Egypt is positioning itself as an industrial outsourcing hub amid global trade wars: Local manufacturers are increasingly turning to contract manufacturing, effectively leasing their production lines to overseas manufacturers, as ongoing global trade tensions drive up foreign demand for locally produced goods. Looking to capitalize on favorable US tariff treatment, homegrown factories are boosting their production capacities and expanding their footprint in international markets as the government continues to push for the localization of priority industries.

Rising demand from the US is fueling the trend, Federation of Egyptian Industries board member Mohamed El Bahy told EnterpriseAM, adding that contract manufacturing is a strategic approach to boosting exports. These partnerships offer SMEs a chance to improve their production efficiency, utilize idle production capacities, and attract foreign investment into the industrial sector, El Bahy noted.

Egypt has vast, untapped potential for US exports across many sectors, including fertilizers and machinery, where a respective 81% and 98% of the export potential remain unexploited, said ECES Execute and Research Director Abla Abdel Latif. Other sectors with room for growth include fruits and plastics, she said, adding that only the ready-made garments sector has significantly capitalized on its export capacity to the US, reaching an estimated 99% of its potential. Nonetheless, the sector has maintained a small US market share even with near-zero tariffs, indicating that the headwinds faced by local products go beyond tariffs, she said.

Egyptian clothing factories are positioned to benefit from the trend: Rising demand from the US has prompted foreign manufacturers to outsource production to local ready-made garment and textile SMEs in particular, MGS Industry Chairman and Textile Industries Chamber member Mahmoud Ghazal said. Ghazal noted that MGS Industry’s sales to the US market have grown 108% year-to-date, surpassing the company’s total US sales for 2024, despite industry-wide headwinds like labor shortages and the rise of the minimum wage to EGP 7k. This surge follows the influx of foreign investments the sector has attracted since 2023, particularly from China and Turkey.

And ready-made garment exports to the US could see a 25% increase through comprehensive and concerted reforms to logistics infrastructure, according to an ECES study presented at a press conference attended by EnterpriseAM last month. These reforms would focus on enhancing port efficiency, reducing customs clearance times, streamlining risk-based processes, promoting digitization and just-in-time automation, and ensuring fee transparency.

The pharma industry is among those most reliant on contract manufacturing, Pharma Chamber board member Awad Gabr told us. Nearly 2k pharma companies lack their own manufacturing facilities, opting instead to lease production lines to cut costs or because setting up their own facilities isn't feasible. Gabr pointed to robust demand from international pharma companies for partnering with local manufacturers to produce goods for export.

We’ve made some headway in localizing the pharma industry with the help of both foreign and local partnerships, said Egyptian Drug Authority Chairman Ali El Ghamrawy. Existing partnerships have helped localize 129 pharma products that initially cost a total of USD 633.7 mn to import. The authority aims to localize around 400 active ingredients across 30 therapeutic groups, representing a current import bill of around USD 1.6 bn, El Ghamrawy said, adding that the authority supports partnerships to facilitate the transfer of advanced manufacturing technology and is ready to announce significant investment incentives.

Engineering industries have also entered the fray, with local factories adding new production lines, according to Mohamed El Mohandes, head of the Chamber of Engineering Industries. As foreign companies tap local SMEs to supply components, feeder industries and supplier networks expand, reducing large firms’ need to invest in component production, said chamber member Bassim Youssef. Additionally, contract manufacturing allows local firms to access specialized expertise and new tech without major investments, Youssef said.

Your top industrial development stories for the week:

• Oriental Weavers launched a new EGP 50 mn polyester yarn dyeing unit at its Tenth of Ramadan facility that is set to cover around 25% of the company’s polyester yarn needs with a daily capacity of 4.8 tons (statement, pdf).
• Two projects worth a combined USD 210 mn kicked off operations in Ain Sokhna, including China’s state-owned Xinxing Ductile Iron Pipes Company’s USD 150 mn ductile iron pipes plant and Turkish sanitary product company Hayat’s USD 60 mn tissue paper factory.
• Plans for the long-awaited Russian Industrial Zone are progressing, with Egypt and Russia having signed a long-term usufruct agreement granting Russian firms — in pharma, chemicals, mechanical engineering, and building materials — access to land inside the Suez Canal Economic Zone to establish a Russian Industrial Zone.