$7 billion, 35,000 jobs: What to expect from the new Russian Industrial Zone in Egypt

Egyptian President Abdel Fattah El-Sisi and Russian President Vladimir Putin during the latter’s visit to Cairo (Photo courtesy of Abdel Fattah El-Sisi Facebook page)

Around $7 billion in investments set to create 35,000 jobs – these are the numbers emerging as Egypt and Russia agreed to establishing the Russian Industrial Zone (RIZ) in the Suez Canal Economic Zone (SCZone) in East Port Said.

The agreement will be renewed every five years for 50 years, as per the agreement signed between Egypt’s former Minister of Trade and Industry Tarek Kabil and his Russian counterpart Denis Manturov.

Ever since President Abdel Fattah Al-Sisi came to power, Russia has been a key economic partner to Egypt with a trade volume between both countries of $1.664 billion in the first quarter of 2018.

The new RIZ will create a leap in the industrial and investment cooperation levels between Egypt and Russia, according to a statement released by the Ministry of Trade and Industry. It further adds that Egypt will become a hub to export Russian products to the Middle East and African markets.

What does Egypt get out of it?
Board member of the Federation of Egyptian Industries (FEI) Mohamed El-Bahey tells Business Forward that developed countries should contribute with technology and industries in which they are advanced to establish similar zones.

Trade volume between Egypt and Russia stood at $1.664 billion in Q1-18

“The new industrial zone will be a key source of hard currency [to Egypt] and it will further be a major addition [on the economic level],” El-Bahey says, adding that there are a lot of industries that have the potential to thrive in this zone and in the Egyptian market, including heavy industries of tractors and agricultural industries.

El-Bahey adds that an industrial zone will be similar to the hubs in Asian countries, and establishing it in Egypt will help accumulate expertise and help the country, on the long run, to get back on the industry track that it already started in the 1960s.

Industries targeted by the RIZ include motors, construction equipments and electronics, according to Egypt Today.

The agreement states that both countries will cooperate to manufacture products that serve the needs of the Egyptian and foreign markets, according to Kabil. Additionally, Egypt will become a hub to export the products to international markets.

Conversely, Professor of Practice at the American University of Cairo (AUC) Ali Awni says that Russians are clear about the purpose of the new zone: they want access to the markets of Africa.

“Egypt already has access to Africa through multiple trade agreements including the COMESA and Agadir,” Awni adds, believing that Russia will just establish assembly lines, as opposed to manufacturing lines. If that is the case, Egypt will see no major gains from the assembly process because Russia may find a cheaper market down the line and move on to it.

“Industrial zones need a lot of negotiating, and [Egypt] has to insist on the transfer of knowledge because it is the most important outcome of industrial zones. All sorts of arrangements need to be done,” Awni states, adding that China, for example, tries as much as it can to use Chinese suppliers in similar zones.

The RIZ will undoubtedly create more jobs, opportunities and mobility. “However, in the grand scheme of things, we need something sustainable, indigenous and [something that] comes to stay, and this is not the case [here],” Awni says.

What is next in the RIZ?
The RIZ will be established over three phases on a total area of 5.25 million square meter, with the first phase expected to cost about $190 million. The first phase will kick off this year and Russia will work on attracting Russian companies and investors throughout 2018 and 2019. The three phases are expected to be concluded by 2031, when the Russian companies are set to operate in full swing.  

The land in the industrial zone will be granted to investors on a usufruct basis. Additionally, both Egypt and Russia will cooperate to deliver trainings to experts in multiple industrial sectors, and provide companies that will invest in the zone with services, according to Ahram Online.

The zone is funded by Russian Direct Investment Fund (RDIF) and a number of Egyptian banks, and will be supervised by the two governments, according to Egypt Today.

The General Authority of the Suez Canal will provide geological and geographical information on the zone to help establish the infrastructure, and will further be responsible for the permits, licences and the consultation services.

Egypt and Russia are currently cooperating to build a mega Dabaa nuclear power plant in Egypt to meet its energy demands.

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