Gov’t is working to improve incentives and regs for local industry: The industrial sector has been grappling with longstanding challenges such as land scarcity, raw material shortages, and high utility costs. Transport and Industry Minister Kamel El Wazir has held weekly meetings with investors and representatives of industrial chambers over the course of the month to discuss these setbacks and develop a package of incentives and regulations to support local industry. Enterprise spoke with a handful of industrial players to find out what strategy the government is pursuing and what can be done to address land shortages, improve financing, expand industrial output, and revitalize struggling factories.

IMPROVING LAND DEVELOPMENT AND ALLOCATION-

Land is in short supply: While the overall land shortage is not severe, there's a notable deficit in Greater Cairo, a source at the Industrial Development Authority said. By contrast, there’s ample availability in Upper Egypt. Demand is concentrated in specific industrial zones among the nation's 147 industrial areas, the source said.

Private land allocation to make a comeback? The government is considering reviving the industrial developer system — which allows private companies to develop land for industrial use — under new rules, Federation of Egyptian Industries board member Mohamed El Bahey told Enterprise. Reinstating the system would swiftly address the shortage of industrial land, especially considering its past success in providing more land to the sector than is directly allocated by the Industrial Development Authority (IDA), said El Bahey.

Background: The industrial developer system was suspended in 2018 over concerns about land speculation — i.e. that developers were acquiring land with the intention of holding onto it rather than developing it in a bid to profit from land price increases. Last November, seven developers requested to reinstate the system, seeking a combined 13 mn sqm of land. The requests are still pending approval. Talks on reviving the program were revisited in February before they were stalled again.

Authorities are clamping down on speculation: Land allocated by the state to manufacturers and left undeveloped without clear justification is currently being reclaimed in accordance with the directives of the Minister of Transport and Industry, our IDA source said. This land will be reassigned to other partiers in a bid to address the critical shortage of serviced industrial land, with priority given to essential industries, they explained.

Vertical expansion is another potential solution: Officials previously discussed allowing height extensions for factories looking to add new machinery to increase their production capacity amid land shortages, head of the Tenth of Ramadan Investors Association Samir Aref told Enterprise last month.

So is making use of vacant land: Many manufacturers own vacant land where the IDA has restricted activity changes or partnerships, resulting in substantial unused space despite acute land shortages, said Head of the Federation of Small and Medium-Sized Enterprises Alaa El Saqti. Enabling these land use modifications would swiftly unlock thousands of square meters of serviced industrial land for investment, he explained.

Streamlining building permits: During his visit to the IDA last week, El Wazir issued directives to streamline building permit processes and provide relief to struggling factories, according to a ministry statement. These include giving factories that have secured building permits and completed 50% of construction a six-months extension to finish construction and apply for an operating license. Late fees for this period will be waived entirely. In a bid to preserve agricultural land, the minister also announced plans for a legislative amendment to regulate the status of factories already operating on agricultural lands whilst ensuring that no new industrial facilities are licensed on agricultural land without proper building permits.

OFFERING FINANCIAL SUPPORT-

Reducing land costs: The meeting saw manufacturers voice concerns about the high utility installation costs levied by the New Urban Communities Authority (NUCA), which factor into land prices and raise overall investment expenditures, said El Bahey. El Wazir endorsed a proposal to allow manufacturers to directly secure land from the state for no charge and install utilities themselves by contracting with the utility provider of their choice. He also approved an alternative incentive, as part of the industrial developer program, that would allow manufacturers to make a 25% down payment on land value and receive a two-year grace period to commence construction before contractual installment payments begin. The government is yet to issue formal decisions to implement these proposals.

Extending financing solutions: A dearth of affordable financing is another major headwind facing the industry, El Bahey said. The government’s initiative of offering loans to industrial and agricultural players at a subsidized 15% interest rate is running into difficulties, while banks offer financing at exorbitant interest rates of no less than 34%, he explained. The Ministry of Industry is studying a proposal to revive the role of the Industrial Development Bank, empowering it to manage all foreign funds that flow into the local industrial sector in a bid to provide low-interest financing to industrial players, he said.

Pulse check on the subsidized loan program: The program has been halted after benefiting only a small number of industrial players, said El Saqti, adding that the EGP 120 bn allocated to the scheme were insufficient. A sustainable financing mechanism for the sector is essential, he asserted.

BOOSTING THE LOCAL PRODUCTION OF COMPONENTS-

Imposing mandatory component production regs: Imposing a mandatory 10% increase in local component percentages for major factories would give industry a significant boost, said

El Saqti. This measure would stimulate the growth of small supporting industries backed by large factories, thereby reducing imports and promoting domestic manufacturing without excessive government involvement, he said.

The plan wouldn’t work without tax and ins. incentives, which large factories would need to help grow feeder industries, said El Saqti. This strategic move can yield significant savings on component imports.

SUPPORTING STRUGGLING FACTORIES-

Struggling factories are high on the agenda: El Wazir promised to prioritize the reopening of struggling factories at the meeting, said El Bahey. Despite investing ms of EGP, some factories have not started production due to liquidity shortages and accumulating debts, he said.

There’s plenty of room for growth: Egypt needs a significant surge in industrial output of no less than 70% — including a 50% increase in factory numbers and a 20% boost in production capacity, El Saqti said. To achieve this, prioritizing small-scale projects and rolling out robust incentives to accelerate investment are imperative, he added.

Your top industrial development stories for the week:

  • One-stop shop for industrial land? Housing Minister Sherif El Sherbiny is considering a proposal to transfer jurisdiction over industrial land in new cities from the New Urban Communities Authority to the Industrial Development Authority, according to Real Estate Development Chamber Executive Director Osama Saad. (Hapi Journal)
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