10 - 16 May 2001
Issue No.533
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Al-Ahram Weekly On-line 10 - 16 May 2001 Issue No.533 |
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Modernisation on the way
The minister of industry and technological development spoke with industrialists on means, limitations and prospects of modernising their enterprises. Shaimaa Labib listens in
With the lifting of customs barriers on textile imports only seven months away as stipulated by the General Agreement on Tariffs and Trade (GATT), of which Egypt is a signatory, and with the expected signing of the Egypt-EU Partnership Agreement, Egyptian industry is up against tough competition in the coming years.
For long basking in the government's protectionist measures, Egyptian industry now has no option but to modernise itself in order to face the flow of foreign, more quality-oriented products into its market. The renewal of Egyptian industry has already been extensively discussed in the Egypt-EU Partnership negotiations, during which the two sides agreed to start an Industry Modernisation Programme (IMP), yet to be implemented.
Under the partnership agreement, which was initialled at the beginning of the year, the EU is to provide Egyptian industry with 250 million euros, while the Egyptian government is to furnish 103 million euros.
According to Minister of Industry and Technological Development Mustafa El-Rifa'i, the Egyptian government is expected to begin implementing a national programme for industry modernisation next July, after it is reviewed by President Hosni Mubarak. The programme is slated to be administered alongside the IMP and will be continued even after the termination of the IMP, the duration of which is four years, El-Rifa'i said.
Meeting last week with representatives from 1,000 industrial companies specialised in food, textile and leather industries, El-Rifa'i said the government will allocate LE500 million for the national industry modernisation programme.
However, El-Rifa'i criticised businessmen and industrialists who still want the government to continue securing the local market for them. "These industrialists are not aware that we cannot survive in the international economy if we continue this way. Now the global economy is characterised by mergers and the formation of giant economic blocs. If we do not think this way, we are the ones who stand to lose," he said.
According to El-Rifa'i, the lifting of customs barriers on textile imports due to take effect at the beginning of 2002 in accordance with GATT is one of the major challenges Egyptian industry will soon be facing. "Even though we are seven months away from this date, it is only this year that we started to think about modernising our industries and factories, which reveals a lack of foresight on our part," he said.
El-Rifa'i accompanied Prime Minister Atef Ebeid on a recent visit to Tunisia and visited two technological centres for modernising Tunisian leather and textile industries. "These centres were established almost 30 years ago, which reveals Tunisia's early awareness of the importance of modernising. Where were we all that time?" he asked. "We are going to pay a high price for having lacked the insight to start modernising [our industries] at an early stage, because expertise takes time to build up and to pay off. This is the element which makes us different from other industrial countries," he added.
The minister said he is currently preparing a comprehensive report outlining Egypt's programme for industry modernisation that is soon to be presented to President Hosni Mubarak. The report will be written on the basis of the outcome of El-Rifa'i's meetings with industrialists and will be reviewed by the ministerial group responsible for industrial modernisation. This group, which includes the ministers of industry, economy, finance, electricity, public enterprise sector and the interior, is expected to meet in a few weeks to review the report and come up with a joint executive plan to implement the programme.
Industrialists voiced their grievances at the meetings with the minister, saying the current high interest rate on loans is one of the main obstacles standing in the way of their endeavours to modernise their factories. "It is difficult to finance modernisation processes when interest rates on loans specified for this purpose are 16 or 17 per cent. Those who want to modernise and lack the financial means to do so need loans with reasonable interest rates that should not exceed seven or eight per cent," said a textile factory owner.
El-Rifa'i responded by saying that the ministry proposes three financial alternatives for modernising industry utilising the LE500 million allocated by the government. "One of these alternatives is for the ministry to partially fund studies diagnosing what is needed for the modernisation of factories, while facilitating the extension of soft loans to these factories to be denominated in foreign currencies. The ministry could also utilise this money to bring down the interest rates on loans to seven per cent. A third alternative is for the ministry to participate in modernisation costs, either by providing loans or giving technical and financial support through grants, provided it is given a portion of the profits made by the industrial company [receiving the grant or loan]," El-Rifa'i said.
Most participants approved of the first and second alternatives, but several refused the third alternative on the grounds that it gives the ministry the right to acquire portions of the profits.
El-Rifa'i referred to the recent establishment of a Textile Technological Centre promoting the textiles industry. "This centre, which is to provide textiles companies with technical support, is currently studying the possibility of signing a cooperation agreement with one of the international textile companies specialised in marketing, designing, modernising and providing technical information and services," El-Rifa'i said.
El-Rifa'i also announced that the ministry is currently preparing feasibility studies for the formation of a private company that will employ Egyptian experts in the fields of administration, industry, finance, marketing and technology in order to support companies in their modernisation efforts and to monitor closely the outcome of the programme. He added that this company, with an expected authorised capital of LE10 million and a paid up capital of LE2 million, will be independent of the ministry and any other governmental body. However, it will be obliged to coordinate its policies with the ministry with regard to the modernisation programme.
Participants at the meetings agreed that modernisation should not be confined to entrenching technology, but should also extend to reforming financing and taxation structures.
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