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MANUFACTURING CONTENT
BY REHAB EL- BAKRY
Amr Assal was appointed Chairman of the Industrial Development Authority (IDA) in February. The new agency has the formidable task of identifying a strategy to bolster Egypt's industrial sector.
Assal thinks creating a leaner, more efficient administration is a good place to start. And what will that require? Try a heavy dose of logistical acumen.
Having experienced first-hand the cyclical nature of economics, Amr Assal thoroughly understands the ups and downs of business and industry. A graduate of Cairo University’s Faculty of Engineering, Assal spent several years working as an engineer before opening his own contracting firm to tap into the construction boom of the early 1980s. By the end of the decade, he had built a reputation as the point man for niche projects such as the renovation of Port Said’s historic museum and historic government buildings.
But when the building recession hit in the early 1990s, Assal realized the market wasn’t strong enough to keep his firm afloat, so decided to join a more established company. He liquidated his business and joined the Dreamland project in 1992. The $3 billion project, which envisioned the creation of a multipurpose community replete with housing, hotels, a golf course and an amusement park on the outskirts of Cairo, was the first of its kind in Egypt. “It was very much a learning curve for me,” he admits. “I was involved in the planning for the project as well as the business plans and the development plans.”
Dreamland captured the country’s imagination, but by 2000 – with only 55 percent of the project completed – the company behind it fell on hard times. Once again, Assal decided to change course. This time he established a project management company that appraised and managed development projects in Egypt, Sudan, Algeria and Lebanon.
In early 2006, he was tapped by Minister of Trade and Industry Rachid Mohamed Rachid to head up the newly formed Industrial Development Authority (IDA). The authority has a variety of responsibilities from overseeing the trade ministry’s industrial development strategy and securing land for industrial projects, to developing existing and newly created industrial zones, to enhancing the industrial environment and researching the industrial capacity of various geographic divisions and sectors.
Assal says the importance of this role cannot be underestimated. “Industrial growth is... the driving force that will change the economy [and] move every single sector in Egypt,” he says. “Our goal is to make Egypt one of the key players of industry in the region by 2011 and to be a leading industrial country by 2025.” Appropriately, Assal’s team has created a five-year plan to 2011 and a long-term plan until 2025.
Assal has set several ambitious benchmarks to measure success. He would like industrial revenue to increase from 4 percent to 9 percent of economic growth by 2011. He also aims to fulfill the government’s target of creating 1.5 million new jobs per year, then raise that target to 3.9 million jobs per year. Finally, he wants to use industrial development to raise total investment from £E 22.5 billion in 2005 to £E 175 billion by 2011, while raising exports from £E 18 billion to £E 42 billion by 2011. “These are the facts that we are dealing with,” Assal says. “IDA will simply help to facilitate making these numbers a reality.”
To do that, the IDA will need to remove the obstacles to industrial investment and factory operation and allocate for industrial use 50 million square meters of industrial land in the next five years. Assal believes it is feasible. This year, the authority has set aside over 4 million square meters of land for 520 new projects, almost halfway to its annual target of 10 million square meters.
The IDA has chosen the development of Egypt’s industrial zones as one of its first initiatives. The goal is to bring existing zones up to international standards and to establish new ones.
All 86 of Egypt’s existing industrial zones are managed by various government bodies, including the General Authority for Investment & Free Zones (GAFI), governorates and new community authorities. “Our mission is to assist, to evaluate, and to put into place new plans for raising the capacity of existing industrial zones and spend whatever is necessary to upgrade them,” Assal explains.
He expects complete studies of each zone within three months, which will help assess how and where to invest capital. He estimates that £E 1.6 billion over three years will be allocated to bring the zones up to international standards in terms of infrastructure and access to telecommunications networks.
The IDA has also secured land for six new industrial zones, which will be earmarked for various uses and sectors. One of them is on 600,000 square meters in Damietta and another is on 220,000 square meters in Mahalla. In addition, the authority will develop 250,000 square meters in Borg Al Arab, where there is an industrial zone that has not been properly utilized. Over the past three months, the IDA has made agreements with companies from Italy, India and the US to build factories in the zone once it is upgraded, pouring $25 million in investments into Egypt in the process.
The IDA is also working on a public-private partnership (PPP) to develop new zones linking governments and domestic or international private developers. At the moment, negotiations are almost complete for three different projects. The first is with the government of Qatar and a Singapore firm to develop an undisclosed 2,000-acre site, while the other two are with Turkish consortiums to develop industrial zones near Borg Al Arab. The authority is also in the early stages of negotiating with a Turkish exporter association to develop two zones of over 1.7 million square meters in Borg Al Arab for export-oriented garment manufacture. The investment would be worth £E 2 billion.
These negotiations are simply the first step, says Assal. In July, Egypt will invite 20 key international players in industrial development to a workshop where the authority will present its plans for the upcoming year and respond to investor concerns. “This is very important because it will allow us to clearly share our plans, but it will also allow us to know what investors are looking for. This way we are all working on the same page.”
