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By Ahmed Kamel - The Egyptian Gazette Saturday, June 11, 2011 03:49:26 PM
CAIRO - Although Egypt began its industrialisation programme in the 1950s along with Japan and South Korea, the North African country's industrial output is still lagging behind. Its manufacturing sector faces a range of financial, technological and marketing obstacles that are undermining progress. Industry accounts for 16 per cent of the country's gross domestic product (GDP), according to the Cabinet's Information and Decision-making Support Centre (IDSC), while in Japan, Malaysia and South Korea, it accounts for 28, 44.3 and 36.5 per cent of GDP respectively. As Chinese philosopher Lao Tse said, a journey of a thousand miles begins with a single step. Egypt should embark on a long-term strategy for industrialisation to push its economic growth ahead and reduce unemployment rates. In the 1950s, Egypt adopted an ambitious industrialisation plan, starting from scratch, as an economist said. In the 1970s and afterwards, in spite of calls for re-launching an industrialisation scheme, the majority of investors kept away from the manufacturing sector as they sought ‘easy profits’, he added. Egyptian Minister of Industry Samir el-Sayyad has announced a strategy comprising eight industrial development guidelines. The eightfold scheme includes: rectifying the industrial core, increasing industrial investments, raising local components in the manufacturing sector, developing industrial exports, local manufacturing of production machinery and setting up more industrial zones. Over the past six years, Egypt has taken a raft of measures to boost growth rates and attract more foreign direct investment inflows. Since 2004, Egypt has netted $49.2 billion in Foreign Direct Investment (FDI). But the manufacturing sector in the most populous Arab country face a number of obstacles that undermine progress and keep Egypt's industrial output at a low level. "The culture of industrialisation is not deeply rooted in Egypt. Egyptians tend to invest in real estate, gold and commodities to make immediate profits. Setting up a factory would be the last thing on their mind," Sherif Shawqi, a researcher at Alexandria University, told the Egyptian Gazette in an interview. The manufacturing sector accounted for only 10 per cent of total investments in 2010, according to the Cabinet's Information and Decision-making Support Centre (IDSC). This sector accounts for 16 per cent of the country's gross domestic product (GDP), according to IDSC. "In the 1950s, Gamal Abdel Nasser launched an industrialisation plan, which came to a halt in the 1970s, due to wars and open door policies that turned Egypt into an import-dependent country," Shawqi explained. Anwar el-Sadat launched his infetah (open door policy) in the mid 1970s to turn Egypt into free market economy. In 1991, Law 203 was endorsed; opening the way for the Egyptian Government to plan the sale of 314 State-owned companies, most of them industrial firms. Over the past 16 years, hundreds of thousands of workers lost their jobs due to privatisation. Job losses added insult to injury when unemployment stood at nine per cent of the country's workforce, which was estimated at 26 million, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS). "Japan and South Korea started their industrialisation programmes in the 1950s. Indonesia and Malaysia are very good examples; they are worth studying in view of a model for Egypt. Both countries started their industrial development in the 1980s. Look at where they stand now," Shawqi said. Malaysia has become a major economy in South Asia that relies on industrialisation, boasting a well-diversified economic structure. Before the 1980s, the Malaysian economy depended on rubber and tin exports. In the 1980s, Malaysian Prime Minister Mahathir Mohamad set up the state-owned Heavy Industries Corporation of Malaysia (HICOM), economist Boo Teik Khoo wrote in his book Paradoxes of Mahathirism. HICOM made joint ventures with companies from South Korea and Japan. Among the country's great achievements were the national car project Perusahaan Otomobil Nasional, a steel complex and two cement plants, according to the book. After that, Malaysia adopted a privatisation policy based on co-operation between government and private sector. The Malaysian government set up the overall scheme and provided the necessary back-up services, while the private sector took up the commercial and marketing tasks. After the January 25 revolution, economists believe that Egypt has been reborn. The revolution is seen to open up new horizons and create fresh opportunities. "First of all there should be a political will. I think after the January 25 revolution there is a consensus among politicians and economists that industrialisation should be the main focus in the coming years," Shawqi noted. "If there is a political will, problems in finance, marketing and research will be gradually solved," he argued. There are 94 industrial zones in Egypt, exporting 40 per cent of commodities, according to the Ministry of Industry. Funding is another challenge for industrial projects. Although deposits at local banks totalled LE946.9 billion ($159 billion) this month, according to the Central Bank of Egypt (CBE), the manufacturing sector faces a number of difficulties to get loans. "Banks prefer to lend money to projects with fast returns. Unfortunately, many factories find it rather hard to get loans. Raw materials are another serious problem. Some are imported, and a rising US dollar increases costs," Mohamed Bayoumi, an owner of clothes factory in 10th of Ramadan, told this newspaper. Last month, the CBE kept overnight deposit and lending rates for the thirteenth time in a row at 8.25 and 9.75 per cent respectively. The loan-to-deposit ratio stands at around 55 per cent, according to the CBE. "As prices of locally manufactured garments shoot up, consumers buy brands imported from China, Turkey, India and Indonesia. Egyptian manufacturers are helpless," Bayoumi said. Clothes exports exceed $1 billion annually, according to the department of ready-to-wear garments at the Federation of Egyptian Industries. "The clothes industry is labour-intensive and Egypt has an opportunity to become a world leader, as it boasts cotton and labour. After the January 25 revolution, we should work hard to catch up with the rest of the world. The problem is that we talk more than we work," he added.
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