Manufacturers want a helping hand from gov’t to get machines whirring at full speed again: Manufacturers are hoping to see new support packages from the government to help them get back on track and resume operations at full capacity and start taking advantage of more accessible exports as the weakened EGP makes local products more competitive. Now that it has become easier for manufacturers to secure and release imports of raw materials and machinery, the next major roadblock is access to financing, industry sources tell Enterprise.

One piece of good news: Customs clearance is getting easier. The government cleared some USD 14.5 bn of goods from the country’s ports since the beginning of the year, Finance Minister Mohamed Maait said last week. To a large extent, priority has been given to production inputs, Customs Authority head Shahat Ghatwary told Enterprise.

A new industrial financing initiative in the works? Manufacturers have been expressing their concern over the past several months about the high cost of financing, particularly after the Central Bank of Egypt (CBE) hiked interest rates by 600 bps as it moved to float the EGP. Finance Ministry sources Enterprise spoke with previously told us the government is looking at introducing fresh financing initiatives after allocations from the last program introduced last year ran out.

Any new financing initiative is going to carry less preferential rates than previous iterations: After doling out some EGP 88 bn worth of financing over the past five years through various industrial financing packages, the government is likely to raise interest rates on a new financing initiative by 20%, according to Finance Ministry sources we spoke with. The proposal currently on the table would offer manufacturers financing at an interest rate of around 15%, our sources tell us. While that’s four percentage points higher than the 11% interest rate offered in the last initiative, it’s well below the CBE’s current 28.25% lending rate.

Lobby groups are being invited to the negotiation table: The ministry has invited all investor associations, export councils, and business and industrial chambers to meet this week to discuss proposals for a new financing initiative, along with other priorities for manufacturers.

Exports are at the top of the list of priorities: What local industry really needs right now is to focus on getting production up and running again and to focus on exporting as much as possible, head of the Building Materials Export Council Walid Gamal El Din told Enterprise. Although the government has approved export subsidy payouts for 2023, it has yet to disburse some of these payments, Gamal El Din said, stressing the importance of doling out these payments as quickly as possible to help industry players move towards greater export volumes.

** Regular readers will remember our five-step recipe to attract FDI and help transform Egypt in to a global export hub — a recipe that came to life after a long talk with HSBC Deputy CEO Helmy Ghazi that spawned a series of interviews in which high-profile CEOs spoke up about the importance of FDI and exports (here | here | here as examples) and a conference on the topic. Read our five-step recipe here.

Small factories are in the most dire need for help: Manufacturers need financing at a competitive interest rate from 8-11% to be able to unlock capex spending and ensure manufacturers can maintain production capacity at competitive price points, head of the Federation of Egyptian Industries’ engineering division Mohamed El Mohandis told Enterprise. As it currently stands, small factories are the most at risk of closing down as they buckle under the pressure of higher costs, particularly financing costs, according to El Mohandis.

Where could the money for subsidized financing come from? Some industry voices, such as SMEs Union head Alaa El Saqty, suggested that the government tap into some of the incoming FDI inflows — such as from Abu Dhabi sovereign wealth fund ADQ’s USD 35 bn investment in developing the north coast’s Ras El Hikma — to help support industry. A tranche of that funding could be used to set up a dedicated fund for industry to help reopen stalled factories and provide financing, El Saqty suggested.

Other proposals include tapping sources of funding outside state coffers: Head of the Federation of Egyptian Industries’ pharma division Mohamed El Bahey submitted a proposal to the Finance Ministry to allow private sector players to secure loans and grants directly from foreign lenders to reduce the pressure on the local banking sector. The government could tap the Industrial Development Bank to supervise this type of financing, suggested El Bahey. Meanwhile, others including the FEI’s engineering division, are in talks with organizations such as GIZ to secure grants for manufacturers, according to El Mohandis.

Tags: