Al-Ahram Weekly | Economy | Pushing exports ahead

		13 - 19 June 2002 Issue No.590 Economy	Current issue Previous issue Site map
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Pushing exports ahead
The new industrial zones law recently passed by the People's Assembly has been met with mixed reactions. Mona El-Fiqi reports

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The new economic zones are expected to boost exports by helping Egyptian products become more competitive photo: Abdel Aziz El-Nemr

The People's Assembly has recently passed a new law that will permit the establishment of new industrial zones in non-urban areas and provide more incentives for both local and foreign investments to set up shop in Egypt.
The law, geared to boost exports, was passed after extensive debate of its articles, which many MPs thought had numerous loopholes.
The incentives will be offered to projects in the new zones on condition that their manufactured products are exported.
As he presented the law to parliament, Prime Minister Atef Ebeid said that at a time when all countries were competing to attract foreign investment, Egypt must make good use of its unoccupied land area -- representing 91 per cent of the country's total land area -- by setting up new projects to boost the economy and employ its growing population.
Contrary to current investment regulations, the products manufactured in the new zones will be given an Egyptian certificate of origin in order to conform to international agreements that require such certificates for exports.
Capital goods, raw materials and spare parts owned by projects in the new zones will be exempted from taxes, customs duties and all kinds of fees -- a long-standing request of industries that has finally materialised. However, should the goods produced in these new zones be sold locally, the duties, taxes and fees will be imposed on the imported inputs used in manufacturing the products.
The new law stipulates the establishment of an authority in each industrial zone to set up regulations related to the zone. Although it will have representatives from all concerned ministries, the authority will be a separate entity that will assume full responsibility for the industrial zones' affairs.
According to the law, direct taxes on the income of the new zones' project staff will be reduced from the current 10 per cent stipulated by investment incentives Law No 8 for 1997 to five per cent.
In addition, taxes imposed on these projects' profits and their real estate revenues will also be reduced to 10 per cent and will be due a year after the start of a project. The Federation of Egyptian Industries (FEI) said in a memo that imposing reduced taxes from the beginning of a project would induce investors to plan accurately before they begin.
A Shura Council report praised the law, saying it would boost exports by helping Egyptian products become competitive in international markets, an inevitable step if Egypt were to meet the commitments it took upon itself as a member of the World Trade Organisation (WTO).
Because Egyptian products still could not compete internationally, the report said, this had led to export weakness, an increase in imports and a balance of trade deficit.
However, some analysts think the law is not without faults. "It ignores many important points. For example, it permits the establishment of new industrial zone in certain strategic areas such as Sinai," Hamdi Abdel-Azeem, professor of economics and dean of Al-Sadat Academy for Administrative Sciences, said.
Many have criticised the fact that the law gives investors in these zones the green light to hire as many foreign workers as they like, saying it will not help the country's unemployment problem.
Abdel-Azeem thinks there should be clearer regulations for products manufactured in the new zones, which might include banning their sale locally. He argues that if they enter the local market, their prices will be lower than similar products since they have the unfair advantage of being produced cheaper.
Business federations have their own reservations on the law. Their first fear is that investors might shut down operating projects to move them to the new industrial zones. They are also apprehensive that the new zones might attract more local projects than foreign investment, thus burdening local finance sources and foreign currencies.
The FEI study recommended that the government work on a unified and comprehensive investment privileges and incentives system for all investors in Egypt. For now, the government should make amendments to the current investment Law No 8 for 1997 to provide projects in Egypt equal opportunities for incentives.

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