Minister of  Trade Tarek Kabil - File Photo Minister of Trade Tarek Kabil - File Photo

Opening the door for investments

Mon, Sep. 18, 2017
How do you read the current economic indices?
All the indices show that we are moving in the right direction. The growth rate recorded 4% this year, which is a very good number, especially that tourism has not yet fully recovered. Reserves in the Central Bank of Egypt (CBE) have jumped to $36 billion from $16 billion, balance of payments achieved a surplus of $11 billion after incurring a deficit of $3.6 billion. Trade balance saw improvements as imports declined 29% and exports added 8%. The unemployment rate fell to 12%, down from 12.8% in 2016, in addition to the advancement of the saving and investment rates.

Will Egypt continue applying control measures over the trade balance, especially after imports fell and exports rose?
Those measures aim to put the imported products under surveillance, and they will continue, as they are not for just a period of time.

Will we hear about industrial investment incentives or any new procedures concerning imports soon?
We are working as per plans. Currently, there are no procedures for imports. It is important to note that we are [bound by] agreements with the World Trade Organization (WTO) and by the free trade deals. Eliminating imports has two scenarios; the first is to reduce sources of imports, and this is in connection with the free trade agreements. The second is encouraging local industry to become a substitute for imported products.

What is the target for Egyptian imports by the end of this year?
No one can target an exact number for imports, but we aim to decrease the trade balance deficit, which is the difference between imports and exports. A big part of imports is industrial investment goods; the more we grow the factories, the more imports of investment goods will grow.
Imports also include strategic goods, such as wheat, beans, corn and oil, and as we increase by 2 million people annually, we are in need of such goods. Therefore, there are goods outside the control of the state.

What are the most prominent sectors that have seen a decline in imports?
All sectors witnessed a decrease in imports by two digits. In 2017, import of ready-made garments dropped by 46%, leather by 52%, furnishings by 44% and furniture by 40%. These are high percentages and were substituted by local industries.
Exports do not increase at the same rate imports drop because a big part of what we produce is directed to meet local needs.

Is there any advance in the industrial production index (IPI)?
The IPI stood at -17% in June 2016 and witnessed a huge advance to reach +26% in April 2017, which represents a 44% difference. The industrial growth rate needs a long time to appear and we are targeting a growth rate of 8% by 2020.

Is the increase in imports in terms of volume or in value? ,/b>
We always measure by value and not volumes, as there are sectors that can’t be measured by volumes, such as the ready-made garment sector. The local market has seen a gap after imports declined and local output is covering this gap; imports of ready-made garment has leveled down 64%.

Has there been any increase in exporter base to boost export volumes?
Egypt’s exports advanced $2 billion last year and an additional $1 billion this year. The number of exporting companies increased, especially the small and medium enterprises. The rise of exports has been [powered, not by] the mega companies, but the small ones.

How is the state working to increase exports?
A general strategy was set to increase all exports, in addition to a special strategy for Africa. Also, an authority for developing exports was established, as well as sectorial strategies. We focus on Africa, Arab countries and the European market.

What is Egypt’s target for exports this year?
In light of the current situation, exports could rise from $2 to $3 billion in 2017 year-on-year. We’re aiming to cover 50% of the trade balance deficit by 2020, with more focus on raising the exports. Since the beginning of this year, imports stood at $24 billion and exports at $12 billion and there might be a great advance in fixing the trade balance deficit.

What can you tell us about negotiations to establish a Polish industrial zone in the Suez Canal axis?
Negotiations with the Suez Canal Authority started only two months ago, and they will take time.

News circulated that Russians have dictated the conditions of Dabaa nuclear station’s contracts in return for completing their work in the industrial zone in Suez Canal axis. What would you say about this?
This is incorrect. The nuclear project was not connected with the industrial zone. It is normal that when an investor enters a market, the investment requirements increase. Negotiations do not end in one meeting and no one will get a preference over others. We issued an investment law and regulations to be applied to everybody.

Can you share details of the industrial city being set up in Fayoum?
We don’t want to talk about something that is still not yet implemented [on the ground]. We are looking forward to establishing an integrated industrial city on an area of 33 million square meters in north Fayoum through a mega foreign company.
There is a big difference between an integrated industrial city and an industrial zone. The city will contain housing units for the laborers, schools and hospitals, which is a new trend and way of thinking.

Are there updates on the meeting held between the Ministry of Trade and the Saudi Export Development Authority to finance Egyptian export sectors?
We are talking with more than one body, such as the Saudi Development Bank and the African Development Bank. The finance value was raised to reach LE 841 million for Egyptian exports.

