As the government focuses on developing new industrial zones in a bid to attract foreign direct investments (FDI), the industrial sector is dubbed a main pillar of Egypt’s economy, contributing 27.8% to the country’s gross domestic product (GDP) in 2018, according to Oxford Business Group.
During a seminar held by the Egyptian Center for Economic Studies (ECES) called “What is happening in the Egyptian capital market: A sectoral crisis or reflection of economic performance?”, chairman of Edita Food Industries Hani Berzi gave an account of the market pressures in the industrial sector, the issue with industrial lands in Egypt and the role of the private sector.
Which market pressures can be found in the industrial sector today?
High land prices make it difficult for people to invest their money in industrial activities. When Edita started, land prices were cheap in 6th of October City, for instance. Today, one square meter in the same area can cost at least LE3,000. Hence, a project that needs between 20,000 and 50,000 square meters will cost around LE150 million. Companies need to also include the cost of construction to the total project cost. Furthermore, market pressures can negatively affect the company’s selling price, hindering it from yielding the targeted return on investments.
This all leads to a lack of investor trust in the industrial sector, which in turn leads to the lack of employment opportunities.
How are the government’s plans of decentralizing industrial activities going?
Decentralizing industrial activities from the capital is essential; we need to expand beyond 6th of October and 10th of Ramadan cities to other governorates especially in Upper Egypt. For this sole purpose, Edita opened two factories in Beni Suef in 2011.
Government incentives for investing in Upper Egypt were falling short, while the company was provided free lands to build on. However, the infrastructure needed to operate the factory was not there. Filing complaints did not get us much further, because local authorities are not keen on providing the infrastructure – they believe that investors are already getting the land for free, so they should provide it themselves.
Furthermore, these authorities need to stop acting based on the notion that investors will build their project, sell it and later leave it. Today, investors are keen on building and expanding on those lands in order to reap the fruit of their investments on the long-term.
The Ministry of Trade and Industry has to change its policies regarding leasing and selling lands for industrial purposes and needs to establish a unified pricing mechanism. The current situation is very complicated; each ministry and government body own different set of lands with different pricing systems, which makes things complicated for investors in the sector.
With several government-owned companies participating in the industrial market, what role does the private sector play?
There will be no economic growth without the private sector. When the government seeks to restructure any of its companies, it resorts to the private sector for technical and management consultation. The government and state should move away from participating in industrial projects, because this should be the private sector’s game. The government’s role is to develop national and mega projects that cannot be developed by the private sector.
Egypt’s private sector is currently bearing the consequences of the economic reform program, which stalled many feasibility studies by investors. We are having a hard time surviving.