Analysis Manufacturing Egypt’s industrial sector ‘building on strong foundations’ By Chris Hamill-Stewart October 17, 2022 Reuters/Amr Abdallah Dalsh Cement factories around the salt lake at the Wadi al-Qamar (Moon Valley), near Alexandria Egypt’s manufacturing base is expanding and modernisingGovernment reforms and infrastructure spend are fuelling growthThe vast population provides consumers as well as workers Egypt defied global trends – and the expectations of many – to grow throughout the coronavirus crisis. With its sizeable population, rising middle class and tech-savvy population, the country “showed resilience in the face of the pandemic” and is forecast to record GDP growth of 5.9 percent in 2022, according to the International Monetary Fund. Much of this growth is fuelled by Egypt’s modernising industrial sector, which accounts for roughly 15 percent of its economy. Research conducted this year by advisory firm Oxford Business Group pointed out that the government has pushed reforms designed to make manufacturing more competitive and to integrate green technologies under the broad guidance of Egypt’s National Structural Reform Programme 2021-24. 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A worker paints a statue at the Konouz factory, the first in the country making replica antiquities. Its wares will be sold at the new national museum. Picture: Reuters/Mohamed Abd El Ghany Kevin Graham, editorial manager at Oxford Business Group, told AGBI: “When it comes to industry, Egypt has a lot of strong foundations. The government has been investing a lot in infrastructure, the cost and availability of labour is there, the availability of power and its costs are there — although [the government] has been reducing subsidies, the cost remains competitive — and then its geography is well-situated in terms of being a strong export market.” He added: “It also has the advantage, because of its huge domestic population of 104 million, of having a local market, as well as the potential to export.” Recent reform efforts have been focused on attracting investment, according to Graham. Egypt “wants to have a private sector-driven, and export industry-driven economy. That’s certainly the message the government wants.” A currency devaluation – and an e-commerce boom The sector has faced challenges in recent years. As well as the pandemic and Russia’s invasion of Ukraine, domestic concerns include inflation and a struggling Egyptian pound, which has floundered since a 2016 deal with the IMF that mandated a currency devaluation. Ali Metwally, MENA economist and risk analyst at Infospectrum, expects the industrial sector in Egypt to remain under pressure into H1 2023 amid higher input costs and a weaker currency. “Hence, the sector, which includes extractions, petrochemicals, construction and manufacturing industries, is unlikely to return to its pre-COVID level before H1 2024,” he said. “The Russia-Ukraine war has had a notable impact on Egypt, given that Egypt used to import several raw materials from both countries. Hence, uncertainty regarding the persistence of the Russia-Ukraine conflict will continue to weigh on the overall performance of the sector into 2023.” Garment-making is a key industry in Egypt. This factory in Sadat specialises in face masks and other protective equipment for medical professionals. Picture: Reuters/Mohamed Abd El Ghany He added: “That said, the recent ease of import restrictions along with the rise in cash withdrawal limits are likely to ease some of the pressures that businesses have been facing for the last 12 to 18 months.” Graham and Metwally both highlighted Egypt’s efforts to internationalise its trading, locally and further afield. Metwally said: “Turkey, Western Europe, the GCC, the US and India could be considered some of Egypt’s main trading partners. Egypt will likely aim to nurture these partnerships and encourage more trade with fewer barriers to support its economy amid the current high-cost environment.” However, he added that Egypt faces competition from neighbours in Saudi Arabia and the UAE, which it will have to fend off with “more investment incentives, more exemptions, and notably less red tape”. An auto worker in an assembly line for Hyundai cars in Cairo. Reuters/Mohamed Abd El Ghany The country’s growing e-commerce sector, driven in part by rapid growth in Egyptian tech companies, could help the industrial sector bounce back faster. According to Oxford Business Group, e-commerce growth is helping to bring Egypt’s sizeable informal sector, worth between 20 percent and 60 percent of the economy, into the mainstream financial system, as well as supporting the production of food and retail goods. “In Egypt, e-commerce is king,” said Nada Ihab, policy manager at Access Partnership. “Egyptians are massive consumers and the country has a very young population. The easiest way to begin a business is to create a product that you can easily sell online.” E-commerce is expected to earn $7.7bn in 2022 and $13.2bn by the end of 2025. Egypt’s workhorse industrial sector is set to benefit from this explosion in online shopping.