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As Western industry fades, Egypt tries to keep up with Asia in picking up the slack - Daily News Egypt

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As Western industry fades, Egypt tries to keep up with Asia in picking up the slack

CAIRO: Egypt wants to host your factory. This message resounds clearly enough throughout the heaps of state pamphlets and press releases published in the past year, most heralding industry as Egypt’s future and expounding detailed cases for the quarter’s recent boom. Egypt’s industrial sector grew at 7.6 percent last year, half a percent more than …

CAIRO: Egypt wants to host your factory.

This message resounds clearly enough throughout the heaps of state pamphlets and press releases published in the past year, most heralding industry as Egypt’s future and expounding detailed cases for the quarter’s recent boom.

Egypt’s industrial sector grew at 7.6 percent last year, half a percent more than the economy as a whole. Such figures have given the Ministry of Trade and Industry fuel to cheer manufacturing as the key to future prosperity.

“Egypt’s industrial sector now is the engine of growth, said Helmy Abouleish, chair of the Industrial Modernization Center’s Management Council. “I think we can say the investment here has proven right.

This zeal dates to 2004 when the government of Prime Minister Ahmed Nazif, regarded as among the most economically reformist in Egypt’s recent history, moved in. The industrial sector, viewed as unfocused and underachieving, swiftly became a priority.

Seven industrial zones have been announced in the past year, with developers from Qatar, Russia, Spain, Turkey, China and others claiming spots. As of December, over 17 million square meters of land has been allotted for 3,441 industrial projects. State statistics say industry drew 15.9 percent of total investment in Egypt last year; by 2025, this number is expected to more than double.

But with sheer competition from other developing nations, Egypt has had to find a good sell. Even with its touted profusion of cheap labor, the workforce here is small compared with that of China, the current mecca of industrial outsourcing. And unlike many of its neighbors, Egypt does not have the luxury of bountiful oil, which is and likely will remain the world’s most valuable resource for some time.

Instead, industry heads lean on other advantages: the “gift of the Nile, the Suez Canal and, most vocally, Egypt’s focal position between Africa, the Middle East and Europe. Egypt also enjoys special trade status with some regions, as with the largely political Qualified Industrial Zone program, which gives Egyptian textiles using Israeli material tariff-free access to the United States.

“Our geopolitical position is quite important, said Dr Ahmed Kamaly, professor of economics at the American University in Cairo and advisor to the chair of the General Authority for Investment and Free Zones. “It has a strong effect on attracting investment.

Egypt is treading a path many nations have as they have scurried to pick up Western industries’ slack over the past few decades, said Abouleish. “You can see it everywhere, whether it’s Japan or Korea or Malaysia, or starting in China and India, he said. “It is how economic development [has been] happening since the Second World War.

There are some risks. A great lot of Egypt’s pitch rests on cheap labor and energy, which could both be threatened as inflation – widely expected to hit 20 percent in the coming months – raises fuel costs and pressures employers to hike wages. And as fierce protests in the delta town Mahalla El-Kobra showed last month, Egypt’s political and economic systems, touted by developers as among the region’s most stable, could face mounting challenges.

Some also fear environmental conservation could be pushed aside, that trade relations with bullying nations could be skewed to foreign interests and that new wealth will take too long to reach Egypt’s many poor.

“The difficulty is to engage the population in this vision of a strong new modern Egypt, where everyone has decent lives and opportunities, to have them take on the challenges in the short-term, said Abouleish.

He pointed out his office window across the Nile to Zamalek, home to many of Egypt’s upper classes. “If you tell me to jump in the Nile and swim over to Zamalek, you have to give me a very good reason for what I’m going to get in Zamalek.

On the ground

Touring the still mostly vacant lot of Engineering Square, one of Egypt’s youngest industrial zones, Sameh Attia could not resist a smile.

Attia, the general manager, first guessed the zone would take seven years to finish. He has since revised the estimate to three years or fewer; one-fifth of the space was leased in the first four months, he said.