And that’s important. One of the biggest impediments to implementing visionary policies in Egypt has always been the poor level of cooperation between various government bodies, which often view their roles as competitory and put up administrative obstacles to prevent other government bodies from success perceived to come at their expense. Assal says he was surprised to find none of that since taking the post. In fact, almost every government body he has dealt with has shown a high level of cooperation. He attributes this to the fact that ministers in the current cabinet view industrial development as the key to the country’s economic growth and that governorates are spurred on by a sense of “investment envy,” because each one is aware that industry is critical to creating jobs in their districts.
The spirit of cooperation has facilitated the IDA’s efforts to address issues hindering investment, including legal and bureaucratic hurdles that Assal believes reduce Egypt’s ability to lure foreign capital as industries move from Europe and the US to countries with lower production costs. “I believe that Egypt has the potential to become the most important industrial country in the region,” Assal says. “We have the location, the weather, human resources, [cost effective] power and energy.”
Assal points to Egypt’s favorable labor and energy costs. When compared to Turkey – a country of roughly equal population size and one of the region’s hottest destinations for migrating industry – Egypt stacks up nicely. The average monthly salary of an Egyptian laborer is $80 a month, he says, versus $800 in Turkey, and even higher in Europe. Energy costs average $0.02 or $0.03 per kilowatt versus $0.09 and $0.10 in Turkey. “That’s why Egypt is considered one of the attractive places for investment in the upcoming 20 years,” he says. “What we lack now is systems and procedures. The IDA’s mission is to facilitate this objective.”
To do this, the IDA has sought to reform obsolete laws, some over 60 years old, that hinder investment. In cooperation with other government agencies, the IDA is also trying to streamline the process involved in issuing industrial licenses so that regulations and procedures are identical regardless of where investment takes place.
Assal says investors can now build on over 65 percent of their land, rather than 50 percent, which creates room for factory expansion and can reduce capital costs by as much as 30 percent. The IDA also extended terms of payment for the purchase of industrial land from four to 10 years and reduced the minimum payment from 25 percent to 10 percent of its value, with the grace period extended from one to three years. The new terms could save investors up to 40 percent of their capital costs.
“This was done in three months with the support of the housing ministry, the investment ministry and the government,” according to Assal.
In that time, the IDA has also facilitated other changes designed to make investors’ lives easier, including modifying a regulation that halted licensing procedures if an investor was facing difficulty securing funding. “If they are having problems or need time until they can secure the funding, we don’t freeze the licensing procedures,” Assal says. Under the new policy, “we will continue with the procedures so that the investor is ready to go as soon as the money is secured.”
Perhaps the biggest change the IDA has tackled so far is unifying the country’s investment regulations. Egypt did not have uniform regulations, according to Assal, who said the authority is creating a single set of rules and regulations that are valid in every governorate and district nationwide.
It has also streamlined licensing procedures. Before the IDA, an authority had to approve the investor’s product itself then another authority had to approve the land. The IDA merged this process so that it only requires one approval, reducing the time it takes to receive government approval from 90 to 15 days.
Similarly, the IDA has simplified registration and approval of industrial licenses. Before, investors had to make separate trips to the locality in which the factory was to be built and then to the IDA to register the factory and make the payment. Today, this can be done in one step, insists Assal. Investors go to the locality to apply for the registration and make one payment. The locality gives the investor the operational license and notifies the IDA internally, which then sends inspectors. Following a successful inspection, the IDA issues an industrial license.
To cut down the registration and approval steps even further, the IDA increased the number of licensing agents from 95 to 135 and plans to have 200 agents by the end of the year. The authority also came up with several pre-approved factory designs that are available to investors. Traditionally, approving a design’s safety and environmental impact took up to six months. Now, if an investor selects one of the pre-approved designs, he can get final approval the following day. Assal says by the end of the year, the IDA will have finished a deal with GAFI in order to have a one-stop shop for licensing and land registration, cutting time down even further. Investors can go do all their paperwork for registration and permits in one location, he says. And once all the procedures are streamlined, the entire system will be transferred to GAFI.
Assal says one of the most tiring challenges is seeking out the right talent for the task at hand. Assal sees the role of the IDA as a national mission and not just as a job, and is looking for a team of dynamic employees. “I need people with a lot of energy,” he says. And while he recognizes that the IDA is a government body, he says he only wants staff with private sector thinking, to achieve his dream of being “two steps ahead of the expectations of investors.”
He hopes that his vision for the IDA will help prepare Egyptian industry for the ups and downs that go hand-in-hand with investment. As he has learned from his own experience as a businessman, learning to anticipate the economic cycle and being ready for change are the keys to good growth. He says being unprepared is not something any investor or industrialist can afford in today’s changing world.
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