3. Transforming industries: Perspectives from agro-food and electronics and electrical in Egypt

The Production Transformation Policy Review (PTPR) process for Egypt involved an in-depth look into two industries whose development is a priority for Egypt: agro-food and electronics and electrical equipment (E&E). These two industries offer complementary perspectives. Agro-food, with its large size in terms of both GDP and employment, is a pillar of Egypt’s economy and intimately linked to the country’s food security and natural resource base. E&E, even though Egypt has built some local capabilities, is a smaller sector that nonetheless has substantial room to grow and is expected to develop rapidly in the future. The COVID-19 pandemic, changing technologies and consumer preferences, and the potential of the African market are creating a new matrix of possibilities for Egypt to unleash the potential of these two industries.

This third chapter of the PTPR of Egypt draws on peer learning, from Italy on agro-food and Malaysia on E&E, to identify emerging opportunities and key challenges for these two industries. It is divided into two sections, one focused on agro-food and the other on E&E. The agro-food section presents a snapshot of the industry’s recent export and foreign direct investment (FDI) performance and identifies key structural challenges the industry is facing; it then reviews the main elements of Egypt’s policy approach in agro-food and identifies a roadmap for future reforms based on peer learning from Italy. The E&E section examines the sector’s structure, reviews the main elements that have fostered the emergence of E&E in Egypt, and concludes by identifying key policy reforms, based on peer learning from Malaysia, for enabling E&E to continue growing.

Chapter 1 of the PTPR of Egypt provided an overview of the country’s economic development, focusing on production, trade, investment and innovation. Chapter 2 discussed effective strategies, policies and tools to foster ongoing economic transformation in Egypt. Chapter 4 focuses on the AfCFTA as an accelerator of industrial upgrading in Egypt and its partner countries.

Agro-food in Egypt is under the spotlight for several reasons. It is among the priorities for upgrading and growing the country’s export capabilities in Egypt’s Vision 2030 and the National Structural Reforms Program (2021-24), while globally the industry is undergoing major changes marked by a growing attention to quality and sustainability of production chains. The unfolding of the COVID-19 pandemic has increased the need for self-sufficiency to prevent the negative impacts of supply chains disruptions and dependency on foreign markets. Food manufacturers’ production capacity reportedly dropped by 30-40% during the first month of the pandemic, together with contractions in sales and revenues (UNIDO, 2020[1]). The loss of markets from tourism, restaurants and hotels also negatively affected the sector, while the export market experienced a contraction, although to a lesser extent than overall exports. The average monthly decline for agro-food exports during February-August 2020 compared to 2019 was -7%, 2.5 times less than the total average (-18.7%) [authors’ elaboration based on UN Comtrade (2021[2])]. The need for shifting up a gear in the agro-food sector – by updating it to make it more efficient and competitive in the future – is more pressing than ever.

Supported by rich natural conditions along the river and its delta with two crops per year, agriculture has long been a critical sector for Egypt’s economy. The Nile provides 96% of Egypt’s water and three-quarters of this water is used for agriculture. Over 90% of the country’s nearly 100 million people inhabit lands directly adjacent to the Nile Valley and the delta, an area comprising less than 5% of the total land area of Egypt, while the rest of the country is marked by desert land with no forest or permanent vegetation. Agro-food employs 24% of the total labour force and 80% of employment in rural areas (data refer to 2018). Of the 6.3 million employees in the sector, 90% are in agriculture and the remaining 10% in food processing (ILO, 2020[3]). Egypt has the second-largest agro-food industry (by total value added) in Africa, behind Nigeria. Agro-food accounts for 14% of GDP, similar with other neighbouring countries such as Morocco (16%) and Tunisia (13%) [authors’ elaboration based on United Nations (2021[4]) and UNIDO (2021[5])].

Egypt specialises in the production of primary agro-food commodities. About 90% of total value added in agro-food for Egypt comes from field crops – mainly cereals, vegetables and fruits; the remaining 10% is ascribable to food and beverage industries. Agro-food in Egypt has increased its export orientation. Agro-food accounted for 17% of total exports during 2018-20, double the 8% during 2005-07 [authors’ elaboration based on UN Comtrade (2021[2])]. This increase stems mainly from the increase in production of fresh products and processed fruits and vegetables, due to modernisation of existing farms and processing/production facilities. Oranges are the main export, accounting for 13.3% of total agro-food exports. In 2019, Egypt became the largest world exporter of oranges in term of quantity, and the third in terms of value behind Spain and South Africa (ITC, 2020[6]). Other relevant exports include other fresh fruits, such as grapes and strawberries (which account for approximately 10% of total agro-food exports), dairy products (6%), potatoes and frozen vegetables (5% each) [authors’ elaboration based on UN Comtrade (2021[2])]. Primary agricultural products account for 56.3% of Egypt’s agro-food exports – similar to Morocco (48%), but over three times the share in Italy (16%). However, when it comes to Egyptian exports to Africa, the share of primary products decreases to 25% and that of processed products reaches 75%. Egypt remains a net importer of agro-food products because local production has been unable to keep up with rapid population growth, with the value of exports equal to between 30% and 40% of imports in recent decades. Wheat accounted for 21.6% of total agro-food imports during 2018-20, followed by maize (14.4%) [authors’ elaboration based on UN Comtrade (2021[2])]. The country’s top agro-food import sources during 2018-20 were grain producers, such as Russia (14.4% of total imports), Brazil (14%) and Ukraine (10%) (Figure 3.1).

