Just days before bidding farewell to 2024, the government unveiled the first phase of a new initiative to support businesses operating in priority industrial sectors.

The initiative includes LE30 billion in financing at a subsidised interest rate of 15 per cent for five years to enable the purchase of machinery, equipment, and production lines.

According to the initiative, announced by Deputy Prime Minister for Industrial Development and Minister of Industry and Transport Kamel Al-Wazir and Minister of Finance Ahmed Kouchouk, the maximum financing will be LE75 million per client and LE100 million for affiliated companies.

The Ministry of Finance will foot the difference in the subsidised 15 per cent interest rate, which will be made available to investors in the targeted industries. The initiative also includes additional incentives, such as an extra interest rate reduction of up to two per cent for new and emerging industries.

It also targets less-developed regions such as the border governorates, Upper Egypt, and the Suez Canal region, which includes Port Said, Ismailia, Suez, and East of the Canal.

Welcoming the new financing facility, Alaa Al-Nasr, a member of the Chamber of Wood Industries, observed that while the interest rate set by the initiative was appropriate for those intending to buy machinery and the equipment needed by the industrial sector, it was not suitable for those who need to purchase raw materials.  

The industrial sector needs an additional spur in the form of low-cost loans, not exceeding an interest rate of five per cent, to facilitate the purchase of raw materials, Al-Nasr told Al-Ahram Weekly.

He explained that the sector faces stiff competition from China and Turkey, which have access to raw materials at cheaper rates. The high costs of raw materials needed for Egyptian products drives up their prices compared to their Chinese and Turkish counterparts.

Al-Nasr further urged stricter controls over raw material imports to ensure better quality and to bar the entry of poor-quality materials.

The government’s industrial support initiative focuses on seven key sectors: pharmaceuticals, which includes active pharmaceutical ingredients, oncology drugs, antibiotics and cosmetics, as well as machinery and production line equipment; industries supportive of new and renewable energy projects; solar cells; components of solar power plants; and cooling devices.

It also includes food industries such as those making baby formula, dried fruit, fruit concentrates and medicinal herbs, as well as chemical industries like those making inks, polyethylene, polypropylene, and acrylic.

Another sector that will enjoy the benefits of the initiative is mining and building materials such as ceramics and quarried stone industries such as marble and granite.

“The initiative will help factories that have been struggling due to the exchange rate,” Mohamed Al-Bahi, a member of the board of directors of the Federation of Egyptian Industries, told the Weekly.

This applies to newly established industries, because of the skyrocketing cost of machinery and equipment due to inflation and the rising exchange rate. “It will also come as a relief to startups,” Al-Bahi added.

He believes that the pharmaceutical sector will benefit the most from the initiative and it will help to rein in prices. High interest rates are affecting the cost of production inputs, most of which are imported. Despite their higher costs, pharmaceutical companies cannot raise their prices because they are bound by the mandatory pricing policy imposed on the sector.

Firms will receive an additional one per cent interest rate reduction if they increase the local value-added in their products by seven to 10 per cent over the previous fiscal year.

The reduction will increase to 1.5 per cent if the value-added exceeds 10 per cent.  New and innovative industries that have not previously produced locally and are importing in large quantities will be eligible for a two per cent reduction in the interest rate.  

To benefit from the initiative, companies must obtain a construction license, complete construction, and open a letter of credit for machinery, equipment, and production lines imported from abroad or produce a tax invoice for local purchases.

Mohammed Qassem, chairman of the board of directors of the Exporters Association, is hopeful the initiative will help many factories to increase their production and possibly their exports.

He pointed out that there are many needs in the industrial sector, which needs greater attention from the state because it could be an engine of growth.

The non-petroleum manufacturing sector recorded positive growth for the second consecutive quarter last year, reaching 7.1 per cent during the first quarter of the 2024-2025 fiscal year. The growth was driven by customs clearance facilities for goods and commodities at the ports and increased the supply of essential production inputs and higher rates of industrial production.

The industrial production index, excluding petroleum refining, grew by an average of six per cent during the first quarter of 2024-2025, compared to a contraction rate of 7.7 per cent in the corresponding quarter of the last fiscal year.

Government plans aim to increase economic growth from 3.8 per cent in 2023-2024 to 4.2 per cent in 2024-2025, with growth steadily rising to achieve 6.5 per cent by 2030.

* A version of this article appears in print in the 9 January, 2025 edition of Al-Ahram Weekly