What Egypt has planned to locally produce raw materials for industry: As it currently stands, Egypt relies primarily on imports for mineral and chemical products, which together account for some 25% of our annual total imports — and a significant amount of FX expenditure. Industry players Enterprise spoke with stressed that manufacturers’ ability to ramp up local production is largely dependent on the local availability of raw materials, which goes a long way in reducing our import bill.

We’re taking steps towards filling a USD 30 bn import gap with local industry: Last year, the Trade and Industry Ministry’s Industrial Development Authority (IDA) began offering industrial land and new investments under a new phase of the authority’s investment map. The offerings came as the ministry continued working on putting together a plan to slash our import bill by creating a strategy to boost local alternatives to imported products. The strategy, which the ministry distributed among the Federation of Egyptian Industries’ various divisions, is designed to save state coffers some USD 30 bn in import expenses.

What the strategy entails: The IDA offered 152 potential investments as part of the latest phase of its investment map, with these investments covering production inputs for five critical industries: Engineering, chemicals, pharma, construction and building, and food industries. Supporting the availability of these production inputs makes local manufacturing significantly more competitive, a government source told Enterprise. Several local manufacturers have already started working on some of these projects, while the government is in ongoing negotiations with Turkish, Indian, and German investors for other projects under the investment map, according to the source.

But raw material and mineral shortages remain a concern for manufacturers across different industries, according to multiple sources Enterprise spoke with. The government is trying to boost mining activities for raw materials such as silica sand, kaolinite, gypsum, and manganese. Arab Alloys Company recently set up an EGP 1 bn ferroalloys industrial complex in the Suez Canal Economic Zone to produce ferro silicon alloys, silicon manganese, and silicon metals, providing the necessary raw materials for several industries.

One of the projects currently in the works: A proposal from consortium of Italy’s Danieli, along with Egypt’s Industrial Steel Products Company and the Arab Organization for Industrialization to establish a steel billet complex is currently under review from the Public Enterprise Ministry. The project — which would entail establishing a USD 4 bn integrated industrial complex for the production of iron and steel products — aims to capitalize on the large repositories of iron ore in Aswan and the Bahariya Oasis. Providing steel billets to the local market will be a boon for local manufacturers by allowing them to rely less on imports, ministry spokesperson Mansour Abdel Ghani told Enterprise.

There are lots of products + materials that aren’t available here at home: The spinning and weaving industry needs to import some USD 200 mn-worth of artificial silk each year to produce polyester fiber, Mansour said.

The FX crunch is starting to truly ease for manufacturing, but producers are still wary of being import-reliant: Manufacturers are no longer grappling with a crisis when it comes to securing FX for imports of industrial supplies, but there remains a dearth of alternative options to importing raw materials, such as steel and copper, since they are not readily available from the local market, FEI member Baseem Samy Youssef told Enterprise. Manufacturers are forced to rely on imports and incur exorbitant shipping costs to get their hands on these materials, Youssef said, reaffirming that having locally available production inputs would be a boon for industry.

We can encourage manufacturers to rely more on local production inputs, but completely abandoning imports is an unrealistic target, Youssef stressed. Raw materials will always be required for manufacturing, and industry players will always need to get their hands on some raw materials from the countries that can produce and export it, Youssef said, adding, “Expecting the local industry to stop relying on FX entirely is simply unrealistic.”

Others share the same opinion: Import substitution is not necessarily the ideal way for Egypt to move towards its goal of cutting down on imports, since that would entail producing everything locally, which is inefficient and costly, Concrete CEO Mohamed Talaat Khalifa said at the Enterprise Exports and FDI Forum last year. Instead, Egyptian companies should focus on creating higher value products that can then substitute an imported product, and support leveling up of the entire supply chain. (ICYMI- Listen to our chat with Khalifa, as well as Mars’ Shams Eweis and Fertiglobe’s Tarek Hosny about the lessons learned from the industries that have raised our export profile on the Enterprise Podcast.)

Never waste a good crisis: The current challenges in the market mean there is an opportunity to capitalize on the relative easing of prices after the EGP float eliminated the black market, while high international shipping costs should encourage the local market for manufacturers to double down on providing raw materials rather than relying on imports, Youssef said. Local industry would benefit the most from large national projects — rather than one-off individual policies — to encourage more domestic manufacturing that goes higher up the value chain, he said.

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