CAIRO: The theory of comparative advantage is entrenched in modern economic dogma. Countries specialize in the few goods that they can produce more efficiently relative to other goods and procure their remaining needs from other nations. While critics of globalization may dispute the social and political implications of the idea, few will deny its material benefits.
This export-oriented approach to industrial development, propagated through the policies of international agencies such as the World Bank and the International Monetary Fund, has been adopted by most developing countries. It is also central to the government s economic strategy, according to which the manufacturing sector is best-placed to absorb the 640,000 annual entrants to the labor force and the many others who are currently unemployed.
In order to target the most appropriate industries, the newly-created Industrial Development Authority (IDA) has commissioned a study of existing industrial zones and future requirements for industrial areas.
We are assessing all the existing industrial zones in terms of infrastructure, technology centers, training centers and all the [other] facilities needed, Amr Assal, chairman of the new authority, tells The Daily Star Egypt. Our target within six months is to have a full study assessing what exists, what should happen, the budget to make it happen and the timeframe. Then we will have a plan for the allocation of the budget from the government of LE 1.6 billion per year for the next three years; this is our initial estimation to raise the efficiency of existing industrial zones.
The authority was formed several months ago to address the fragmented oversight of industrial zones. The Ministry of Trade and Industry is responsible for the industrial strategy for Egypt and has many entities that execute different parts of this strategy, says Assal. But they discovered that there was a gap in the execution of the strategy, that they don t have a body that is responsible for industrial land development, industrial zone planning, [zoning] regulation and the allocation of land for industrial investors.
There are currently some 80 industrial zones in Egypt controlled by various government bodies, including the Ministry of Housing, the General Authority for Investment and Free Zones (GAFI) and 23 governorates. So we end up with 28 entities executing different strategies according to their priorities, says Assal.
While the ownership of existing industrial zones will remain unchanged, the IDA is now responsible for the creation of all new industrial zones and will assist in upgrading the infrastructure of existing zones. The new authority will also participate in drafting relevant new laws and regulations and in determining the price of industrial land.
One of the constraints to industrial growth is the shortage of land in areas of high demand accompanied by unutilized land in several zones. Assal estimates that 40 percent of the land in industrial zones has not been allocated to investors.
Our target is to enhance all the infrastructure needed to utilize this capacity which is not utilized yet, says Assal. At the same time, we are working on the facilitation of all the procedures for land allocation and project approval … Instead of waiting for 90 to 120 days, now [the investor] has the approval and allocation of land within 15 days, and within one month it will be seven days.
The proportion of land that is allowed to be built on has also been increased from 50 percent to 65 percent, effectively reducing the price of industrial land by approximately 25 percent.
In Upper Egypt, there is a scarcity of investment despite the fact that the government offers industrial land for free there.
During my visit to Aswan last month, explains Assal, one of the problems is that they have industrial zones [that are] properly made [and] the infrastructure is there, but only one factory is built. The reason was that banks refused to finance these projects because the land is not owned by the investor until he builds and operates his factory.
To address this, the IDA recently signed a memorandum of understanding with the National Bank of Egypt, whereby the latter can secure property relating to lending for industrial projects in Upper Egypt. The memorandum creates a framework for an agreement between the governorate, the bank and the investor which would allow the bank to take ownership of the land in the event of the project s failure.
In addition to allocating land to private investors, the authority works to ensure that the necessary infrastructure is available in each zone. This includes the basic services of roads, electricity and water as well as supporting activities such as training and financing.
Going forward, manufacturers may benefit from proximity to associated businesses. The concept of industrial clusters complements the theory of comparative advantage in this regard to create an efficient concentration of particular types of producers in a single zone alongside suppliers, financiers and other supporting activities.
An industrial cluster is focused on a certain industry and tries to serve this industry to the best, says Assal. The industry is located geographically in the same zone. This encourages the feeding industries to be there next to the manufacturer.
An industrial cluster for weaving has already been created in Borg El Arab and additional clusters are being considered for the furniture, leather tanning and metalwork industries.
The IDA is currently working on a Web site for the electronic submission of proposals by investors and the allocation of available land.
This would allow us to go on to the next step, explains Assal, which is a one-stop shop with GAFI. Our plan is for GAFI to work as the front office and we will work as the back office. The investor will go to GAFI and have his company initiated, and he can get the land approval and license in one stop.