{"id":607319,"date":"2023-10-01T00:00:00","date_gmt":"2023-10-01T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/inside_industry\/is-egypt-becoming-a-regional-hub-for-smartphone-production-part-2\/"},"modified":"2023-10-01T00:00:00","modified_gmt":"2023-10-01T00:00:00","slug":"is-egypt-becoming-a-regional-hub-for-smartphone-production-part-2","status":"publish","type":"inside_industry","link":"https:\/\/enterpriseam.com\/egypt\/inside_industry\/is-egypt-becoming-a-regional-hub-for-smartphone-production-part-2\/","title":{"rendered":"Is Egypt becoming a regional hub for smartphone production? Part 2"},"content":{"rendered":"

The local smartphone industry\u2019s momentum continues: <\/strong>In what is the latest sign of the burgeoning smartphone industry\u2019s uprise, Samsung Egypt last week said that it plans to ramp up its local production to 5 mn mobile phones annually from a current 2 mn, according to a statement<\/a> by the Trade Ministry. In Part 1<\/a> of our probe into the industry, we took a look at all the multinational manufacturers that have poured into local manufacturing since local electronics firm Sico Technology debuted its first smartphone in 2018, delineating their current operations and some of their primary plans for growth. These include Xiaomi, Vivo, HMD Global, Oppo, and Infinix. In part 2, we\u2019ll get into the market conditions, incentives, and trends propelling the industry forward and what remains to be done.<\/p>\n

First things first: What\u2019s prompting all these firms to set up shop in Om El Donia? <\/strong> For starters, the market is cost-competitive and labor is abundant. \u201cThe cost of establishing and operating microelectronics factories here, particularly smartphone production, is comparable to the cost of doing so in China or India,\u201d Sico Technology CEO Mohamed Salem told Enterprise. \u201cThe market has also proven over the past five years that we have qualified personnel for it.\u201d Our local talent pool sees some 60k people per year graduating with degrees in the fields of IT and electronics, said a source at the Information Technology Industry Development Agency (ITIDA). With a population of over 105 mn<\/a> and almost half of that number below the age of 25, we\u2019ve also got a massive consumer market, our ITIDA source said, explaining that investors in this industry often look for youthful populations. <\/p>\n

The government is offering a slew of incentives: <\/strong> Incentives offered by the state are one of the prime reasons multinationals are setting up shop here, Salem said, citing tax and custom duty exemptions on components imported for smartphone manufacturing. Diaa El Shaarawy, COO of Xiaomi\u2019s local distributor Al Safy Group, voiced a similar opinion, listing golden licenses<\/a>, the easing of import restrictions<\/a>, and tax exemptions as part of the \u201chuge package of industrialization incentives\u201d that have drawn manufacturers towards the local industry. \u201cCommunication is rarely interrupted between investors and the Egyptian government \u2026 which helped Xiaomi establish its factory in record time,\u201d he said.<\/p>\n

Remember: <\/strong> MPs in February voted<\/a> to slash customs duties and eliminate development fees on imported mobile phone components in a bid to boost manufacturing and localize the industry. Under the amendments, the 5% state development fee is longer applied to components, while customs tariffs were cut to as low as 0% for some items.<\/p>\n

Import difficulties are fueling local production: <\/strong>\u201cIt\u2019s more cost-effective for multinational companies to import materials and manufacture phones here than to bring in finished goods, which are subject to custom duties,\u201d a government source told us. The challenge of sourcing foreign currency and securing letters of credit (L\/Cs) from banks to pay for imports have made importing components difficult and caused delays to ripple across the entire supply chain, said Karim Ghoneim, KMG Egypt CEO and head of the Federation of Egyptian Chambers of Commerce\u2019s digital economy and tech division. \u201cImporting is really hard, so it\u2019s easier to manufacture here without having to wait for supplies of USD,\u201d said a source at one of the multinational smartphone manufacturers. \u201cImport restrictions were partially why our company took the route of local production.\u201d <\/p>\n

Wider global trends are at play, too: <\/strong>Paired with supply chain disruptions triggered by the pandemic, geopolitical tensions have led multinationals to diversify their supply chains, our source at ITIDA said. Following the war in Ukraine and escalations in the semiconductor war between the US and China \u2014 including tensions<\/a> over Taiwan Semiconductor Manufacturing Company (TSMC) \u2014 international companies have been looking to Egypt, among other destinations, to manufacture or design their products, he explained. \u201cCompanies have shifted away from the practice of centralizing operations in Southeast Asia and China in fear of sudden closures or force majeures that could prevent the movement of commodities,\u201d Salem added.<\/p>\n

Where can manufacturers set up shop in Egypt? <\/strong> In addition to a number of prominent industrial areas such as the Suez Canal Economic Zone, 6 October, 10 Ramadan, and 15 May, there are a number of technological parks across the country that cater specifically to tech firms. These include the tech parks<\/a> managed by Silicon Waha<\/a> in Sadat City, Borg El Arab, Beni Suef, and Assiut, which grant firms subsidies of up to 50% on rent for design offices and manufacturing areas, our ITIDA source said. Additionally, machines and equipment destined for these tech parks get customs and tax exemptions.<\/p>\n

The target is to <\/strong>localize 40%<\/a><\/strong> of smartphone production. <\/strong>This means that 40% of the total input that goes into manufacturing \u2014 including components, design, development, and software \u2014 should be sourced locally, according to Ghoneim.<\/p>\n

We need to devise a growth strategy and create a deep industry: <\/strong> The industry needs a five-year plan that lays out how it can gradually transition from the learning stage to a more mature stage where a good portion of the final product is manufactured locally, Ghoneim said. Companies could start out by assembling parts until their personnel are adequately trained and their products are of high quality, he explained. The industry also needs a dedicated high-level council to determine what smartphone components should be manufactured locally, Ghoneim suggested. Manufacturers should be encouraged to produce components that can feed into other electronics as well as to specialize in the production of certain parts in order to create an integrated network of suppliers that complement each other, he said.<\/p>\n

And more can be done to boost exports: <\/strong> The smartphone industry should be added to the state\u2019s export subsidy program to help companies shore up their exports and enter new markets, Salem said. Sico exports around 15-20% of its total production to countries in Africa and the Gulf, according to Salem. Ghoneim offered a complementary viewpoint: The industry needs export support in order to go up against competitive products from China, he said, adding that export initiatives are the linchpin of China\u2019s dominance in the smartphone industry.<\/p>\n

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