Are industrial clusters an accelerant for both our exports and SME development? Clusters have been a mainstay of FDI and exports across Europe, South East Asia, and India, as well as a way that SMEs have contributed to the production of goods for exports. We’ve tried our hand in the past with projects that bring together certain industries in one place, but these haven’t translated into a real boom in exports from these industries. So how can we leverage industrial clusters to bring a competitive edge to Egypt by drawing in investment and business that would otherwise have gone elsewhere in the world?

Delivering their experience and recommendations during the Enterprise FDI and Export Forum: Shady Williams (LinkedIn), managing director of IDG, Mohamed El-Gebely (LinkedIn), team leader of USAID Trade and Nada El Ahwal (LinkedIn), CSO of Transmar.

Where do we currently stand? We have government-initiated and created industrial zones in Egypt such as 10th of Ramadan City and 6th of October, explained Williams. We also have ground-up developed clusters that have come about naturally, like Damietta, an area that became known as a hub for furniture production through generational growth. This could mean that if we integrate the establishment of industrial clusters alongside urban planning in Egypt, we could create a sector and geographic specific ecosystem, he said.

A balancing act: Creating a cluster is complex — you can’t just tell a company owner where to open their business, Williams added. Instead, the area needs to draw in the business largely through on-the-ground infrastructure. Zones like 10th of Ramadan and 6th of October continue to attract businesses as there is a general understanding of work forces, services, facilities, and logistics processes within the area. On the other hand, areas picked for zones or clusters need to be ready to accept and support the business.

Common ground: Most manufacturers seek the advantages of clusters, said WIlliams, which provide a space where similar businesses operate, creating a natural spillover of knowledge and logistics sharing within a cluster. While pulled resources allow the use of common facilities along the entire production chain, simplifying procedures and cutting costs and productivity. Clusters also provide a level of creativity, says Williams, as companies are able to hold on to their labor forces, benefit from research and development and take advantage of all facilities available. In total, big ticket benefits like cheaper energy, supply chain ease and labor are more of a pull to manufacturers than location, said El Ahwal.

Keeping tech in mind when building clusters is key for efficiency and digitalization, said Mohamed El Gebely, as is growing clusters close to the source of a competitive advantage, whether that be a labor force or supply chain component.

So, which industries should we be targeting for future clusters? Clusters should be placed in areas that make sense, says El Ahwal, using existing logistical infrastructure to their advantage, like ports. Agricultural produce would cater to a North Egypt or Delta cluster, she said, while a Red Sea port cluster focused on renewable energy, which with its global significance and our natural resources would be a “clear and quick win.”

We also have a strong competitive advantage with cement and its derivatives, and that advantage is particularly strong right now as the traditional regional exporter — Turkey — is recuperating from the earthquake, El Ahwal continued. Finally, she looked to raw materials, which currently are produced in Egypt and exported cheaply abroad to countries which process them to be sold at 10x the price. An Upper Egypt cluster focused on commodity processing would act as an intermediate step increasing the value of our exports.

The list should also include the tech and fintech sectors — two industries that have proven track records in the past, Williams said. With Egypt’s language abilities and quality we have been successful in call centers, Williams said, as well as the software development industry. El Gebely also pointed to the garments sector and engineering products as potential options for clusters.

SMEs are key to the cluster puzzle: In bulk, small and medium enterprises (SMEs) can help grow a sector into a bigger cluster and industry. Governments can set off natural cluster creation by harnessing anchor tenants or a collection of SMEs in an area, saidEl Ahwal. However, unless there is a geographical advantage — such as the proximity of natural resources for Damietta — SMEs tend to be situated in urban centers. To attract SMEs, the government needs to heavily subsidize sectors in return for growth that will likely yield returns after 10 years, says Williams.

Clusters can’t work without a workforce: Labor intensive industries, which tend to be the tenants of clusters, need large, trained workforces. We need to create a robust ecosystem that attracts SMEs and a sizable labor force that will make companies want to be close to the source of a competitive edge.

It’s not enough to just create the cluster — we still need to export products that match international standards and quality guarantees. This rests on local manufacturers, says Williams, who does not think that our producers currently have the required up-to-date knowledge nor technology to create high-quality products. Egypt also lacks guidelines that force manufacturers' hands when it comes to meeting quality standards. But it also falls on the Egyptian market to demand quality in order to improve standards, he said.

Hard work, patience, and commitment: It will be difficult, says Williams, to create functioning clusters that produce targeted quality products for export, with it usually taking close to 20 years for a country to be recognized for an industry.

It’s all about the competitive edge: Attracting foreign businesses into Egypt requires offering services and incentives that will provide savings of between 25-30%, says El Ahwal. Without those savings no company will consider leaving their origin country. Egypt could easily offer these cuts through the availability of cheap labor and energy — yet companies will still not come if conducting business is inefficient, difficult to manage, and still expensive.

Instead of focusing on our SMEs, we focus on long-term markets: We need to consider where we have a competitive edge in global trade by considering where the opportunities are in global demand. This is key as Egypt is working against countries with similar advantages, but not the same disadvantages, El Ahwal said. From here we build a sustainable source of this in Egypt which is fed by clusters. Foreign direct investment and SMEs will follow suit, helped by roadshow marketing of our clusters.

Investing in training plays a role in setting up a successful and sustainable cluster: Companies must focus on training their work forces as it is the key differentiator to provide quality and effective products, said Williams. Clusters provide a location for training academies from which a skilled labor force can directly enter the market.

Looking forward? When assessing the future of Egypt’s clusters we need to consider how the makeup of the logistics sector will proceed in the country, said El Ahwal, pointing to Transmar’s focus on the growth of Egypt’s shipping lines and how they can continue to support exports. The creation of a clear strategy will make clear the ways in which to target high potential sectors, said El Gebely. Williams concluded the panel, drawing on the importance of the private sector pulling together and supporting each other in order for clusters to succeed.

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