{"id":657545,"date":"2024-12-22T00:00:00","date_gmt":"2024-12-22T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/inside_industry\/how-egypts-industrial-sector-fared-in-2024-part-1\/"},"modified":"2024-12-22T00:00:00","modified_gmt":"2024-12-22T00:00:00","slug":"how-egypts-industrial-sector-fared-in-2024-part-1","status":"publish","type":"inside_industry","link":"https:\/\/enterpriseam.com\/egypt\/inside_industry\/how-egypts-industrial-sector-fared-in-2024-part-1\/","title":{"rendered":"How Egypt\u2019s industrial sector fared in 2024: Part 1"},"content":{"rendered":"

The industrial sector had a rocky start to 2024<\/strong> amid a perfect storm of challenges.<\/strong> In the early months of the year the USD crisis hit its peak, black market activity surged, and tighter central bank restrictions placed businesses under pressure. The strain deepened throughout 1Q as the sector contended with the fallout from the March float of the EGP and the subsequent rise in official exchange rates, while sky-high interest rates saw the cost of bank financing increase precipitously. With the greenback rising from EGP 47-48 early in the year to near EGP 51 in December, manufacturers faced an uphill battle to secure critical resources.<\/p>\n

Pre-float measures provided some relief:<\/strong> The Finance Ministry moved early to prevent massive losses, introducing a three-period currency variance treatment for tax purposes in early 2024<\/a>. The scheme was tailored to enable business to deal with the currency fluctuations, especially import and export businesses. It allowed manufacturers to amortize FX differences in tax filings over three periods, reflecting the exchange rate's gradual movement: 9% from January to April, 24% from May to August, 34% in September and October, and up to 60% in November and December.<\/p>\n

Post-float revival brought mixed results:<\/strong> The industrial sector received a strong boost following the float, which unified the exchange rate and helped secure the release of goods<\/a> stuck at Egypt\u2019s ports. Most of these goods were capital goods, production inputs, and food products, with their release allowing factories to resume full-capacity operations<\/a>. Customs clearance now averages USD 6 bn worth of goods per month, primarily raw materials and industrial inputs, sources told EnterpriseAM. <\/p>\n

Skyrocketing borrowing costs posed a significant concern for industrial firms<\/strong>, as the Central Bank of Egypt hiked interest rates by 600 bps<\/a> this year, with the elevated rates posing a significant barrier to financing for the sector.<\/p>\n

Sector players agree that the float was both inevitable and a positive development.<\/strong> However, extended pre-float instability has prolonged recovery, with the sector requiring additional measures \u2014 like rationalizing government spending \u2014 to stabilize fiscal policy, head of the Egyptian Businessmen\u2019s Association Ali Eissa told us.<\/p>\n

The response:<\/strong> The status quo has prompted industrial players to ask the government for new financing initiatives. In response, the government has responded with two schemes: a subsidized 15% interest rate on loans<\/a> for industry and agriculture, capped at EGP 150 bn, and a subsidized 12% rate for tourism loans<\/a>, capped at EGP 120 bn. However, manufacturers were hoping for rates closer to 5-8% to offset pre-float challenges.<\/p>\n

Additional measures were taken to stimulate foreign trade:<\/strong> The budget for FY 2024-25 allocated EGP 40.5 bn<\/a> to stimulate economic growth, with a focus on industrial and export support. About EGP 23 bn of the package was directed to clear overdue export subsidies, while the ministry decided to continue property tax exemptions for factories.<\/p>\n

But the greenback pressure persists:<\/strong> While the CBE successfully curbed the black market, fears of exchange rate volatility linger due to the USD's strength globally. This has driven the exchange rate to accelerate beyond EGP 47-48, despite prolonged periods of stability.<\/p>\n

Despite ambitious plans to double export figures, manufacturers were disappointed with <\/strong>the reduced <\/strong>export subsidy program<\/a>, which slashed support by as much as 70% in some sectors through June 2025. Budgetary constraints from the government\u2019s fiscal reforms have tied subsidy disbursement to added value and local content ratios. <\/p>\n

Pushing for localization: <\/strong>The government has taken several measures to localize the<\/a>production<\/a> of key sectors throughout 2024, targeting 23 priority industries<\/a> and aiming to trim reliance on imports for industrial inputs. However, manufacturers are still heavily dependent<\/a> on costly imports for raw materials, putting a huge strain on the state\u2019s FX coffers. Nevertheless, manufacturers still bear the expensive transport fees and depend on imports to source the required production imports.<\/p>\n

High energy costs were also in play:<\/strong> Energy price hikes associated with Egypt\u2019s IMF-backed subsidy reforms significantly impacted industry in 2024. Electricity prices rose by 56-60% for industrial consumers<\/a>, while diesel prices increased three times<\/a> throughout the year, with the latest hike bringing both diesel and kerosene to EGP 13.50 per liter and the price of mazut supplied to non-essential industries reached EGP 9.5k per ton. These hikes raised shipping costs<\/a> by 25% for local transport and amplified the global shipping crisis triggered by the ongoing disruptions in the Red Sea which placed unprecedented pressure on industrial input costs. <\/p>\n

The surge in energy costs has pushed many factories to explore alternative and <\/strong>renewable energy solutions to power their operations <\/strong>as a means to lower production costs and enhance competitiveness locally and abroad.<\/p>\n

The government has encouraged this move<\/strong>, with Transport and Industry Minister Kamel El Wazir \u2014 who took over the Industry Ministry in Mostafa Madbouly\u2019s new government<\/a> that was formed in July \u2014 directing companies looking to set up new factories to build wind or solar power stations to fuel them, reducing reliance on traditional state-provided power grids. This is intended to conserve energy supplies and lower emissions from the industrial sector \u2014 Egypt\u2019s third-largest contributor to pollution. The shift to clean energy isn't just driven by fuel costs \u2014 factories exporting to the EU must also comply with stricter sustainability standards<\/a> by June 2026.<\/p>\n

Despite the challenges faced by the industrial sector<\/strong>, government efforts, in collaboration with manufacturers, have helped overcome many obstacles. We\u2019ll delve deeper into these efforts in part two.<\/p>\n

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