Industrial Development Agency in Egypt: Support for Egyptian SMEs

Interview with Dr Abla Abdel-Latif, Advisor to the Minister of Industry, Industrial Development Agency

Please give us an overview of the sector. How would you define the state of the industry of Egypt? What is the outlook for the next two years? How do you perceive it moving?

Let me start by giving a couple of facts about the Egyptian industry. This industry is not a very old industry. It started very seriously in the 60s with the first 5-year plan, which was a part of the Nasser regime. At that time, there was a lot of focus on consumer goods. The plan to get intermediate goods for the next 5 years established a lot of factories for iron and steel, chemicals etc. We did not get too much into the production of capital goods. Until now, this is not an area that Egypt is strong in. We are richer in consumer goods and intermediate goods than in capital goods. We have experienced change from an import substitution policy, which was on for a very long time to an export-oriented policy. We have a few structural issues that we are trying to focus on. The involvement of the private sector started seriously in the late 1980s. Like I said, it is more focused on the intermediate goods and consumer goods than on the capital goods. At this point you can check the structure of our industry by looking at the setup of our exports. Our exports are raw materials based and they are on the low-technology side. This is one of the things that we are trying to change. We have been pushing the industry very seriously, roughly from 2004. With a lot of improvement in the business environment and a lot of encouragement for investment in general, whether local or foreign. This has led to the establishment of a lot of branches for multinational companies and a lot of local investors in different areas. We still have a missing middle problem. We have a lot of micro enterprises and quite a number of big enterprises. The big enterprises are vertically integrated. They produce things that they should not be producing, because they don’t find anybody supplying them. Say, if there is this company producing jams, they would produce their own glass jars. Or they would import the glass jars, because they don’t find the smaller companies that supply them with what they need. This is the area that needs a lot of strengthening.

Our strategy as a Ministry is to fill this space of small and medium enterprises in the industrial space. At the same time, it is also the space that creates a lot of jobs. So, focusing on job creation, we know very well that the jobs are coming from these areas. But for the SMEs to work successfully, they need to be integrated in the local value chains and in the international value chains and this is exactly what we are trying. We are also trying to increase the value-added in production and increase our export orientation. We are trying to implement this strategy for the short and medium term to go in this direction, to solve the problems faced by our traditional industries like textiles, furniture, some of the engineering industries, the chemicals in order to solve the constraints that they are facing; to increase the value-added and the technological depth in the same traditional sector. So, we are trying to make them stronger and more powerful and at the same time to encourage new industries that are more on the high-tech side. So, we are working on everything in parallel. Within this, we are focusing on the small and medium enterprises. We are also adopting a new and novel approach towards industry.  Previously, we didn’t look at manufacturing as a strictly manufacturing and closed sector like this. But rather, we are now looking at manufacturing and services together. Because this takes the entire value-chain into consideration and creates more job opportunities in the proper way. The factory on the high-tech side is not creating a lot of job in itself, but given the linkages in the value-chain, it is creating lots of indirect jobs orienting the linkages back and forth.

We are also focusing on strategies for SMEs. Taking entrepreneurship and start-ups so on into consideration, we are improving entrepreneurship in the ecosystem.

How are you improving this ecosystem?

We are improving the eco system using a very interesting initiative called “Take-off”. It is an initiative by the existing institutions working on SMEs. We have the Industrial Modernization Center, the Social Fund for Development and the Industrial Training Council. These three are the key institutions dealing with the SMEs and the youth and entrepreneurship and so on. At this point, we don’t have a strong decent institution, where you can go with your idea and your idea gets adopted and sent to the next level. The purpose of the initiative is to do exactly this. So, anyone with an idea has to just go to these institutions with a specific clear roadmap. Here, from day one, you are dealing with the financing and technical support needed at every stage of the project. They guide you from the point the project starts or suggest improvements on the ideas or help to capture the entrepreneurship potential of the people. All of these are being built up, without creating a new institution. It is not a new institution, but it’s rather an initiative that is coordinating everything.

