Overcoming obstacles: Key segments such as fertiliser, petrochemicals and cement are set to see significant capacity increases

Long a regional heavyweight, Egypt’s industrial sector boasts a variety of segments that have helped make the country one of Africa’s biggest cement producers and its second-largest steel manufacturer. Still, industry, in particular light manufacturing, has had to grapple with the turmoil that followed the 2011 revolution, in the form of issues such as labour unrest and a deterioration in the security environment. “The year 2013 is proving a difficult one, with many unknown variables such as the foreign exchange, general inflation and the political social instability, but we are still cautiously optimistic,” Adel Garas, former general manager of multinational food and beverage producer Pepsico, told OBG in March 2013.

Indeed, given its proximity to major export destinations such as Europe and the Middle East, as well as its huge domestic market, the country remains highly competitive in many sectors. Moreover, various trade agreements bolster its attractiveness as an export centre. Leveraging its gas reserves, the country is an important regional producer of petrochemicals and fertilisers, with ambitious plans in place for new projects in both the public and private sectors.

KEY INDICATORS: Manufacturing accounted for 15.4% of GDP calculated by factor cost in 2011/12, a slight change from 15.6% for the previous year (the Egyptian financial year runs from July 1 to June 31), according to figures from the Ministry of Planning. The World Bank puts the figure at 15% for 2012. This is significantly higher than in oil-rich MENA countries such as Algeria, Libya and Saudi Arabia, where the latest available figures are 6%, 4% and 10%, respectively, and in-line with or slightly lower than energy-poor countries in the region such as Morocco (15%) and Jordan (19%). Overall, manufacturing activity grew by 0.7% in real terms in the year, having contracted by 0.7% in 2010/11. Excluding petroleum refining, which fell by 4.7%, manufacturing grew by 1%. Industrial exports have risen rapidly in recent years; exports of manufacturers totalled $12.9bn in 2011, according to World Trade Organisation (WTO) data, up from $10.97bn in 2010 and $9.88bn in 2009.

PETROCHEMICALS: A major element of Egypt’s industrial strategy has been the leveraging of its significant natural gas reserves for industrial development, through the production of petrochemicals and fertilisers using gas feedstock, traditionally supplied at below international market rates. Development in the sector is governed by a 20-year master plan unveiled in 2002, when the industry was reorganised through the creation of the state-owned holding firm Egyptian Petrochemicals Holding, known as ECHEM, which has minority stakes in a number of firms and is responsible for marketing Egyptian petrochemicals abroad. Following the 2011 revolution, a number of major projects planned under the strategy were put on ice, but several major expansion projects remain in the pipeline or are currently under way.

ETHYLENE & PE: The Alexandria-based Sidi Kerir Petrochemicals (Sidpec) is currently the only producer of ethylene and polyethylene (PE) in the country, though this is set to change once new investments are realised. The firm is majority-owned by state-backed entities; the largest shareholder is ECHEM, with a 20% stake, followed by the Social Insurance Fund of Government Sector Workers with 19%, and the Social Insurance Fund for Public and Private Sector Workers with 12%. Around 23% of the company’s stock is also floated on the country’s stock exchange.

The firm has a production capacity of 300,000 tonnes per annum (tpa) of ethylene and 225,000 tpa of PE, comprising both high-density and linear low-density PE. Khaled Salah Eldin El Basoumy, finance control and cost sector manager at the firm, told OBG that the company has been producing at full capacity in recent years without interruption, adding that around 65% of its output is sold in Egypt, with the rest exported, mostly to Europe. “The share of our output that is sold locally has been rising; the split used to be 50:50,” he said. “Local demand is high; producing at full capacity we only cover about 35% of Egyptian PE demand.” The firm uses natural gas supplied by state gas company Gasco as feedstock. Though the price is undisclosed, the firm has benefitted from subsidised natural gas in line with Egypt’s previous industrial development strategy of providing cheap natural gas to the industry. This has given it a significant cost advantage compared to producers in Western countries – though producers in Gulf countries such as Saudi Arabia have access to even cheaper gas.

However, the price at which Gasco sold to the firm reportedly rose from around $1.25 per million British thermal unit (mmBtu) to $3 per mmBtu in 2008, though a further increase in Gasco’s sale price to industrial customers to $4 per mmBtu (roughly in line with international market prices) was not applied to the petrochemicals industry.

EXPANSION: The sector is continuing to expand. For example, a 200,000-tpa capacity styrene and polystyrene plant opened in February 2013 at Dekheila Port in Alexandria, having been built at a cost of $400m. As part of government plans to develop the sector, a new company – Egyptian Ethylene and Derivatives Company (Ethydco) – has been established with a capital of $1.6bn. Investors in Ethydco include ECHEM and Sidpec, which each hold 20% stakes in the firm, Gasco (11%), and several state-owned banks including Bank Misr and National Bank of Egypt. The new company’s production facilities are set to be located adjacent to Sidpec’s site, outside Alexandria.

FOREIGN ENTRANTS: Japan’s Toyo Engineering and state-owned Egyptian engineering company ENPII won the $600m turnkey engineering, construction, procurement and commissioning contract to build a 460,000-tpa ethylene plant for the plant, due to open in 2015; the firm also intends to eventually build a 400,000-tpa PE plant. ECHEM is also planning construction of a dimethyl-ether plant in Alexandria in conjunction with several foreign partners, in a move that could significantly reduce Egyptian reliance on imported liquefied petroleum gas.

In the private sector, another company, Carbon Holding, is planning to build a new $3.7bn petrochemicals and chemicals facility at Ain Sokhna, to be known as the Tahrir Petrochemicals Complex. The plant is scheduled to enter into operations in 2017 and will have a production capacity of 1.3m tpa of ethylene, 1.35m tpa of PE, 600,000 tpa of propylene, 210,000 tpa of butadiene and 420,000 tpa of benzene. The project was initially due to be completed by 2016, but has faced delays of around a year due to a dispute between the firm and one of its contractors. On the funding side, both the US’s Export-Import Bank and the Korea Export-Import Bank have preliminarily agreed to provide financing of $1.4bn and $1.2bn, respectively, to the project, according to reports.

FERTILISERS: Another industry leveraging Egypt’s large gas reserves, as well as significant stores of phosphate rock, is fertiliser production. Overall, activity in this segment is concentrated in the nitrogen and phosphate segments, with comparatively little in the way of potassium-based fertiliser production.

The sector has witnessed vast expansion over the medium term; according to latest available data from the International Fertiliser Association, total production of NPK fertilisers stood at 3.08m tonnes in 2010, up from 1.99m tonnes five years previously. Exports stood at 1.72m tonnes, compared to 885,200 tonnes in 2006. Data from the central bank shows the value of exports rising from $306m in 2006/07 to $1.14bn in 2010/11, before falling back to $854m in 2011/12.

Major players include the state-owned Delta Company for Fertilisers and the privately owned firms Abu Qir Fertilisers Company and Egyptian Fertilisers Company (EFC). EFC, which is owned by Egypt’s largest company Orascom Construction Industries (OCI) and located at Ain Sokhna on the Red Sea Coast, has a granular urea production capacity of 1.3m tpa, as well as 700,000 tpa of anhydrous ammonia capacity.

OCI also owns a majority stake in ammonia producer Egypt Basic Industries, which operates a 700, 000-tpa ammonia complex in Suez that began production in 2009, as well as fertiliser plants in Algeria, the US and the Netherlands (see analysis). Carbon Holdings, which is also active in the petrochemicals segment is reportedly planning a methanol and fertiliser project, though this has faced delays in relation to securing gas feedstock for the plant. Furthermore, the firm is building a 1060-tonne-per-day ammonium nitrate plant at Ain Sokhna, through its affiliate Egyptian Hydrocarbon Company, which is due to come on-line in late 2013. The largest players in the phosphate fertilisers segment are Société Financière et Industrielle d’Egypte, with production of 500,000 tpa, and Suez Fertilisers Company, at 280,000 tpa.

STEEL: Egypt is the largest steel producer in the Arab world and the second largest in Africa, behind South Africa. Crude steel production rose significantly in the course of the first decade of this century, from 2.84m tonnes in 2000 to 6.68m tonnes in 2010, according to data from the World Steel Association. Production has been roughly steady since then, at 6.63m tonnes in 2012. Iron and steel exports stood at $1.15bn in 2011, up from $883m in 2010 according to WTO data. Finished steel consumption stood at around 7.3m tonnes in 2011 and 2012, down from a peak of 8.5m tonnes in 2010. Imports rose by 85% in 2011-12 to 641,000 tonnes, driven by an uptick in purchases from Algeria and Turkey in particular.

PROTECTING PRODUCERS: In November 2012 the Ministry of Industry and Foreign Trade imposed a temporary 200-day, 6.38% tariff on steel rebar imports and a minimum import price of LE299 ($42.5) per tonne to protect domestic producers from cheaper foreign competition. The measure resulted in significant month-on-month falls in steel imports. Local importers launched a legal challenge to the levy; however, courts rejected this in early April 2013.

The largest steel company in the country is Ezz Steel, which has a production capacity of 3.5m tonnes per annum of rebars and 2.3m-tpa capacity of hot-rolled coil steel. However, new investors are entering the sector and production is set to expand significantly as a result. Egyptian Steel, a firm founded in 2010 by Egyptian and Qatari investors, is building an LE1.5bn ($213.5m) steel plant at Beni Souef, due to open in 2014 with a production capacity of 600,000 tpa of rebars and 850,000 tpa of billets, making it the largest such plant in the region. It is also planning a plant in Ain Sokhna with identical rebar and billet production capacities. The firm is aiming to achieve a local market share of between 20% and 25%.

CEMENT: Cement is another important heavy industry in Egypt; the country was the 11th-largest producer of the material in the world in 2011 and the largest producer in the MENA region according to US Geological Survey estimates. Production stood at 46.1m tonnes in 2011/12, according to figures from the Ministry of State for Economic Development, and has been rising steadily in recent years, from 36.9m tonnes in 2006/07 and 43.9m tonnes in 2010/11.

The sector has attracted a large amount of foreign investment over recent years. For example, French company Lafarge acquired Orascom Cement Group and the Egyptian Cement Company in 2008. The resulting firm, Lafarge Cement Egypt (in which Lafarge has a 53.7% interest), has a production capacity of 10m tpa. The company’s sales were down 5% in 2012 as a result of factors including increased production capacity in the domestic market. Other foreign firms in the segment include Mexican company Cemex, which acquired a 90% stake in the previously state-owned Assiut Cement Company in 1999, and Italcementi, the largest shareholder in Suez Cement, which has five cement plants across the country.

CANCELLATIONS & NEW ENTRANTS: However, in one of a number of recent privatisation cancellations by the judiciary, in September 2012 a court annulled Cemex’s acquisition of Assiut Cement Company. Cemex said it would appeal the decision. Also in September 2012, local media reported that an unnamed Turkish company was considering the construction of a cement plant in the Sinai Peninsula. The Egyptian and Qatari investors behind Egyptian Steel have also established a cement-producing company, Egyptian Cement, and plan to build a $250m plant with capacity of between 1.5m and 1.8m tpa.

Early 2013 saw a major rise in cement prices, from around LE550 ($78.3) per tonne at the end of 2012 to over LE800 ($113.8) at the end of March 2013. Producers attributed the increase to higher production costs, and in particular to gas price hikes; energy roughly accounts for between one third and half of production costs. Gas shortages have also led to stoppages at some factories. The authorities have blamed producers for the price rises; in March 2013 the country’s Consumer Protection Agency said it had found evidence that Egyptian cement firms were engaging in price-fixing, and said the body could bring in regulations to force prices down. Hatem Saleh, the former minister of industry and foreign trade, has accused some firms of “unjustifiably” increasing prices.

PHARMACEUTICALS: Pharmaceuticals manufacturing is one of the longest-established industries in the country; the first factory in the sector was set up around 75 years ago. The industry was nationalised in 1956, but private sector participation was permitted again as a result of President Anwar Sadat’s infitah strategy that began in 1981, though a significant share of the industry remained in state hands.

According to Makram Mehany, chairman of the Egyptian Pharmaceutical Association and CEO of local manufacturer Global NAPI Pharmaceuticals, there are currently 130 pharmaceuticals companies in the country; eight of these are publicly owned, eight are local branches of multinationals and the remainder privately-owned Egyptian companies. The potential in both the domestic and export market is significant, which has not gone unnoticed: 50 pharmaceuticals factories are currently under construction throughout the country, Mehany said. “There is a lot of investment at the moment,” he told OBG. “However, with the depreciation of the pound and the low price of pharmaceuticals, the current situation is unlikely to encourage further investment.” Moreover, few of the factories that were under construction at the time of the revolution have opened since, according to Hisham Sarwat Hagar, vice-chairman and CEO of Borg Pharmaceutical, an Alexandria-based manufacturer.

Pharmaceuticals production in the private sector – based on the sales price of the goods produced – stood at LE9.92bn ($1.4bn) in 2010, according to data from the Ministry of Planning, while the output of state-owned firms in 2010 was LE1.97bn ($280.3m). Pharmaceuticals exports stood at $247m in 2011, according to the WTO. This ranked Egypt the secondlargest exporter of the commodity in the Arab world, behind Jordan on $584m, and the third largest in the MENA region, behind Israel and Jordan.

HIGH-TECH GENERICS: The country has a high degree of self-sufficiency in pharmaceuticals production, with imports accounting for around 18% of local consumption, far lower than in many other North African and Middle Eastern markets.

“Imports are largely confined to a few categories of drugs such as life-saving products, oncology, insulin and biotech products,” said Mehany. Hagar told OBG he believed that the production of high-tech generics such as genetic and bio-engineering products is a particularly good opportunity for multinationals in Egypt due to the current lack of competition.

However, Hagar said that the segment’s development was being held up by the current lack of guidelines to establish bio-similarity, though he added that the authorities are working on the issue. By some estimates, approximately 55% of local production by value consists of the production of branded generics, while the remaining 45% comprises production by multinationals and of drugs under licence. The branded generics segment is growing faster, he said, and could reach 60% of production by value within two or three years. “Licensors are not interested in investing in many products, whereas generics production can expand more easily,” Hagar told OBG.

With regard to consumption, Mehany told OBG that Egypt is the fastest-growing pharmaceuticals market in the region, adding that he believed such growth is likely to continue in coming years. The value of domestic consumption stands at around LE3.5bn ($498m) and sales grew five-fold between 1995 and 2010, according to the organisers of the EgyptPharm exhibition. Mehany identified three main growth areas, namely oncology, liver disease and urinary tract products, due to factors such as growing and/or high rates of cancer, hepatitis C and kidney problems.

PRICING: Pricing represents one of the main challenges for Egyptian pharmaceuticals producers and suppliers. The cost of drugs is set by the government and has not been changed for years, while costs for producers are continuously rising. “The proportion of products beings sold for less than their production costs is around 22% and is increasing every year, as manufacturing costs are rising while prices remain fixed. If nothing changes, product availability will be affected,” said Mehany. Exports are also handicapped by low prices as many of the countries to which Egyptian firms sell pharmaceuticals base the pricing of imported drugs on the price for which the drug is sold in the country in which it is manufactured, often making exports unviable when factoring in the higher cost of selling and marketing abroad.

The industry is currently in discussion with the government regarding possible changes in the pricing regime; producers are seeking a new system that would take into account factors such as changes in costs and in the exchange rate (which affects the costs of inputs, which are largely imported). Despite the challenges the industry is currently facing, Mehany is optimistic about the sector’s development in the medium term. “In five years’ time I expect at least 20 more firms to be operating in the sector, more alliances with multinational firms and major improvements as regards regulation and pricing.”

AUTOMOTIVE SECTOR: Egypt is home to one of the region’s most productive automotive manufacturing and assembly sectors, with production that traditionally outstrips most regional competitors. However, due in part to a drop in domestic consumption, which represents a sizeable portion of demand, the automotive sector has been struggling since the Arab Spring. Pending changes in Egypt’s trade regime may bring about a positive shift in the country’s position within global supply chains going forward.

Vehicle production stood at 56,480 in 2012, consisting of 36,880 cars and 19,600 commercial vehicles, according to the International Organisation of Motor Vehicle Manufacturers. This represented a fall of 30.9% on 2011 figures, which were in turn down 30% on 2010 (from 116,683), pushing the country into third place among African car manufacturers behind South Africa and Morocco. Nevertheless, revenue and profits at the country’s largest car assembler and distributor Ghabbour Auto rose 11.8% and 21.1%, respectively, year-on-year in 2012, to LE8.3bn ($1.2bn) and LE1.1bn ($156m). Passenger cars earned LE6bn ($853.8m) of the firm’s 2012 revenues, while some LE12bn ($1.7bn) came from its motorcycle division, LE466m ($66.3m) from commercial vehicles and construction equipment and LE290m ($41.3m) from tyres.

The low-end of the market is performing particularly well. “We have seen record sales for two-wheelers already in 2013 that are almost one and a half times to what they were in January 2012,” Raouf Ghabbour, chairman and CEO of Ghabbour Auto, told OBG.

RE-THINK: Changes under Egypt’s trade regime may bring about a re-think in terms of future investment by car manufacturers. Planned reductions in duties under the country’s association agreement with the EU may reduce incentives for local production by European firms. “By 2014 we will step completely out of manufacturing and assembling vehicles as import tariffs will come down to a level that local production will no longer be necessary,” said Philipp Hagenburger, CEO of Mercedes-Benz Egypt, explaining that the firm intends to sell its stake in a local assembler. However, he told OBG that low costs in the country provide it with advantages in some areas. “Egypt has clear potential for manufacturing spare parts and supplying the wider automotive supply chain, because this segment is both labour- and energy-intensive.”

REVOLUTIONARY CHALLENGES: Prior to 2011, growth in the manufacturing sector had been significantly faster than rates seen since the unrest started; in the five previous years, annual sector GDP growth averaged 6%, peaking at 8% in 2007/08 and increasing at a still strong 5.1% in 2009/10, the last full financial year before the revolution. As the figures suggest, the instability that followed the revolution has had important consequences for industry.

According to a report by the Centre for Trade Union and Worker services cited by Reuters in late February 2013, more than 4500 factories have closed down since the revolution. Issues that have emerged or worsened since 2011 include labour unrest, more problematic distribution and a deterioration in the security environment, especially with regards to truck cargoes on remote roads, underlined by an 83% spike in inland transport insurance payouts in 2011/12.

Labour unrest has also had an impact on supporting infrastructure. “A bigger problem than the security issue is strikes at ports,” said Mohamed Kamal, export manager and board member of the Alexandria-based Cold Alex for Food Processing. “In 2011, for example, we had to throw away three containers we were sending to Italy that got stuck because of a strike, and we also lost the client as a result.”

However, while such problems are real, industrialists stress that they should not be exaggerated, and that more prosaic issues such as muted demand in export markets are often of equal or greater importance. “The financial problems in Italy and Spain, and to a lesser extent France, have had more of an impact than the fallout from the revolution,” said Kamal.

FINANCIAL CHALLENGES: As with many emerging markets throughout the region, access to credit is an issue for Egyptian industry. “High inflation has led to high interest rates, which in turn make financing expensive. In addition, Egyptian banks tend to prefer to invest in Treasury bills, which have better interest rates, and at the moment banks are barely lending at all,” Hoda Selim, an economist at the Economic Research Forum, told OBG. “Most firms, therefore, rely on self-financing, not bank financing.”

The depreciation of the Egyptian pound in the months leading up to the ouster of President Mohammed Morsi in July 2013 has also negatively affected companies dependent on imported raw materials. As of May 2013, the pound had lost around 12% of its value since September 2012, hitting a record low against the dollar in late April, although aid from Gulf states and policy measures by the central bank has allowed the currency to start to appreciate since the summer. The fall in currency over the first half of the year has helped to boost some exports, but Selim told OBG she was sceptical that devaluation would support exports overall, given the downturns in major export markets and the reliance of many export-oriented industries on imported raw materials.

RISING COSTS: Given the relatively low cost of production in Egypt, the erosion in price advantages has been a concern, although the country still remains one of the most advantageous in the region for most inputs. Speaking to OBG in March 2013, Hany El Menshawy, CEO of seafood appetiser producer Summer Moon, said water costs had risen around 100% over the previous month and that the price of electricity had gone up 150%. The cost of natural gas sold to most industrial customers outside of the petrochemicals sector had also risen from $3 to $4 per mmBtu.

Firms are already preparing for the price increases. “Utilities, transportation and energy costs are going to hit us hard,” Manish Mehra, CEO of Scib Paints, told OBG. “We are looking at bringing in electricity generators to prepare for the electricity deficit that is expected to hit the country, but that has another issue, which is the availability of diesel.”

Nevertheless, despite the increases, costs remain manageable. “The cost of electricity in Egypt is around 0.4 cents/KWh, which is still competitive in comparison with other countries,” said Erdoğan Çakır, chief financial officer at Alexandria Tyre Company.

The cost of labour has been rising quickly since the revolution. “Labour costs are continuously increasing, with frequent industrial actions throughout the manufacturing sector,” Ahmed Hafez, the chairman and managing director at plumbing fixtures firm Ideal Standard International, told OBG. However, despite this, the country still remains highly competitive in terms of staffing, particularly for a Mediterranean country.

FUEL SHORTAGES: Another related challenge affecting industry in spring 2013 was a shortage of fuel, in particular benzene and diesel, which is known locally as “solar”, and is the most heavily consumed fuel in the country. “We don’t have any problems with energy cuts, but the diesel shortage is affecting us a lot. We have trucks sit at petrol stations waiting to get gas and we cannot keep with the demand and deliveries of our customers,” Tor Hatlo-Johansen, managing director at paint company Jotun, told OBG.

Indeed, markets throughout MENA have grappled with balancing affordable fuel with adequate supply in recent years, and Egypt is no exception. The country has witnessed disruptions to supply both in 2012 and 2013, due in part to limited foreign currency reserves to pay for imports, but also the high cost of current subsidy levels. “The shortages have led to a doubling in trucking prices, as drivers often spend around half their time queuing for fuel instead of driving,” said Kamal. However, speaking in late March 2013, he said the situation was improving.

“The problems regarding solar are related to the current shortage in the availability of US dollars,” said Çakır, citing the prospective loan deal with the IMF as a solution to this issue. As of September 2013, negotiations with the IMF had been put on hold because of the ongoing political transition, but the country was receiving increased infusions of cash from regional partners, including Saudi Arabia, the UAE and Kuwait, which supported fuel purchases. As a result, fuel stocks were temporarily boosted in the immediate aftermath of the ouster of President Morsi, but supplies tightened again shortly thereafter, with queues at filling stations and a wave of electricity stoppages in mid-September, according to local press reports.

In April 2013 Osama Kamal, the former minister of petroleum and mineral resources, said the government intended to remove fuel subsidies entirely within three to five years. In the meantime, the government plans to ration subsidised solar via the use of smartcards, though the details of this system have yet to be agreed. Providing the shortage of hard currency is resolved sustainably, these moves would likely resolve the fuel supply problem, albeit at the cost of higher prices for consumers. Previous efforts to reign in fuel subsidies faltered due to their political sensitivity.

HUMAN RESOURCES & TRAINING: The manufacturing sector employed 2.29m people in 2011, or 9.8% of the workforce. Despite the country’s high levels of unemployment and poverty, some manufacturers said that finding suitable staff could nevertheless be a challenge for industry. “In October 2012 Summer Moon held a job fair to recruit 1200 blue-collar workers; however most of the applicants we received were graduates looking for white-collar roles,” El Menshawy told OBG. Furthermore, transporting workers to industrial zones can also be challenging (see analysis).

UNREST: As previously mentioned, labour unrest has emerged as a serious issue in Egypt, in particular since the revolution, though industrial unrest had been building in previous years, most famously in 2008, which saw major strike action focused on the Mir Spinning and Weaving Company in Mahalla.

As of early 2013, some observers put the number of strikes since the revolution at more than 3000. In addition to strikes at factories, several ports have seen outbreaks of labour unrest such as a 16-day work stoppage at Ain Sukhna in February 2013, which disrupted international trade. A more recent example of industrial action saw workers at Suez Steel down tools for around a month in July and August.

While there are multiple factors behind this, Medhat El Madany, CEO of organisational development and human resources consultancy ProMark and president of the Egyptian Human Resource Management Association, told OBG these actions were partly a result of the lack of a management focus on labour relations in most firms. “Industrial and labour relations positions are absent in most companies; those functions are necessary to prevent or reduce labour unrest,” El Madany said. A key component in overcoming this, and indeed boosting both job creation and economic mobility in general, has been providing adequate training for employees. Key government institutions in the industrial training segment include the Industrial Training Council (ITC), which is responsible for all vocational training run by the Ministry of Industry.

Public-private training initiatives include the Integrated Technical Education Cluster in Ameeria, Cairo, which was launched in 2011 by the government and UK firm Edexcel and which is intended to be the first of 10 training institutes. However, El Madany, who is a former executive board member of the ITC, said that the segment is characterised by a proliferation of players and the lack of an overall umbrella body.

“There is also a shortage of trainers, who are not paid well,” he told OBG. Despite this, he described the country’s National Skills Standards Programme, which covers a wide variety of trades and is accredited by the Scottish Qualifications Authority, as “fantastic”. The system was established in the early 2000s and taken over by the ITC in 2007.

REGULATORY ISSUES: A longer-standing challenge for industrial firms is red tape, some industrialists say. “The biggest issue at the moment is obtaining and renewing operating licences,” said El Menshawy. “It is extremely hard to receive a long-term or permanent licence – only three or four companies in the Borg El Arab Industrial Zone in Alexandria have one, for example – and the yearly operating licences that most companies have can take four or five months to renew.” Speaking to OBG in March 2013, he said that the government had agreed to make five-year licences available, but a decree to this effect has not been issued.

OUTLOOK: Key sectors of heavy industry such as fertiliser, petrochemicals and cement are set to see significant capacity increases in coming years, and Egypt is also set to take a major step towards developing significant electronics manufacturing and export capacity (see analysis). Yet the outlook for industrial performance will depend on economic growth in Egypt and in key export markets, like Europe, as well as the extent to which Egypt can resolve recent challenges like fuel shortages, insecurity and labour unrest.