Thursday,20 September, 2018
Current issue | Issue 1232, (5 - 11 February 2015)
Thursday,20 September, 2018
Issue 1232, (5 - 11 February 2015)

Ahram Weekly

Reviving Egypt’s industries

Egypt needs to re-invest in its existing industries and prepare for a new era of industrialisation, writes Sayed Moawad

Al-Ahram Weekly

In the 1950s, Egypt started an ambitious industrial strategy that helped achieve economic development, creating jobs and increasing national revenues. Unfortunately, this industrialisation was hit hard by the policy of nationalisation and Egypt’s defeat in the 1967 war.

The public sectors that led the industrialisation process suffered losses due to uneconomic, socially directed pricing policies. With the passage of time, most public sector units became idle or inefficient. The industrialisation of Egypt was somehow interrupted.

After two revolutions, Egypt is on the threshold of a new era that necessitates social and economic change. The change can take place through varied mechanisms, at the top of which is industrialisation.

Industrialisation involves the application of scientific methods in solving problems: mechanisation and the factory system, the division of labour and increased mobility of the labour force, both socially and geographically.

Furthermore, industrialisation is generally accompanied by social and economic changes such as a fall in birth rates and a rise in per capita income, increased urbanisation and the spread of manufacturing towns.

Industrialisation in Egypt has witnessed ups and downs that deprived the country of capital accumulation. Therefore, Egypt has lagged behind other countries that began industrialisation much later than it did. It is high time to reconsider the industrialisation process in its entirety. In doing so, we have to consider its different aspects.

In the early period of industrialisation, Egypt adopted two strategies: import substitution and export oriented. The import-substitution strategy aimed to produce goods for domestic consumption. This strategy was pursued when the government was able to impose customs tariffs, a disincentive for imports, before World Trade Organisation (WTO) rules came into effect in January 1995.

According to WTO rules, each country has a tariff level that cannot be surpassed. Therefore, the flexibility of using import-substitution as an industrial strategy no longer exists. The best strategy for Egypt to adopt now is an export-oriented one. However, an export-oriented strategy of industrialisation may bring with it domestic and international challenges.

There are human resource development constraints. Educational standards, whether in schools, universities or technical collages, are low.

This as contributed to low levels of productivity. A second factor is the low level of domestic saving in general and the reduction of foreign direct investment (FDI), particularly after the 2011 Revolution.

Third, the recent decline in energy supplies constitutes a major challenge to industry in Egypt. The energy issue has two aspects: first, the lifting of subsidies and the plan to completely eliminate subsidies within five years; second, the availability of energy itself. Regarding the removal of subsidies, this is an important decision that should have been taken many years ago but was delayed for political rather than economic considerations.

The solution to the energy problem is investment in the sector, on the one hand, and the rationalisation of energy usage on the other hand.

Fourth, Egyptian industries at home and in international markets face heavy competition. The main obstacle for some Egyptian industries is an inability to compete in the marketplace because their products are of a low quality and relatively high price.

Mentioning these challenges does not mean the picture is gloomy. On the contrary, this is merely to draw attention to aspects to be put into consideration while making industrial policy.

Development economist Mehdi Shafaeddin says that the process of industrialisation requires certain conditions, including creating capacity, operating it efficiently and upgrading industrial structures, investment, inputs, institutions, innovation and information.

Furthermore, industrialisation needs political stability, predictability of policies, participatory politics, pressure for performance, public-private partnership, respect for property rights, and production capabilities of local firms in the value chain.

Most if not all the factors Shafaeddin highlighted exist in Egypt. All we need to do is to adjust the public framework and make the domestic environment conducive to industrialisation. In this regard, it is imperative to refer to the efforts on the ground by the government.

On the institutional level, Egypt established the Industrial Development Agency (IDA) by the virtue of presidential decree No 350/2005 and authorised it to implement industrial policies, encourage investment in the industrial sector, design policies and mechanisms required to coordinate and connect industrial sector development requirements and related scientific research and technology, set out and implement policies of providing land for industrial purposes and make it available for investors, and, finally, facilitate attaining industrial licences.

In this regard, it should be noted that the existence of institutions organising industrial policies is a necessary but not sufficient condition.

There are other elements needed, not only to establish new industries but also to deepen existing industries. These elements include skilled human resources, sufficient money and available investment, and modern investment laws that strike a balance between encouraging investment and maintaining national rights and interests.

On the educational level, serious thinking has been directed towards overhauling the education system in general and technical education in particular. For energy, the government is seeking to diversify energy supplies and encourage the private sector invest in energy production.

Furthermore, great attention is being given to integrating the informal sector into the formal one, and this will be followed by integrating small informal units as feeder industries with greater formal ones.

More importantly, small- and medium-sized enterprises have come to the fore as a way to spread the industrial base across the country. Furthermore, there were attempts to provide financial assistance to factories, but these stopped after the revolution.

Now we come to the great industrial projects that constitute the driver of the country’s development. These projects, such as Suez Canal project, will have a great impact on economic and social conditions. They will relocate labour workers and create awareness between workers. In sum, they will create new integrated societies, away from the overcrowded capital.

In conclusion, industrialisation is imperative for Egypt. Learning from past mistakes and from the success stories of other countries, including South Korea and Malaysia, is key. For Egypt to be a modern industrial state it needs not only capital accumulation, but also technical progress, new and efficient production techniques, and, most importantly, new energy sources.

The scope of industries in the Egyptian economy is limited. Therefore, Egypt should look to create new industries, just as Japan did on its path to industrialisation. Innovation is a key factor in the knowledge-based economy. In this regard, there should be a link between scientific research and industry.

Strategic decisions should be taken regarding public sector industries. Two clear examples show that the public sector needs presidential intervention: textile and clothing public sector companies, and the Egyptian Iron and Steel Company at Helwan. It is absurd to look for new investment while a great part of the economy is suffering from neglect.

The writer is an international trade expert and general manager of anti-dumping at the Egyptian Ministry of Industry, Trade and Small and Medium Enterprises.

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