For now an empty warehouse and an administrative office, a citadel of glass and concrete, sit like desert outposts on the 2 million-square meter expanse on the outskirts of Sixth of October City. In the office center, unworn couches and tables crowd the waiting area.

When complete, Engineering Square will host mostly Egyptian and German engineers and manufacturers of auto and auto-related parts, he said. One company to open here in January will make wire harnesses and car cables.

Attia said the park will likely provide 16,000 jobs at its peak, an obvious boon in a country where one in 10 is unemployed.

But some question whether even this can make a real notch on the problems facing the Egyptian economy.

“Who gets into industry? asked Kamaly. “They need a very special kind of worker, skilled workers, educated workers, experienced workers. Over the last three years, he said, he has seen a “disturbing trend, as the number of Egyptians working low-quality jobs like farming and housecleaning has risen.

According to information published by the United States Central Intelligence Agency, industry accounted for 41.1 percent of Egypt’s gross domestic product in 2007, but employed only 17 percent of the labor force.

Agriculture, less than 14 percent of GDP, employed about 32 percent.

Kamaly pointed out that sectors like banking and construction are having trouble filling their ranks, even as unemployment rates hover around 10 percent. Investment in “human capital – namely, education – can be as vital as new factories, he said.

Many have recognized the Egyptian workforce’s dearth of skills as a stumbling block to progress. Last year the state spent LE 600 million to train 250,000 industrial workers, according to the Financial Times. The government also shoulders 80 percent of training costs for new industrial zone workers.

Most companies in zones like Engineering Square are not subject to employment requirements. In theory, the zone could be staffed entirely by Germans – or Venezuelans or Canadians, for that matter – however unlikely miasmas of red tape and practical concerns of transport and pay make that.

Attia said he expects laborers at Engineering Square to be chiefly Egyptian, while the supervisors and foremen are more likely to be foreign.

For now, Abouleish admitted this is often the case. “We don’t have the expertise in Egypt, he said. “We never had privately-managed industrial zones previously.

But the current reforms are the first plunge into a long, evolutionary process, Abouleish said. He predicted industrial growth will come in three stages, each with a singular focus: first on jobs, next on efficiency and finally on innovation.

“Every industry in the world has to transform itself, Abouleish said, pointing to the shift taking place in Europe and North America as a template. “We’ll follow the same path, and our standard of living is going to improve.

Keeping it even

There is no question industry has helped spur the Egyptian economy’s recent rise. But as inflation has, by many estimates, knocked a new class of Egyptians into poverty over the past two years, the matter of exactly who is benefiting from the over 7 percent growth has drawn some scrutiny.

“The problem of equity has grown worse over the last few years, said Kamaly. “It’s getting, over time, away from an equal distribution, he said. “If this continues it will have various dramatic adverse effects.

In a country with so many poor, the state must try to help, even if only for the practical sake of stability, said Kamaly. “Even from a pure pragmatic point of view, they have to do this, he said. “People can turn against you, there can be all kinds of social unrest – it’s not good for investment.

Over the past two months, mounting food prices prompted bloodshed in the industrial town Mahalla El-Kobra and along
lines for subsidized bread in Cairo. Many have labeled these outbreaks the worst unrest the country has seen since the Bread Riots in 1977.

“We are living in a very, very difficult and challenging time, said Abouleish.

“But the real solution is not subsidizing food in the long-term, the real solution is giving [people] jobs.

It is necessary, he said, to make people feel they have a stake in their country. “We have this sitting around mentality, he said. “We have this rental car mentality – rental car in the sense that it’s not my car, I return it dirty in the end of the day.

For this he credits over 40 years of socialist welfare-tinged policies, which made the state responsible for a large parts of a citizen’s livelihood.

“Coming out of this and saying, ‘now you have to take the action, you have to take care of the education, you have to search for the job, you have to add value,’ is quite a turnaround, he said. “Things are happening, things are changing, but this is what we battle with every day: the old mindset.

Topics: FJP

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