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UNCERTAIN FUTURE FOR IMP FUNDING
BY REHAB EL BAKRY
After finally getting its footing, the Industrial Modernization Program (IMP) is about to lose its biggest benefactor, the European Union. EU funding for the £E 426 million program, part of a four-year bilateral agreement, officially came to an end last month, though surplus funds have been allocated to the program’s budget for the next two years.
The IMP was launched in 2002 with the aim of supporting the modernization of Egyptian industry through its implementing arm, the Industrial Modernization Center (IMC). After struggling for several years to find its footing, the program managed to successfully engage local industry and other stakeholders during the last two years. “When [the IMP] first started off, it was a very ambitious program that was to launch the process by which Egyptian industry would [integrate] into the world economy, and upgrade its competitiveness and capabilities both domestically and internationally,” explains Helmy Abouleish, who was appointed as the IMC’s executive director in June 2005. The problem, as he sees it, was that the IMP was so overly ambitious and exacting that it became difficult to implement its individual components to give industry the helping hand it needed.
The EU allocated d250 million to the IMP, while the Egyptian government earmarked d103 million and the private sector contributed d73 million. Yet by the end of the program’s first year in 2003, less than d33 million had been disbursed. Unable to smooth the traditionally suspicious relationship between government and industry, the program seemed to hit a brick wall.
“For the first year, the IMC hardly disbursed any of the money because there was the desire to ensure that the money was allocated and used correctly by industry,” explains Abouleish. “On the other hand, industry saw the attempt by the IMC to monitor the usage of the money as an attempt to interfere in the way they run their business. Ultimately, neither side seemed to find common starting ground to begin communicating and thus the program remained at a standstill for some time.”
The sheer size of the program, the largest ever carried out by the EU outside its member countries, meant that even the smallest hitch could throw a wrench in the machine. “The problem with the program was the fact that it was designed to be so flexible in terms of the initiatives it could cover because of our complete understanding that industrial modernization is a diverse and long-term endeavor,” says Georgios Tsitsopoulous, head of operations at the EU Commission in Cairo. “At the same time, the initiatives were not all necessarily designed to meet the needs of industry. This was another problem.”
Ownership was a major stumbling block, he admits. The EU, Egyptian government, industry and those designing and managing the IMP all had very different visions of what the program was out to achieve and how. “The problem with the situation was the fact that you had competing visions that were in a tug-of-war, for lack of a better analogy,” Tsitsopoulous explains. “This meant that too many parties were trying to implement too many visions that sometimes coincided, but many times contradicted one another. So things were at a standstill.”
The appointment of the Nazif government in mid-2004 heralded a marked change in the relationship between the government and industry. Under the proactive Ministry of Trade & Industry (MTI), headed by Rachid Mohamed Rachid, the rusted machinery of the IMC – now headed by Abouleish – began to turn. Within months, the MTI launched a series of initiatives to upgrade the performance and competitiveness of Egyptian industry, turning the IMC into a mechanism to fund these initiatives. “There is little doubt that the change in the management of the IMC, the overall shift in the government policies to encourage private sector growth and participation, and an overall restructuring of the program itself were all very instrumental factors in overall upturn in the program,” explains Tsitsopoulous.
Fundamental to this transformation was the government’s newfound willingness to approach industry and accept their input in the program, rather than develop initiatives that may not necessarily be what industry needs, argues Hany Barakat, first undersecretary of the MTI. “This was the first step in building a cooperative relationship with industry and changing the adversarial nature of the relationship,” he says. “This change in our approach has been one of the keys that has helped build up the role of the IMP and the IMC as tools to support industry.”
Barakat says the MTI made a strategic decision to “bring the IMP and IMC on board as full partners.” The ministry also sought cooperation with the Federation of Egyptian Industries (FEI) and the various industrial chambers, requesting their input and partnership in implementing the IMC’s programs. “This resulted in what I am convinced is the best result of this whole transformation: the transformation of the minds and attitudes of industries,” he says.
The IMC began by collaborating with the FEI to develop a set of principles that all recipients of the program’s aid would have to adhere to. These included a commitment to the application of the services, the proper allocation of money provided, as well as a dedication to employ a holistic approach towards improving both their industry and the lives of their employees.
To date, the IMC has dispersed d166 million of its d426 million budget to establish a variety of services. But it’s not just about the amount; what is important is the value of the programs, which range from human resources training programs for workers to international competitiveness initiatives to sector-specific initiatives. In most cases, the beneficiaries of these programs cover 15-20 percent of the costs as a way of ensuring their commitment to them.
While EU-funding officially came to an end last month, EU officials have agreed to put the remaining d260 million of undisbursed funds into the IMC’s future budget. This was done, says Tsitsopoulous, by restructuring the program to allow for a lump sum to be allocated for budgetary planning.
“This means that these funds will be available to the IMC to continue the programs that it has already launched over the past few months, as well as initiate new ones in order to support industrial development in Egypt,” explains Abouleish. “For our part, we’ll start fundraising in order to secure even more funding for even more programs.”
Abouleish says the IMC will approach the Egyptian government and various international donor agencies. He is confident the program will have no difficulty securing funds. “The way that we see it, we have strong cooperation with all the strategic industrial players as well as a very strong system to ensure that all the funds are appropriately used for the purposes for which they were allocated by the IMC. If we continue to meet our targets and the industrial growth continues, then there should be no reason why these agencies do not provide us with funding,” he says.
Should the IMC fail to secure funding, the program can still fall back on the d260 million euros in its budget, which Abouleish says is sufficient to sustain the IMC’s current initiatives for the coming two years. But this could sap the program’s momentum.
Tsitsopoulous says it is unlikely that the IMC would fail to secure funding, especially in light of the fact that the programs recently developed by the center have been particularly effective. “Even the EU would be willing to fund some of the components simply because we feel that the IMP is our child and that it is ready to make it on its own,” he says. “If it needs a bit of support or guidance along the way, there is no problem with us, as a parent, to lend it a helping hand.”
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KEY IMC INITIATIVES
National Supplier Development Program (NSDP): designed in cooperation with industry stakeholders, the NSDP aims to bring the quality of products made by medium-sized suppliers to the international standards required by multinational companies (MNCs). Under the program, each of Egypt’s 100 largest companies and MNCs can nominate between five and 20 of its medium-sized suppliers to receive £E 1 million in assistance from the IMC. How this assistance is put to use is up to the MNC, which helps IMC consultants identify ways to streamline production facilities, design the needed quality upgrades and oversee their implementation.
Once the supplier achieves the target quality level, the MNC must then support its exports of this product to the MNC’s other branches around the world.
QIZ Leveraging Program: designed to upgrade the ability of 350 companies that are already registered under the qualifying industrial zones (QIZ) agreement but have not succeeded in effectively boosting their exports. The IMC provides consultants that identify areas that need strengthening, train factory workers, offer design training in the case of garment makers and assist with marketing. Beneficiaries of this support are better able to produce high-quality products able to meet the QIZ agreement’s specific content requirements to gain duty-free access to lucrative US markets.
Computer for Every Factory Program: expected to launch before the end of the year, this IMC program will provide companies with IT consultation aimed at improving their utilization of IT resources so as to improve the overall performance of their factories. It will also facilitate funding to allow smaller factories to purchase computers.
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