There is something interesting about Egypt as far as SMEs are concerned. Anything and everything that you can imagine is already there in terms of services. Only people don’t know about it. Or they are isolated as islands or the services are offered to them in a very small portion. Whatever practice you can imagine in the world, already exists here in Egypt. The whole idea is to coordinate the efforts. These efforts may come from the government, the private sector, the venture capital effort. It is collaborating everything together to give a very big push to entrepreneurs. We are improving the system in a practical way using this initiative. We are creating a sort of fast-track for whatever is related to entrepreneurship and SMEs and in the process improving the operations of all the institutions. It is quite an interesting project and it should be out very soon.  

You mentioned the Sharm El Sheikh Conference. What is the outcome of that for the industry? If you can go beyond the industry. What has been the impact of this huge event?

The political impact is a very strong one and the impact is on the image. This has immediate impact on the economy – in the form of trust from the rest of the world for what we are doing. An impact on tourism and the impact on the economy as a whole. In the conference, the government presented its vision for the future and the improvements it is planning on the business environment, with promises etc. This is very positive. On the manufacturing side, we presented our strategy for the industry, where we are giving a lot of attention to the investments that are to take place in the Suez Canal zone, also in the Golden Triangle, which is an area on the South of Egypt, which is very rich in minerals and there is lots of potential for lots of other things. We also have new logistic areas in Upper Egypt, in addition to the regular projects – you know along the lines that I already mentioned about the deepening of the industry and the value-added and everything.

Did you have some direct impact due to this? Seen any direct investment materializing?

We don’t usually get direct investment in the industries instantaneously.

But when you promise. People may feel, let’s go and invest.

Again, you cannot have it this way. We are offering investment opportunities. You are also placing the government’s offering in front of the people to encourage investments. What people usually do is they acquire this information, they look at the investment map and they come back to us and ask more questions. We are being very realistic about it. We prepared a bunch of investment projects, but they were all in the real estate, infrastructure and energy areas, which are very much needed. If you don’t have any infrastructure, you can’t have any manufacturing. So, we are working on both. At the manufacturing level, it was more of presenting the investment opportunities and the success stories of the companies that are operating in Egypt, because we have a great potential for food industries for instance, for chemicals. This is one of the sectors that is doing very well with plastics and everything. We have a high potential in the engineering industries and in furniture and in the auto sectors, where we are talking about auto parts, auto component or even car assembly.  There were examples of companies that were successfully operating in these areas and of course we have the fertilizers.

Can you name companies that are examples of success in the industry?

I will tell you about the Egyptian investments. We have Juhayna in the food sector, which is one of the biggest industries for milk products and concentrated juice and the like. Next, we have the entire Americana Group with its investments in the food sector. Every sector has big names. There are lots. I will probably remember the name of the company and forget the name of the CEO or something. We have the list of councils that have the biggest players in every sector.

What are the major challenges that the industry is facing? What keeps you awake at night?

A lot of things (laughs). We need to bring about more improvement in the business environment. We are on the right track and we have taken some correct steps like having an investment law, but we still don’t have a decent bankruptcy law for instance. When you enter a business, you have to find your way out. Otherwise, it is very much like getting on the camel with a price and getting off with another price all together. You will have a much bigger fall. We still have issues with having a full clear mechanism for land allocation to projects. This has been handled by the investment law, but implementation will show if we are on the right track or not. Decentralization is a big challenge and it is affecting the industry, because we have permits that have to come from the governorates. There are little things here and there. But, for me, a challenge immediately translates into an opportunity. Given that we are working on the business environment, a lot of opportunities are going to be there.  

If you had a magic wand, what do you think that IDA could achieve in 3 years’ time?

IDA is a very interesting institution and it is in a very delicate position at this point. It is an institution that should provide services to the industrial companies to facilitate their work and to push them in the direction of development. Over the years, it became difficult to do that. Instead of being a supporter, it sometimes became an obstacle. The question is how to get it back to its useful self. This is happening right now. It is supposed to be the one-stop shop for all investments in the industry to facilitate or process. You don’t have to deal with anybody else, but with only this institution and with minimum paper work. We are working very hard and it will be quite an achievement if IDA becomes the institution that takes the investments forward. Because everything on the ground in terms of implementation is going to come from there. It already exists and it is operating. But we are pushing to turn it into a real helper and real supporter and not a constraint at any level, at any step of the procedure.