CAIRO - 29 October 2019: The launch of Samsung’s factory in Beni Suef last year drew much attention to investment opportunities in Upper Egypt. In the same year, the governorate witnessed the opening of an Egyptian Steel factory, as well as a complex that comprises three major cement factories, five mega marble factories, and two granite factories.The establishment of an Egyptian Cement factory, which was announced in 2017, is also underway in Sohag and is expected to start operating this year. The trust of reputable investors in Upper Egypt to build huge factories is an indicator of its potential to house a robust manufacturing sector.
Roads and Ports
The main reason Samsung chose Beni Suef and the factory’s precise location is its proximity to the Regional Ring Road and Ain Al Sokhna Port, as exports can be delivered in just 90 minutes, CEO of Samsung Electronics Egypt Sherif Barakat told CBC. Chairman of Sohag Business Association Mohamoud al-Shandawily similarly tells Business Today Egypt that one of his governorate’s distinct features is its location. Sohag, which has an international airport, lies around 300 kilometers away from Safaga Port and approximately 338 kilometers from Aswan, which facilitates exporting, particularly to Africa. Deputy Chairman of Egyptian Union for Investors Associations and Chairman of Asyut Business Association Ali Hamza also tells Business Today Egypt that his governorate, Asyut, possesses the roads needed by investors as well as a unique proximity to Hurghada and Safaga seaports.
Hamza states that “the infrastructure has significantly improved. A major problem a few years ago was recurrent electricity outage but that has now disappeared, and all utilities have been introduced in industrial cities.” The businessman also reveals that currently, the state is building licensed factories to encourage SMEs. As for incentives, the “lands in industrial cities are granted for free and the Central Bank of Egypt (CBE) offers loans with just a 5% interest rate to help investors pay the costs of other factors of production.” Shandawily also indicates that 8 industrial cities have been built in his native governorate of Sohag.
Sectors to Invest In
Both heads of business associations underlined Upper Egypt’s richness with natural resources and raw materials, mentioning that handicrafts as industries can support its governorates. Shandawily explains, “Investment opportunities in Upper Egypt include all sectors, particularly mining, fertilizers, ceramics, cement, iron, and various heavy industries.” He highlights that his governorate houses an area called Zone 34, located on the eastern hill near the Gold Triangle and stretching over 220 kilometers. Zone 34 is home to many minerals that should be invested according to a presidential decree, but no measures have yet to achieve that, the businessman says.
As for Hamza, he tells Business Today Egypt, “Some agricultural goods can be processed such as potatoes, fruits, and grenades, which can be used to produce 12 types of goods in addition to many food industries.” The handicrafts that can be encouraged in Upper Egypt are the production of furniture, bed covers, carpets and other hand-made textiles, among others. Asyut in particular is known for carpet production. The Deputy Chairman of Egyptian Union for Investors Associations further stresses, “A screening should be carried out to identify the resources in each governorate and how to invest them.” He gave the example of Aswan, which is rich in phosphates and marble that can be manufactured and exported, and of the limestone resource that exists in all Upper Egyptian governorates. Hamza highlights that raw materials are often subject to “very minor procedures” before exportation, suggesting “the value chain [is boosted] by adopting more developed industries.”
Further Reforms Required
Chairman of Sohag Business Association Shandawily complains about lacking incentives that were annulled ten years ago. He also sheds light on the fact that the One Window System has not been implemented everywhere, and that “industrial services must be decentralized, because [at current] some procedures have to be carried out at the Industrial Development Authority’s headquarters in New Cairo.” Shandawily clarifies that technical schools were introduced in 2005 and 2006 in Sohag, but the government needs to be further attentive to Upper Egypt. He also highlights that almost all investors in Upper Egypt belong to its governorates lamenting that investments by foreigners or businesspeople from other governorates in the industrial sector are absent. On the other hand, Hamza sees that “many investments in certain governorates like Beni Suef belong to investors that are not from Upper Egypt, including foreigners.”
Former Chairman of the General Authority for Investment Zones (GAFI) Adel Mohsen announced in July that a website has launched to indicate the investment map and where investors can reserve lands, thereby inhibiting intermediaries from buying such lands. He added that Chinese companies are mulling establishing textile factories in Upper Egypt, where labor is cheaper than that of China.
In 2017, the Ministry of Trade and Industry released an industrial investment map that includes seven Upper Egyptian governorates, Qena, Sohag, Beni Suef, Luxor, Minya, Aswan, and Asyut. Those house a total of 598 investment opportunities in the sectors of food and beverage industries; wood industries; engineering, electronics, and electrical industries; service and maintenance centers; building materials, porcelain, china, and refractory materials; mining; spinning, weaving, fast fashion, and leather industries; paper making, printing, and publishing; chemical industries; metal industries; manufacturing industries; as well as electricity generation and distribution. The ministry has also been encouraging feeding industries.
The aforementioned opportunities are available in 28 industrial cities encompassing 1,200 factories and workshops. In September, Minister of Investment and International Cooperation Sahar Nasr declared that the ministry is securing LE200 million to establish a free zone in Menya, where investors will be granted a tax exemption worth 50% for three years.
The ministry is trying to secure financing for SMEs through international funding entities. Furthermore, the Micro, Small, Medium, Enterprise Development Agency (MSMEDA) granted 48% of funding to businesses in Upper Egypt between January 2019 and June 2019.
The World Bank is partnering with Egypt to execute the Local Development Program For-Results Project aimed at improving the business environment. The international organization identifies three obstacles impeding private investments. Those are the ineffective municipalities, poor-quality infrastructure and services, and weakness of economic factors supporting value chain development. Business owners reportedly complain about obtaining licenses, permits, and serviced land.
The program worth $500 million is running between September 2016 and December 2021. The Egyptian institutions in charge of implementing the program are the Ministry of Investment and International Cooperation; Ministry of Local Development; Ministry of Planning, Monitoring and Administrative Reform, and the Ministry of Trade and Industry.
The budget is allocated as follows: 30% for supporting sub-national government, 20% for rural and inter-urban roads, 15% for public administration (water, sanitation and waste management), 15% for agricultural markets, commercialization and agri-business, and 20% for other industry, trade and services.
The amount disbursed so far is $258.25 million. The value of interests, charges, and fees to be paid by Egypt is $16.02 million. Progress on the program implementation was rated as “moderately unsatisfactory” by August 2018, but became “moderately satisfactory” by February 2019.
So far, the program is taking place in Sohag and Qena. Regarding the improvement in business environment, no change has occurred in both governorates. On the other hand, the performance level of infrastructure and service exceeded targets in both governorates. No progress has been achieved in terms of the percentage of people and businesses expressing satisfaction with quality of infrastructure and services, according to the most recent figures released in January.