Africa is an important market for Egypt’s agro-food industries. The continent accounts for 18% of Egyptian exports, higher than the merchandise average of 15.4% (Figure 3.1). Within Africa, Egypt’s main export destinations are located in the nearby Northern African market – namely, Libya, Morocco and Algeria, which together account for 8.3% of total agro-food exports; and East Africa, such as Eritrea (2%) and Kenya (1%). Africa is the third largest market for Egyptian agro-food products after Western Asia, with countries such as Saudi Arabia (11% of total agro-food exports), United Arab Emirates and Jordan the main destinations. Europe has also been a traditionally large market for quality Egyptian products and, together with Asia, offers opportunities to market higher-value products. Consumers in Europe and other advanced markets value freshness, which nearby Egypt can provide, while African consumers are looking to Egypt to supply them with processed foods for their industry and final consumption (Figure 3.2).

Subsistence and small scale agriculture continues to be prevalent. Egypt’s agro-food is marked by dualism, where large swathes of subsistence agriculture, particularly in the Delta, co-exist with large modern, capital-intensive farms, often located in reclaimed desert lands. Over 87% of agricultural farms occupy less than 1 hectare in Egypt (according to the last census carried out in 1999/2000), and these cover 47% of the agricultural area. By contrast, medium and large farms with over 20 hectares account for 0.1% of farms, but 11% of total area. In fact the average land holding size in Egypt is small and decreased from 1.6 hectares in the 1960s to 0.8 hectares in the 2000s, much lower than Tunisia (10.5) and Morocco (5.8) (FAO, 2013[7]; Lowder, Skoet and Raney, 2016[8]). Employment statistics yield similar results, with 86% of agricultural establishments in Egypt having between 1 and 4 employees, compared to 77.6% in manufacturing (CAPMAS, 2018[9])

While modern commercial firms, predominately of larger size, are reaping the benefits of agro-food exports and local markets (Box 3.1), smaller farmers are facing a wide range of issues. One is high business informality: around 63% of agriculture smallholders are in the informal sector, with difficulties in accessing finance, labour shortages due to increasing urbanisation, low levels of technological adoption, and lack of knowledge of agricultural practices (CAPMAS, 2018[9]; Oxford Business Group, 2019[10]; Ministry of Trade and Industry, 2018[11]). In addition, several firms lack certification and awareness of the importance of quality and standards that make it difficult to maintain food safety, avoid contamination and use resources efficiently.

Egypt’s large market is attractive to foreign investors in agro-food. Since 2016, Egypt has been the third-largest recipient of agro-food greenfield foreign direct investment (FDI) in Africa, after Ethiopia and Nigeria. The rebound of the economy in 2016 attracted a number of new foreign investments in agro-food, totalling USD 4 billion. Whereas in most countries manufacturing projects make up the majority of investments, FDI in logistics and distribution plays an equally important role in Egypt. With an export mix concentrated on primary products, effective logistics platforms are crucial. Some of the largest FDI projects in agro-food in Egypt include the construction of grain silos and barges in Egyptian ports to facilitate imports (Figure 3.3).

Investments in agricultural innovation could be higher. Egypt, in line with other developing countries, has focused its scientific and other innovative efforts on agriculture, in line with the sector’s importance for food security and employment. About 22.7% of all full-time researchers in the country are employed in agricultural and veterinary sciences [authors’ elaboration based on UNESCO (2021[15])]. The Agriculture Research Center (ARC), the principal agency within the Ministry of Agriculture and Land Reclamation (MALR), alone accounts for 41% of the total number of researchers in the public sector (MHESR, 2019[16]). Other public institutions – such as the National Research Center, the National Water Research Center, the Desert Research Center, the Food and Agriculture Council, and universities – conduct relevant research and development (R&D) (Stads, Moussa and Badwan, 2015[17]). As a result, Egypt is the second-largest country in Africa in terms of scientific publications in agriculture after South Africa, and the third-highest in terms of papers per inhabitant. Egypt produced 64 publications per 100 000 inhabitants during 2017-19, more than two times higher than the African average (29) but lower than the MENA one (80). Nevertheless, the impact of scientific publications is lower than for some other regional peers (Figure 3.4).