Have you set a plan to benefit from the Mercosur agreement?
We prepared an awareness program to introduce the agreement [highlighting] its conditions and benefits. We are also forming a delegation of Egyptian businessmen to visit some of Mercosur’s countries to hold bilateral meetings before the end of the year.

How have recent economic reforms affected investments?
Investment decisions are not that simple. For the measures taken, the Investment Law issued is important but the simplification of the procedure is more important. The permits law and facilities provided are all encouraging, in addition to the benefits given by the law to the firms. Some investors are still [monitoring] the security situation and we have stabilized. We are in talks with a Chinese textile company, expecting investments of $1 billion in the Suez Canal axis.

What are the important criteria for investors looking to enter the market?
The first thing being considered by investors is the security. You could have the best growth in history, but if the country is unsafe, no investments will enter it. The volume of the market is considered too, if it is growing or not. It is important for the investors to review the monetary and legislative policies.

Does the investor show concern for the high levels of deficit?
There are hypotheses for any project and sometimes studies last for as long as 10 years. Neither the exchange rate nor the deficit will keep unchanged for this long. The feasibility studies are not being executed over a short time.

There is a state of pessimism in the industrial sector. What is your vision for the future?
When you are in the middle of the problem, you cannot see the [solution], but I am optimistic. People rush to see the results of reforms—what we are implementing now should have been done 30 years ago; we do not have time.

Does the government intend to raise energy prices for factories?
I currently defend the industrial sector from all sides, but eventually it shall pay the actual cost of every service it uses. If the electricity is free, no one will think about rationing. We are helping the companies to ration their use of energy, and focusing especially on the firms that consume the most. We are working with 71 companies and helping them with power rationing programs, bearing in mind the cost of production, so that local products can compete with imported ones.

But some factory owners argue that the natural gas tariff is higher than global levels . . . .
The average price of gas is supposed to be between $4.5 and $5 and we do not have self sufficiency. Currently, we import gas and pay the costs of transportation, shipment and transferring it to a liquefied state, which raises the price. It is no secret that we are in the process of applying a program to gradually cut back on subsidies, but that will be along with a package of social support measures.

How do you see the effect of current interest rates on industrial investments?
Industrial investment is highly affected by the current rate, but we have to bear in mind two points: the first is that the current rate will not stay unchanged for a long term; this is a phase and everything will be back to normal. Secondly, whoever is thinking of investing shall consider a 10-year period and not only one year. For instance, in Turkey, the interest rates reached 80% in a period of time ,but the country has not stopped and now they are enjoying the fruits of their labor; we haven’t yet reached this stage.

How can an investment map affect Egypt’s climate?
For the first time ever, we have our detailed investment map. We have prepared a realistic map, including a plan for 15 governorates and the remaining cities will be included by the end of September. The ministry has surveyed every single plot of factory land, sorting out the number of workers, the kind of labor it needs, the inputs and outputs, selling its products and the raw materials. Now that the survey is done, the investment opportunities are being set. The investment map is always being updated and each ministry works on a special map for itself, then all the ministerial maps will be put into a national comprehensive map for the country.

Is there any coordination between the ministries of public business sector and that of industry in different sectors?
Yes, the ministries coordinate in several sectors, for example, the ministries of agriculture and public business sector are working together in the textile industry.

Are there any updates on the renovation of El Nasr Automotive Manufacturing Company?
What was circulated about Toyota and Renault intervening to renovate El Nasr Automotive Manufacturing Company is incorrect. The production lines of the company are not efficient to manufacture automotives right now. There are negotiations from some companies to use El Nasr’s warehouses and furnaces with their own production line to manufacture, or to enter in a partnership; but nothing has been decided yet.

How does the law governing the development of Egyptian exports affect the export councils’ situation?
The law aims to give the export councils legalized validities and claim them as corporations, as they are now deemed as consulting councils. The amendments of the law also make it possible to give an export council the validity to work as a logistics center.

What follows the establishment of a company to manage the industrial zones?
The aim of the company is the follow up and maintenance of the industrial zones after being established. Each zone needs a periodical follow up to set their infrastructure. The firm will not substitute the industrial developer and will start with the new industrial zones.

Does the ministry find it difficult to persuade an investor to enter the Egyptian market?
The foreign investor knows for certain that we are moving on the right path and can see our advance clearly. Although there is a high level of risk, there are high gains too.

Does Egypt aspire to enter into a free trade agreement with the US?
The Ministry of Trade has not pursued reaching such an agreement with the US, but what was talked about is developing the Trade and Investment Framework Agreement (TIFA) with the US.
Currently, America does not have a clear strategy, as it withdrew from the negotiations in the European Union (EU) and is considering talks with England. The US is now following a protective policy.

Translated by Sara Ghali


 
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