In a strategic step reflecting tangible integration between monetary and industrial policies, Central Bank of Egypt (CBE) Governor Hassan Abdalla and Minister of Industry Khaled Hashem announced the launch of the Distressed Factories Restructuring Fund with initial capital of EGP 1bn.
The significance of the announcement lies in the participation of the state’s major financing arms, represented by the National Bank of Egypt (NBE) and Banque Misr, which play a central role in financing economic development, alongside commercial and specialised banks such as Arab African International Bank (AAIB), the Agricultural Bank of Egypt (ABE), and the Export Development Bank of Egypt (EBank). The initiative also brings together private-sector participants, represented by the Federation of Egyptian Industries (FEI) and CI Capital, which manages the fund.
To understand the developmental and financial dimensions of this strategic initiative, it is worth examining its analytical aspects through several key areas: the role of the targeted sector, the scale of industrial distress, comparable international experiences, the criteria for selecting beneficiaries, and the cost and potential impact of the support.
First: The role of small and medium-sized industrial enterprises and the national role of state-owned banks
Small and medium-sized industrial enterprises form the solid core of any growing economy. They are among the largest contributors to employment and job creation, in addition to their vital role in supplying major factories with production inputs.
Against this backdrop, the historical central role of the two national banks, NBE and Banque Misr, comes to the fore. Their participation in the fund is not limited to capital contributions but extends to providing extensive banking expertise in handling credit and restructuring cases, easing credit pressures on distressed factories, and developing sustainable financing solutions that help maintain the stability of both the banking and production sectors.
Second: Target scope and scale of investment intervention, with a distinction between the causes of distress
According to the latest official data issued by the Ministry of Industry, the total number of distressed factories and establishments nationwide is estimated at between 6,000 and 7,000.
The authorities have not officially announced a fixed figure for the average level of distress at individual establishments, particularly as the fund will not adopt an arbitrary support or equal-distribution approach. Instead, it targets industrial establishments with promising operational fundamentals and assets capable of being developed, with each factory undergoing a separate technical and financial assessment through the Manufacturer Support System.
Based on an analytical reading of the nature of the fund, which has initial capital of EGP 1bn and is directed towards the small and medium-sized industrial sector, its first phase is expected to focus on a selected group of factories capable of recovery. This would put the estimated average intervention or financial restructuring per establishment at between EGP 10m and EGP 30m as an equity contribution, in line with the typical investment practices of restructuring funds targeting companies of this size, pending the issuance of official assessment reports for each case separately.
To understand the dimensions of the problem, it is important to distinguish between two broad types of causes of distress.
External shocks beyond the establishment’s control: These include geopolitical disruptions, supply-chain pressures, rising global shipping and raw material costs, exchange-rate fluctuations, shortages of dollar liquidity during previous periods, and successive interest-rate hikes aimed at curbing inflation, which increased operational financing costs.
Structural and internal management causes: These include poor cash-flow management, reliance on short-term borrowing to finance capital assets, outdated technology, and the absence of the governance and operational development needed to compete effectively.
Third: Historical international experiences in addressing industrial distress
Egypt is not the first country to adopt mechanisms of this nature. Rather, the initiative draws on international experiences demonstrating how partnerships between banks and investment funds can contribute to addressing industrial distress.
The South Korean experience — the 1997 crisis: South Korea established the Korea Asset Management Corporation (KAMCO), which purchased distressed assets from banks and supported companies with viable competitive capabilities. The mechanism contributed to the restructuring of corporate balance sheets and the broader recovery of the Korean economy following the Asian financial crisis.
The Malaysian experience — Danaharta: Malaysia established a national institution to manage distressed assets following the Asian financial crisis. It restructured debt and, in some cases, converted debt into equity through debt-to-equity swaps, a mechanism that is conceptually similar to equity participation as a restructuring tool.
The US experience: Under the Troubled Asset Relief Programme (TARP), the US government provided capital to major financial and industrial companies during the global financial crisis. In the automotive sector, government support was accompanied by restructuring programmes and, in certain cases, equity participation before the government subsequently exited its investments.
Fourth: Expected criteria for selecting factories eligible for support
To ensure that the fund’s resources are directed towards companies with genuine recovery potential, the technical and investment assessment conducted through the Ministry of Industry’s platform and CI Capital is expected to focus on a number of key criteria.
Existing assets and production capacities: The existence of a factory, machinery, and sound infrastructure capable of supporting a restart.
Economic viability and product demand: The company should have a viable product with an existing market share, the potential to replace imports, or the capacity to generate exports.
Local component ratio: Priority should be given to factories that rely on locally sourced raw materials and production inputs, thereby supporting the development of domestic supply chains.
Seriousness and management readiness for governance: Factory owners must be prepared to accept the fund as an investment partner and comply with transparency, governance, and administrative restructuring requirements.
Labour intensity: Consideration should be given to factories that contribute significantly to protecting and creating jobs.
Fifth: Economic impact and cost of support
Nature of support: The support provided is not a “free grant” or simply another form of burdensome interest-bearing borrowing. Rather, it is structured as investment and equity participation, with the fund becoming a partner in the companies it supports.
Cost burden: Contributing banks and institutions, led by NBE and Banque Misr, will provide the investment financing through the fund, while CI Capital will manage the investments according to commercial principles aimed at enhancing the value of assets and ultimately exiting at a profit.
National impact: Restarting distressed factories could generate immediate and longer-term returns for the state by maximising the utilisation of existing assets, increasing tax revenues, reducing the import bill, strengthening domestic production, and potentially easing pressure on the foreign exchange market.
Professional recommendations
Activating debt-to-equity swaps: This mechanism could help ease the immediate debt-servicing burden on distressed factories while allowing financing banks to participate in the restructuring process.
Strengthening integration between the Industrial Modernisation Centre and banks: Technical and technological support should accompany financial assistance to ensure that the underlying causes of technical and operational distress are addressed rather than simply providing financial relief.
Accelerating digital integration: The assessment and approval process through the Ministry of Industry’s digital portal should be accelerated to reduce the traditional paperwork cycle and enable viable factories to receive support more quickly.
Providing temporary procedural and tax incentives: Restructured factories could be granted a temporary procedural grace period covering areas such as operating licences, industrial registration, and tax obligations until their production cycles return to normal levels.
Mohamed Abdel Aal, banking expert
