Boosting industry in Egypt: What does the sector really need?
The new government, formed in July, prioritizes raising the industrial sector growth from the current 17 percent to over 31 percent by FY2026/2027, with new incentives recently announced to serve this objective.
Recently, the government has announced new tax incentives to alleviate burdens on taxpayers, enhance voluntary compliance with the tax system, reach tax justice, and integrate the informal economy into the formal system.
Moreover, the Ministry of Industry and Transport announced other types of incentives for the industrial sector. This includes postponing the application of property taxes on factories, which some view as the beginning of a real change in economic policies.
Meanwhile, the government has also prioritized boosting oversight and developing inspection committees to prevent factory closures and revive thousands of stalled factories. This issue has become one of the greatest challenges facing plans to boost the industrial sector, a leading contributor to the GDP.
Currently, accurate statistics on the number of stalled factories are not available, as there is no specialized body to catalogue them.
Furthermore, some factories may appear operational, but they are facing challenges.
Overcoming challenges
Engineer Ahmed Jamal El-Zayat, a member of the Industrial Committee at the Egyptian Businessmen's Association, told AO that the private sector has suffered many problems and challenges in recent years. However, for over a year, the government has been trying to raise the private sector's contribution to the economy to 60 percent from the current 17 percent.
“The industrial sector accounted for about 18 percent of the national output. Currently, there are strong trends from the political leadership and the government to enhance the private sector's contribution to production and increase the industrial sector, raising exports from about $45 to $100 billion. There are expectations that 2025 will be very positive for the industry due to some new measures," El-Zayat added.
Tax relief, industrial support
In mid-August, Deputy Prime Minister for Industrial Development and Minister of Industry and Transport General Kamel El-Wazir decided to suspend property tax on factories.
"We will not ask for any property tax from anyone building a factory," he said, indicating that there may be future consideration for amending the law, whether through full or partial cancellation, or possibly returning to full or partial implementation.
Additionally, the Rapporteur of the Industrial Committee in the National Dialogue Bahaa Dimitri told AO that property tax collection is postponed as an exceptional measure and remains a temporary procedure.
"We, as an industrial community, hope that this measure becomes permanent, as property tax is usually applied to residential areas, not to factories or small workshops used for production, whether industrial, agricultural, or even automotive," he added.
"Factories are productive units and should not be subject to property tax. We hope for a complete abolition of this tax on factories soon, as it is meaningless," Dimitri stated.
Amr Fattouh, vice president of the Industrial Committee at the Egyptian Businessmen's Association, believed that postponing the implementation of this tax is a critical step.
"We hope it will be permanently abolished. While property tax is not the only obstacle facing industrialists, it does constitute an additional burden. So, we hope for its complete elimination,” Dimitri explained.
In August, a government official estimated the value of tax exemptions for factories from "profits" and "property" taxes at approximately EGP 11.6 billion, EGP 10 billion of which is mainly generated from dividend taxes annually.
Per El-Zayat, reducing taxes in the short run will be difficult, as the Egyptian budget cannot accommodate reductions in any sector. Efforts must focus on achieving tax justice, given that some factories pay taxes while others do not, creating a sense of unfairness.
"For foreign investors, this is one of the primary concerns, especially with the presence of an informal economy representing about 40-45 percent of the formal economy," El-Zayat clarified.
Enhancing inspection committees, supporting factories
The Ministry of Industry and Transport decided to prevent the closure of any industrial facility without a decision from the minister of industry and after consultation with Prime Minister Mostafa Madbouly.
It also decided to disallow inspections of factories by any entity individually or through individuals or inspectors from concerned parties, except through a committee formed by the ministry headed by the General Authority for Industrial Development, with membership from relevant bodies.
"These are important decisions that were requested by the entire industrial community. We greatly appreciate the decision to have a unified committee that includes all relevant parties in industrial investment to avoid random factory closures, which disrupts production and halts people's work," Dimitri noted.
"The complete prevention of factory closures is a very significant decision. The file of distressed and closed factories has ballooned, causing great concern for the state and the industrial community. Through the industry minister's directives to stop this continuous bleeding, these issues are now being addressed without resorting to factory closures, helping to sustain production and employ labour,” according to Dimitri.
He added that these recent decisions are considered temporary solutions, hoping they become permanent policies.
“The prevention of factory closures should be a state policy focused on facilitating manufacturing and addressing existing issues. Today, the industrial sector's contribution to Egypt's GDP does not exceed 16 percent, which is very low compared to what Egypt deserves," he further explained.
Meanwhile, Fattouh said: "Regarding the prevention of factory closures and the relevant committees, I believe this is an important step to improve the industrial climate. However, we need to understand the mechanism to implement these decisions, and whether these committees will be sufficient to cover all industrial areas."
He added that if these mechanisms are applied clearly and cover all factories, this will significantly have a positive impact on the industrial work environment.
Real intentions to improve industrial sector
By the end of April, the total loans provided to the industrial sector in Egypt reached about 696 billion pounds, compared to about 589 billion pounds at the end of December 2023, according to the latest data from the Central Bank of Egypt.
The total net foreign direct investment in the industrial sector reached about $1.4 billion in the second quarter of the last fiscal year, compared to about $417 million in the previous quarter of the same fiscal year.
Engineer Dimitri said: "We cannot say that we will solve all industrial problems within two or three months; the solution requires intensive work and concerted efforts from all relevant ministries, as industrial problems are dispersed across all ministries, whether financial, housing, or educational."
Similarly, Engineer Fattouh said: "Certainly, the recent decisions are not radical solutions to all industrial problems, but we see them as positive steps that indicate good intentions to resolve obstacles. However, we still need more time and comprehensive solutions for the intertwined industrial issues with multiple government entities."
El-Zayat said: "I see that the Ministry of Industry is very serious about facilitating matters related to golden licenses and industrial land."
Recent decisions, addressing industrial problems
In August, Egypt's Purchasing Managers' Index (PMI), which measures the performance of the non-oil private sector, rose above the neutral level of 50 points for the first time since November 2020.
The index increased to 50.4 points, up from 49.7 points in July, supported by a rise in business activity for the first time in three years, with growth in production, employment, and inventory.
Dimitri emphasized that what is needed from the government in the current phase is to create an attractive investment climate for the industrial sector, including simplifying all procedures related to manufacturing and establishing companies.
"Establishing companies and factories and acquiring land should be straightforward, as happens in some African and Arab countries, where a person can start their business within a few hours," Dimitri said.
El-Zayat indicated that one of the industry's main challenges is the high interest rates, which have reached around 27-28 percent, making it difficult for factory owners to expand production lines due to the high cost of borrowing.
"With the launch of the 15 percent initiative by the Ministry of Industry recently, many factories are expected to be encouraged to obtain financing and expand production," he added.
Fattouh sees that Egypt needs to support industries related to raw materials and production supplies.
"We need accurate documentation of production supplies that we import from abroad and to direct local industry to produce them. We also need to provide clear incentives and advantages for local producers to encourage them to start manufacturing these supplies instead of importing them," Fattouh stressed.