The government of Prime Minister Mustafa Madbouli, sworn in just two months ago, has been taking steps to support the industrial sector, the latest of which is resuming subsidised financing for several industries.

There are reports that the restrictions on importing certain commodities used as production inputs in some industries are soon to be lifted. The cabinet has also banned factory closures without the minister of industry’s approval and after a review by the prime minister.

Over the past two years, the industrial sector has been grappling with a severe dollar shortage. The crisis eased with the floatation of the pound on 6 March, after which the banking sector resumed issuing the letters of credit essential for importing components and raw materials.

Sherif Al-Sayad, head of the Export Council for Engineering Industries, said the new industry minister’s decisions reflect a genuine intention to revitalise the manufacturing and production sectors. They could serve as a lifeline for Egyptian industry, which has been battered by various challenges over the past two years, he added.

During the dollar crisis, which severely hampered the import of components and raw materials, some factories were forced to scale back production, while others halted their production lines entirely, Al-Sayad said.

Preventing the closure of factories provides much-needed protection to manufacturers, he said, shielding them from often haphazard inspection and monitoring practices that have led to the closure of factories already struggling under financial pressures.

Al-Sayad said that the reactivation of the subsidised financing would grant industrialists the opportunity to take out loans of up to LE120 million at a 15 per cent interest rate. However, the sector had initially advocated for maximum financing of LE200 million, which it said was more reflective of the current pound/dollar exchange rate, which hovers around LE50, he added.

The sector hopes the loan ceiling will be increased, particularly as small and medium-sized manufacturers are struggling with high borrowing costs from the banks, currently set at 29 per cent, Al-Sayad said.

However, he voiced concerns about implementation mechanisms, arguing that they could undermine the initiative’s primary objectives. One significant issue is delays in disbursing export subsidies amid negotiations to replace them with discounts on taxes or fees levied on goods.

The initiative would not yield the desired results if these obstacles were not removed, he said.

The engineering industries sector, especially the home appliances segment, is keen to see such challenges addressed, Al-Sayad said. It is especially pressing given that despite the economic crisis of 2023-2024, the sector has attracted five new factories to Egypt, one each from Turkey and Europe and three from China.

These factories rely on importing components and raw materials to operate, which means there is an urgent need for a comprehensive national strategy to enhance local manufacturing capabilities and replace imported components with domestically produced ones to serve such factories, he noted.

Moataz Mahmoud, head of parliament’s Industry Committee, said that industrial initiatives should be targeted towards industries that depend on locally produced production inputs.

He said that it would be counterproductive for the state to support factories reliant on imported materials, as this exacerbates pressure on the dollar and offers minimal added value in comparison to industries that depend on domestic resources.

“I do not endorse subsidised financing initiatives for industries indiscriminately without thorough feasibility studies and data that align with the goal of tightening the balance of payments deficit,” Mahmoud said.

He also advocated for a more selective approach to supporting exporters, suggesting that this should be contingent on the predominance of local components and raw materials among producers.  

In the current economic climate, marked by rising interest rates, Mahmoud believes the state should not bear the burden of interest subsidies unless there are clear and immediate benefits.

Ahmed Zaki, secretary-general of the Exporters Division of the Federation of Chambers of Commerce, called for the state to help struggling factories that have been forced to reduce production. He suggested that solutions such as restructuring interest payments, rescheduling principal debts, or offering temporary tax exemptions could expedite their revival.

He argued that the effort required to support and rejuvenate an existing though struggling factory is significantly less than that needed to establish a new one.

Increasing the operational capacity of existing factories is crucial for boosting the state’s tax revenues and rapidly creating job opportunities, he said, and it would also help to finance customs and the ports, increase exports, and meet local demand for goods, creating a positive feedback loop that strengthens the economy.

Egypt’s private sector can play a pivotal role advising the state in crafting such development plans. By leveraging their direct connections with stakeholders, private-sector firms can ensure that the plans have a tangible impact, he suggested.

Mohamed Fouad, a member of the Egyptian-British Businessmen’s Association, said the state should develop specific support programmes for emerging small and medium-sized enterprises (SMEs), as these are vital to resolving supply chain issues for larger industries and deserve access to subsidised financing similar to that provided to larger concerns.

Fouad said that Egypt’s industry has significant potential and is well-positioned to compete both regionally and globally. He said that SMEs are a key driver of growth in developed countries and that Egypt has the necessary inputs, such as skilled human resources, raw materials, and diverse energy sources, to help them succeed.

With the help of state policies that support the industrial sector, improving the competitiveness of Egyptian industries and expanding exports could become one of the most important avenues for generating foreign currency, he added.

 

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* A version of this article appears in print in the 29 August, 2024 edition of Al-Ahram Weekly