OBG talks to Hassan Fahmy, Chairman, General Authority for Investment and Free Zones (GAFI)

Interview: Hassan Fahmy

Have the free zones been attracting investment?

HASSAN FAHMY: The free zones have had great success in attracting investment, with 1114 projects – 892 public and 222 private – currently being developed. This translates to capital of $10.8bn and investment costs of $22.5bn. In total, the free zones have attracted $2.2bn in foreign direct investment, accounting for $10.3bn worth of exports and 200,000 new jobs. At present, free zone performance is primarily constrained by the lack of available land. To serve pent-up demand, we aim to create new free zone areas across Egypt.

How can investment in industry be encouraged?

FAHMY: Egypt’s industrial development should be based on its resource endowment, including human resources, as well as current domestic capability. Drivers of industrialisation like skills, technological advancement, infrastructure and integration with international markets are keys to forming a vision for the country’s future. Ambition also has a role to play in this vision, as seen in the minister of industry’s initiative to create a complex for small and medium-sized enterprises (SMEs) in the industrial areas of each governorate. Indeed, SMEs are the hope for the industrial sector’s future.

Furthermore, employment must be at the heart of any industrial policy. We need to support small firms, re-examine the regulatory environment and encourage training, particularly at the basic level. A special register of small-scale industries and micro-enterprises should also be put in place going forward.

Appropriate infrastructure and investments will be key to promoting more labour-intensive industries. In the future, government incentives should subsidise labour and training as opposed to investment, electricity and infrastructure aimed at capital-intensive firms.

Moreover, the education system in Upper Egypt is in desperate need of reform. As an engine for growth in the region’s manufacturing sector, the schooling system should shift its focus towards technical vocational education and training. These areas are the basis for the development of the skills required for mastering industrial production and will facilitate regional growth.

What is the main obstacle to foreign investment?

FAHMY: Egypt will always be an investment magnet thanks to its strategic geographical location; however, the current climate provides some obstacles to investment. Project approval procedures have been far too lengthy, leading the government to review land allocation policies for industrial activities. The government will also implement an immediate registration system for all companies. Legislative reforms related to economic activity are also under review, including the investment law aimed at fostering a robust legal environment, encouraging business and attracting greater investment. Lastly, the government approved a draft law preventing third parties from challenging contracts between the government and investors, which will help to further stimulate investment in the economy.

Energy shortages are the second serious obstacle to investment. To tackle the issue, the government plans to introduce a feed-in tariff for new and renewable energy designed to encourage investment. The tariff will offer long-term contracts to energy producers according to the production cost of the technology.

To what degree has the stock of Egypt’s distressed assets increased over the past 12 months?

FAHMY: We have addressed problems in 110 factories and allocated LE500m ($71m) of an incentives package for the Central Bank to help reopen bankrupted factories. While 84% of factories struggle with a lack of funding, the rest are facing technical problems related to production or marketing, which the Industrial Modernisation Centre is working to address. To further improve the operational environment, the government is carefully considering a unified companies law. We would also like to see consolidation of the authority responsible for issuing operating licenses, as well as a reconsideration of industrial land allocation policy.