Breaking down recently-introduced incentives for industrial projects and what they mean for manufacturers: Last month, President Abdel Fattah El Sisi instructed cabinet to implement a fresh package of incentives to support industrial activity and accelerate localization, calling for fresh tax breaks and markdowns on land prices. El Sisi also called for an expansion of the single-approval “golden” license in a bid to accelerate projects in priority sectors, which include chemicals, metals, building materials, and textiles. Industry players have broadly welcomed the move, saying the support measures could help unlock fresh investments, and are hoping to see swift action from the government to implement the incentives.

REFRESHER- Under El Sisi’s directive, the Madbouly Cabinet has been instructed to give all industrial projects in priority sectors — including chemicals, metals, building materials, and textiles — a five-year exemption from all taxes, excluding VAT. The exemptions could be extended for a second five-year period, depending on whether the company meets investment targets. To qualify for the tax exemptions, companies must have their projects up and running within three years. Renewing the tax breaks will depend on the volume of foreign investment, as well as other undisclosed targets decided by the cabinet. There’s also an added incentive for finishing projects early, as businesses that get their projects up and running in half the agreed-upon time frame will receive a 50% drawback on the price they paid for the land.

What this means for industrial players: The incentives could significantly alleviate the tax burden on industry, sources at the Finance Ministry told Enterprise, estimating that industry players could see their tax obligations drop to 10% on average, from 42% currently.

Which industries stand to benefit: The government is currently drawing up a list of the specific industries that qualify as “priority” sectors, which are likely to include pharma, food and beverage, engineering, and transformative industries, our sources tell us. The incentives are targeting new projects and expansions to existing business, according to our sources, which stressed that the objective is to improve the investment climate and push the growth of industry to encourage exports. Manufacturers are waiting for the government to clearly specify which sectors it considers to be “priority,” with FEI member Bassim Youssef telling us he hopes to see the selected sectors aligning with the government’s import reduction strategy.

Several sectors are hoping they’ll be getting the priority treatment: Contractors and building material players are hoping to see their industry listed among the government’s “priority” sectors as they are responsible for infrastructure development across the country, which would have a significant impact on helping cool off prices, Qontrac Developments Chairman and Managing Director Daker Abdellah told Enterprise. The renewable energy sector is also hoping to benefit from the incentives, which Solar Energy Development Association Executive Director Ayman Heiba says would significantly encourage fresh investments — including FDI — in renewables projects.

How exactly are these incentives going to be introduced? These incentives will be rolled into amendments to the Investment Act — which, among other things, will allow projects that predate the 2017 law to benefit from incentives and expand eligibility for golden licenses.

What do these tax breaks mean for state coffers? The incentives are actually going to have a net positive impact on the government’s tax revenues, according to the Finance Ministry’s studies, considering they will encourage and expand investments, our sources said. Any decline in tax revenues from industrial players will be offset by other sources of increased revenue, such as incorporating the informal economy into the formal economy, a growing stream of VAT revenues, and the implementation of e-invoices to crack down on tax evasion, according to the sources.

Industry players are hoping for the incentives to be implemented quickly, because they’re an important step that industry appreciates and acts as a clear indicator that the government is working to address industry’s needs and challenges, Executive Board Member at Unilever Mashreq and head of the Federation of Egyptian Industries’ (FEI) food division Ashraf El Gazayerli told Enterprise. Implementing these measures could act as a major push for exports, as it will spur more manufacturing and push manufacturers to tap new export markets. Some industries — like food and beverage, which El Gazayerli estimates has EGP 500 bn worth of manufacturing potential — are waiting on support measures from the government to push forward and expand, he said.

We could (should) be seeing movement soon: The government’s tax policy document — which will outline the Finance Ministry’s plans for tax reform, and will remain unchanged for five years — has been drafted and the first draft will be put up for national dialogue soon, our sources tell us. The policy document, which Prime Minister Moustafa Madbouly said in May would be unveiled within three months, is set to include more incentives and provide a solution for several tax-related concerns among investors, according to our sources.

Your top industrial development stories for the week:

• Korean razor manufacturer has set shop in Egypt: The Korean disposable razor manufacturer Dorco is building a 12 sq-km factory in the 6th of October industrial zone in partnership with an undisclosed Egyptian company, according to the director general of the Korea Trade and Investment Promotion Agency, Kotra Cairo, Suk-Ho Lee (LinkedIn), Al Mal reported. The company did not disclose the total amount of investment that will be pumped into the project. The factory is expected to start operating next month.
• Acdima to set up a new pharma factory: Arab Company for Drug Industries and Medical Appliances to set up a USD 165 mn factory in SCZone.
• A new steel plant: The government plans to open a USD 1 bn flat steel production complex in cooperation with an unnamed international company.
• An Eastern Desert industrial zone: Private players are in talks with the government to help set up a USD 2 bn industrial zone in the Eastern Desert’s Golden Triangle.
• NSOP buys into steel companies: Military-owned conglomerate the National Service Projects Organization (NSPO) has acquired minority stakes in three private-sector steel companies owned by Beshay Steel Group