A new initiative to help manufacturers + industry players enter the formal economy: The Federation of Egyptian Industries’ (FEI) engineering division launched last month a new initiative, dubbed Help Manufacturers (Sa’ed El Sonna’), designed to help local manufacturers overcome the usual obstacles they face when looking to enter the formal economy. The initiative will see the division assist informal players with paperwork and licensing, and otherwise streamline procedures for these manufacturers. The division also plans to eventually expand the initiative across the FEI’s 17 divisions.

The current status of the informal economy:Recent estimates suggest the shadow economy accounts for some 40% of our GDP, worth some EGP 2.6 bn. The government has rolled out several policies as it works to make the informal economy go legit, including with the rollout of a new digitized tax system to widen the tax base and reduce chances to avoid paying the taxman its due. This also comes as the Madbouly Cabinet is working to reduce our reliance on imports while encouraging the localization of industrial production.

So, what’s this new initiative for? Alongside the government’s efforts to use a combination of carrots and sticks to push the informal economy into the light, the FEI’s engineering division has also set up a committee dedicated to helping informal manufacturers with procedures to formalize their business, division head Mohamed El Mohandes told Enterprise. The division is hoping that its assistance will help make locally manufactured engineering products — particularly smaller components required for production — more readily available to the market, El Mohandes explained. The Help Industry Initiative will be primarily geared towards integrating informal players into the formal economy without harming their business operations, and then helping to develop their businesses and linking them up with different industries to increase GDP while meeting international quality standards, said Shaimaa Elba, head of the committee set up for the initiative.

Why now? The situation with imports, for one, played a significant role: Regulations on imports entering the country — which were imposed last year but have since been scrapped — led to a backlog at our ports and shortages in raw materials and production inputs for the industry, El Mohandes said. Many of these imported materials and products actually have local alternatives, but they’re not widely known or easily accessible because they are manufactured by informal players, he explained. Pushing these players into the formal economy would therefore help larger manufacturers to access their products, which would be beneficial to both sides of the equation and the economy at large.

The Help Manufacturers initiative is looking to target 100 factories in its first phase by providing a package of incentives, with the initiative set to bring in officials from the government and banks, El Mohandes told us. The initiative will initially focus on small factories in Moassasset El Zaka in El Marg, Basus in Qalyubia, and Embaba, Elba said. Basus is widely known for producing imitation products at lower quality standards, so integrating them into the formal economy will make their production output meet higher quality standards, FEI member Baseem Samy Youssef told Enterprise.

But it’s not going to be an easy feat: In addition to challenges with actually tracking down these informal players, El Mohandes anticipates some difficulties and pushback due to concerns about the tax burden from going legit, in addition to expenses such as ins. payments. Informal players also don’t necessarily meet international quality standards, which allows them to cut corners and offer their products at price points as much as 50% below formal players, Youssef said.

The key will be in the incentives: Informal players will be resistant to going legit unless they are offered significant incentives and a smooth process to integrate into the formal economy, several sources told us. These incentives can include an expedited route for industrial licensing, as well as a reduced tax rate, head of the FEI’s household appliances division Hassan Mabrouk told Enterprise. Legislative amendments to enshrine tax cuts and other incentives would go a long way to encourage the informal sector to go legit, El Mohandes said. The FEI has also been in negotiations with banks to offer low-interest or facilitated loans to manufacturers who join the Help Industry initiative, he said.

Tags: