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Mohamed Nada • 2017 IFPRI Egypt Seminar Series: Unleashing Untapped Potential of Industrial Clusters in Egypt


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As part of IFPRI Egypt Seminar in partnership with the Egyptian Center for Economic Studies: "Unleashing Untapped Potential of Industrial Clusters in Egypt"

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Mohamed Nada • 2017 IFPRI Egypt Seminar Series: Unleashing Untapped Potential of Industrial Clusters in Egypt

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  2. 2. Program Description ✓The five-year UELDP PforR, US$ 500 million was requested by the GoE in September 2015 ✓The Program Development Objective is to improve the business environment for private sector development and strengthen local government capacity for quality infrastructure and service delivery in select governorates in Upper Egypt. ✓The Program Geographic Focus is Qena and Sohag, selected by the Government of Egypt based on a clear set of selection criteria that included population size, poverty rates, geographic contiguity, economic potential, access to basic services, and governorate readiness. Lessons learned from the UELDP in Qena and Sohag could be leveraged for scaling up the impact of the Program. ✓The Anticipated Results include: • Improvement in business environment at the governorate level • Infrastructure and service performance improvement targets met • Increased investment and private sector jobs created • Citizens and businesses benefiting from improved access to quality infrastructure and services • Citizens and businesses expressing satisfaction with quality of infrastructure and services provided 2
  3. 3. Program Components Sub Program 1 Improving the Business Environment and Competitiveness Enhance the business climate and competitiveness by: (i) Improving government to business services; (ii) Improving competitiveness of economic sectors; (iii) Improving IZs management and services. 3 Sub Program 2 Improving Access to Quality Infrastructure and Services Improve infrastructure and service delivery by: (i) Introducing a performance based block grant system; (ii) Increasing budget and decision making authorities. Cross Cutting Element (Citizen engagement) Strengthen credibility of subnational institutions, enhance government accountability, restore citizens’ confidence by: (i) the introduction of participatory planning for sub-national investments, (ii) creation of a complaints handling to address grievances (iii) integration of beneficiary feedback, and (iv) promotion of transparency through increased access to information.
  4. 4. Economic Activity, Resources, & Markets 4 0.4% 0.8% 5.2% 4.2% Sohag Qena Qena and Sohag lag in contribution to Egypt GDP % GVA % population Small-scale enterprise with high informality and relatively low productivity 0 10 20 30 40 50 60 70 Egypt Sohag Qena % employment Agriculture and Construction dominate employment outside public sector Agriculture Services Manuf. & Mining Public Admin, defense, social services Construction Egypt Sohag Qena Private ent. 2013 2.41 mil 75,885 125,674 Private ≥5 wrkrs 255404 1821 2890 % Private ≥5 wrkrs 11%) 2% 2% PS wage workers 5 mil 65k 88k % Non-wage wrkrs 35% 59% 63% Mfg. labor prod. $4940/wrkr $3483/ worker Sohag Qena University Graduates (2013/2014) 3,300 3,000 Vocational Training Centers 23 29 VTC graduates (annual) 1500 Untapped Labor Force Supply
  5. 5. Local and Proximate Markets 5 - 1 2 3 4 5 2012 2013 2014 USDBillions Egypt's Exports to GCC are growing, declining in East/ Southern Africa GCC East and Southern Africa • Local consumer market: large population of more than 7.7 million but with limited purchasing power – over 50% poverty rate • Link to Golden Δ developments: - Feeder of goods and services to Red Sea tourism (also Luxor/ Aswan tourism) - Potential gateway to GCC and African markets (depends on Red Sea ports)
  6. 6. Key Economic Sectors and Opportunities Build on a strategy of resource seeking or proximate market seeking investments (not efficiency seeking like component manufacturing, etc.) Potential for employment and poverty impact (including rural employment and female-headed households) Opportunistic: limited opportunities, so need to be flexible and responsive
  7. 7. Illustrative sector development challenges / opportunities (1) 7 Sub-Sector Opportunities Challenges Private Investment & Public Action/ investment Minerals (marble, granite, etc.) - Golden Triangle and New Valley resources - Sha’ El-thiban may be nearing capacity - Construction market in Q&S - Road connectivity between source and destination (minimum travel distance) - 30% of cost is transport - 90% processing in Sha’El-thiban - Space/water/energy intensive Private: - Slab and tile cutting factories - Custom fabrication Public: - Mining development - Stone fabrication technology center - Container port at Safaga - Roads improvement Wood furniture - Growing housing market / population - 40k workers - Supply UE market - Tahta proximity to Safaga port for KSA - Large construction market in Q&S - “Green” furniture using Tahta sorghum waste pressed panels - Working informally - Building cost - Cannot afford ‘down-time’ - Wood cost 10% > Domiat - 80% of machinery, tool, accessories from Domiat - Transport costs - Lacking design skills Private: - Painting chamber (shared asset) Public: - SME shell facilities (at Tahta, possibly Qeft) - Market linkages programs - Productivity improvement services to SMEs - Technology and Training center (CNC, Autocad and painting)
  8. 8. Illustrative sector development challenges / opportunities (2) 8 Sub-Sector Opportunities Challenges Private Investment & Public Action/ investment Processed tomatoes -Egypt 5th in world production of tomatoes (processed only 3% of production) - Longer season - Export ~ $46 mil (Saudi, UAE, Sudan, Morocco, Italy, Austria) - Lower farm productivity - Lower conversion efficiency - Not fully utilizing UE off-season potential - Unstable fresh production/prices Private: - Packing houses (fresh) - Processing plant (paste) - Sun-drying and packing facilities Public: - Agricultural roads - Agri extension services (SPSS) - Export market development - Link Qena & Sohag off-season producers to processors - Agri research (seed varieties) - Link small-scale producers to access to finance (SFD) Dehydrated onions - Export ~ $37 mil (Germany, Netherlands, Hungary, Japan UK) - 14% fresh onions produce in Sohag - Aroma & flavor - Lower farm productivity - Varieties produce low Total Soluble Solids (TSS) - Unstable fresh production/prices -Water intensive (cleaning / removing sugars) Private: - Processing plant - Logistics centers Public: - Agricultural roads - Agri extension services (SPSS) - Export market development - Rural collection/ dry storage facilities - Agri research (seed varieties)
  9. 9. Illustrative sector development challenges / opportunities (3) 9 Sub-Sector Opportunities Challenges Private Investment & Public Action/ investment Call center and outsourcing - Call centers in Cairo area facing cost/ attrition challenges - Lower wages and attrition in UE - Female employment - Untested in foreign languages - Telecom infrastructure - Access to commercial space Private: Call center investments (building, equipping) and training Public: - Language training for university graduates - Telecom infrastructure - Providing commercial space - National-level action on telecom agreements to access Arab market Solar Energy Solar energy generation sites: - Climate/sun - Land availability - Proximity to Aswan - Feed-in tariff - Anchor investor for solar panels - Lack local feeding industries - Level of land preparation - Proximity to Transmission Station / Grid Private: Solar energy generation investments SME metal fabrication shops, packaging material producers, service providers Public: - Designation of additional solar energy generation sites and site preparation - SME shell facilities in Qeft Handicraft (textiles) - Growing ‘brand’ -Export markets being developed - Female employment - Dependence on tourism - Weak market links - Thread imported - Low daily earnings - Lack design innovation Private: Exporter/ distribution Public: - Market access program - Design lab for designs and natural dyes
  10. 10. Initial Cluster Focus • The Program aims to launch and implement at least 5 clusters per Governorate • Based on initial assessments data, consultations, and selection criteria (size, potential impact, readiness, and ease of implementation) the following are the likely focus in the first year* of the program: • Qena: • Handicrafts • Agricultural Waste (Sugar Cane) • Solar Cluster (packaging material, foam, boxes, aluminum frames) • Sohag: • Furniture Cluster (West Tahta) • Agricultural Waste (Sorghum / Wood) • Handicrafts * Note: Initial working groups are being developed, and likely to evolve in the coming year based on commitment and as cluster needs are further defined. 10
  11. 11. IZs Gaps, Challenges and Opportunities • Survey of 100 tenants in 6 industrial zones revealed majority of tenants reporting deficiencies in several IZs for power, water, sanitation, and roads. • Total IZ infrastructure needs estimated at EGP 260m for current targets and EGP 600 million for all future plans, but decisions needed on IZ investment priorities should be linked to demand and sector priorities. • Industrial Zones are not actively managed and promoted: limited resources allocated to maintaining, managing, promoting IZs. • Completing the land allocation, licensing, and permitting process can take years. • Priority is to modernize, and where possible privatize IZ governance and management. El-Hew IZ Qeft IZ & FZ El-Kawthar IZ Gerga West IZ Tahta West IZ Al-Ahaywa IZ
  12. 12. 12 Kawthar West Tahta West Gerga Ahaywa Hew Qeft # Under Constr. 129 108 76 53 21 48 # Operational 151 53 41 12 27 6 Size (acres) 500 912 1,086 250 570 500 %offirmsindicatingpoorinfrastructure negativelyimpactoperations: Power: 50% 63.6% 80% 90.9% 91.7% 55.6% Wattage Outages Outages Sanitation: 29.4% 100% 53.3% 100% 67% 33.3% Water: 52.9% 45.5% 93.3% 90.9% 83.3% 33.3% Insufficient + Quality Outages Outages Telecom: 29.4% 100% 46.7% 81.8% 100% 44.4% No landline / Poor Coverage No landline / Poor Coverage No landline / Poor Coverage Roads: 17.7% 85.7% 60% 90.9% 50% 66.7% Unpaved Unpaved Other: -Gas Supply - Onsite facilitation - On site lending - Gas Supply - Public Transport - On site lending - Public Trans - On site lending - Fuel Station - Gas Supply - Fuel Station, Fire equip, - Onsite facilitation - Public Trans - Catering - Mechanics - Onsite facilitation - Public Trans - Catering IZs Gaps, Challenges and Opportunities
  13. 13. IZ Component • Industrial Zone Management Framework (IZMF), which defines the functions for IZ development, management, and promotion, and the service standards, resources, and responsibilities for each of those functions. • Plans for industrial zone upgrading, including investment and maintenance needs for each IZ based on tenant needs. • Link to sub-program 2 Improving Access to Quality Infrastructure and Services • Link to cluster competitiveness initiatives (i.e. development of SME complexes for furniture cluster) 13
  14. 14. Linking IZ to Cluster Initiatives: Wood & Furniture Cluster (Illustration)
  15. 15. Thank You 15