainable technologies.
This will come into force in 2026 and will see hydrogen partially decarbonised in Egypt and exported to Europe. With the application of CBAM, exports into the EU will only be allowed based on meeting certain levels of carbon emissions.
Gamal Eldien said there is demand for the fuel from the steel industry within the SCZone, which wants to export its production. It wants to use hydrogen as a fuel, so instead of exporting green fuels, Egypt would export green products.
The MOUs with interested investors in green hydrogen production are signed by the SCZone and the Renewable Energy Authority, which provides the land for solar or wind energy generation. They are also signed by the Egyptian Electricity Transmission Company, which will allow the energy onto the grid, and the Sovereign Fund of Egypt.
The renewable energy for the green hydrogen projects must come from outside the SCZone, explained Gamal Eldien. The 11 companies involved need 75 to 100 Gigawatts (GW) of renewable energy per day. In comparison, Egypt as a whole consumes 36 GW of energy daily. The minister of electricity has earmarked 5,000 km2 for renewable energy production in various parts of the country to generate renewable energy for the 11 investors.
Besides hydrogen and automotives, the SCZone is encouraging other types of industries, with each of its four industrial zones catering to specific sectors.
Among the industries is a rolling stock plant that manufactures train and metro locomotives. This is a company called the National Egyptian Railway Industries Company (NERIC), which is a partnership between SCZone, the Sovereign Fund of Egypt, and five private-sector companies.
The aim is to meet the needs of the local market and then to export to neighbouring markets. It will also include a line for maintenance.
The SCZone has created an investment arm, SCZone Istithmar, which has partnered with the Arab Company for Drug Industries and Medical Appliances (Acdima) to set up a $165 million factory to produce the active substances used in the pharmaceuticals industry.
The SCZone can be used by manufacturers as a place to penetrate the local market and as a springboard to sell in foreign markets, Gamal Eldien said, adding that they could take advantage of Egypt’s multiple trade agreements with various economic blocs like the EU Partnership Agreement, the Common Market for Eastern and Southern Africa (COMESA), and the Qualified Industrial Areas (QIZ) agreement.
The agreements allow exporters to enter designated markets on favourable terms, with no quotas or customs.
According to Gamal Eldien, the aim is to attract not only an anchor investor, but also the feeder and complementary industries with it to enable investors to be self-sufficient and to avoid being at risk in case of a disruption such as a pandemic.
“If I have the value chain in place, it becomes an easier pitch to the investor,” he said.
Among the opportunities offered by the SCZone is that of bunkering or fuelling services.
“We were able to attract conventional bunkering back to Egypt and introduce green bunkering as well,” Gamal Eldien said.
There are waiting areas for ships in East Port Said and the Sokhna Port. Ships can receive bunkering services either on the quays in these ports or in the waiting areas. According to Gamal Eldien, this helps increase the number of ships passing through the Canal because there is no deviation from their route to bunker.
The bunkering takes place ship-to-ship through international ships that acquire a licence from Egypt. There are two bunkering service providers in the Mediterranean, Minerva, and Peninsula, and two in the Red Sea, Minerva, and Coral.
The zone has also attracted investors to apply for licences for petroleum fuelling and others to apply for licences to fuel ships with liquefied natural gas (LNG) and green methanol. In August the first green methanol bunkering took place in East Port Said for a ship owned by the shipping company Maersk.
“It put Egypt on the global map for green methanol fuelling,” Gamal Eldien said.
He said the SCZone is at a juncture and in a couple of years, with all the enabling environment in place, the agreements and negotiations with investors will come to fruition. He pointed out that there is already $4.6 billion worth of contracts in 83 projects with various investors that are in the process of receiving land and starting construction.
The zone’s potential had been held back by circumstances, he added. In the past three years the worst that could happen had happened: the pandemic, geopolitical conflicts, a sky-high cost of funding, and inflation. The years 2020 to 2022 were like the world was on hold, he said, adding that investors were not traveling and final decisions hinged on seeing things for themselves.
Nonetheless, there were lessons to be learnt from the pandemic, he said, such that no country should depend on only one country or region to manufacture or even store its needs. What happened in the pandemic was that everything procured from China became unavailable, which disrupted supply chains and caused disruptions to manufacturing and eventually inflation.
It is important for manufacturers to near-shore and to locate closer to their end markets, he said. The SCZone is ideal for this, whether for setting up manufacturing or logistics facilities. After the pandemic, investments increased from China and India.
Apart from its location, cheaper running costs, and cheaper energy and availability of labour, the SCZone also has a set of incentives in place and is working with the government to make those more attractive by discussing amendments to the current SCZone law.
* A version of this article appears in print in the 30 November, 2023 edition of Al-Ahram Weekly