Investments are also lagging behind. As data on business R&D in agriculture are lacking, government investments (which account for 95.4% of total R&D in Egypt) are used as proxy. According to FAO data, Egyptian investments in agricultural R&D stood at 0.62% of agricultural value added in 2016 – the same level as the government’s overall R&D investments as a share of GDP (0.68%) that year, but 3.7 times lower than South Africa (3.7%) and well below the 1% target recommended by the United Nations and the New Partnership for Africa's Development (NEPAD).

Investments in modern technologies are also low in Egypt. Raising investments in fixed assets (including, machinery, buildings and other infrastructure) will be crucial for raising productivity and enabling agro-food firms to compete on the global stage. However, in Egypt, businesses lag behind in investing in such relevant assets. The share of gross fixed-capital formation in agriculture stood at 5% of agricultural value added in Egypt, more than six times lower with respect to the OECD average (32%) and also lower than the African average (9%) (Figure 3.5).

Several bodies in Egypt oversee the development of the agro-food sector in Egypt. These include the Ministry of Trade and Industry, which promotes trade and industrial development; the Ministry of Agriculture and Land Reclamation (MALR), which charts agricultural strategies and policies; the Ministry of Irrigation and Water Resources (MIWR), which (together with MALR) regulates the distribution of water; and the Ministry of Supply and Internal Trade (MSIT), which is involved with the internal market, price-setting for strategic commodities, distributing subsidies and managing state-owned food enterprises.

A recent achievement in Egypt includes the establishment of the National Food Safety Authority (NFSA) in 2017 under the Prime Minister’s Office, which has reshaped the food standards compliance landscape. The NFSA is now the main regulator protecting consumer health, ensuring food producers and processors meet standards of food safety and hygiene. The agency consolidated food safety functions that were previously spread over various ministries, agencies, municipal authorities, and other institutions, and simplified the implementation of food safety laws. The establishment of the NFSA was accompanied by new norms and regulations and the refurbishment of laboratories, enabling parts of the agro-food sector to increase their levels of certification. According to the (NFSA, 2020[21]), 445 agro-food companies have registered with the agency, indicating that they are on the way to being certified or have been certified already. The establishment of clearer quality standards is already helping to drive exports to new markets.

Other important pillars of the quality infrastructure (QI) system in Egypt’s agro-food include the Egyptian Accreditation Council (EGAC), the Egyptian Organisation for Standardisation and Quality (EOS) and the National Food Safety Authority (NFSA). In future, Egypt could look to strengthen QI along the value chain – particularly in the upstream segment of agriculture production, which is outside of the purview of the NFSA – and ensure that services are accessible and affordable, particularly for the country’s MSMEs. Finally, working with other African countries to harmonise standards in the continent will also be important in allowing Egypt to capture the benefits of the African Continental Free Trade Area (AfCFTA) (Box 3.2).

Egypt’s policy mix to support agro-food can be grouped under three different instruments:

  • Direct and indirect support for firms. The Export Development Fund (EDF) supports exporters of agro-food products through a non-repayable financial contribution of up to 10% of the total value exported (see also Chapter 2). In addition, the Export Development Authority (EDA), the Egypt Expo and Convention Authority (EECA) and the Agriculture Export Councils each provide various types of support, such as dissemination of market information, capacity building and organisation of missions to trade fairs. Egypt also has in place various consumption subsidies for basic food items that shape incentives for producers (Box 3.3).

  • Infrastructure provision in the form of industrial parks. The government has promoted industrial parks and zones (see also Chapter 2). Hundreds of various types of parks and zones exist in Egypt, promoted by different agencies. Some parks or zones aim to attract foreign investments, while others emphasise value addition of local products or the integration of large factories with small suppliers. Some even include large settlement and housing facilities with much public service infrastructure, from shopping malls to schools and hospitals. At least 67 industrial zones specialise, at least partly, in agro-food industries. Some of these parks allocate land to industrial developers that create the infrastructure for agro-industrial projects, including the use of side-products and residues and the recycling of waste as well as other services. Such sites in zones near the Suez Canal, the Delta, main agricultural production sites along the Nile and the new desert cultivation projects have been populated by agro-industrial companies. Applying best practices in the development of agro-industrial parks can help such investments realise their potential (Box 3.4).

  • Land reclamation. Reclaiming desert lands and redistributing them for agricultural purposes has been a central element of agricultural strategies in Egypt for many decades (Box 3.3). The aim is to expand the available agricultural land and boost food production.

To fully realise its agro-food potential, Egypt would benefit from prioritising the following three areas. Firstly, Egypt should actively seek to enhance partnerships that will enable it to transition towards Agro-food 4.0 (i.e. the use of Industry 4.0 technologies in agro-food) and use it to make agriculture and agro-food sustainable, inclusive and innovative. Secondly, the country would benefit from enhancing national branding and better signalling the quality and originality of its produce to increase market value and gain increased market access in Africa and globally. Thirdly, Egypt should continue to improve its policies regarding MSMEs to ensure that all firms, especially micro and small ones, can benefit from technological change and new markets, while also addressing environmental issues and land and water scarcity. The following paragraphs present specific details for each of these areas.

Increasing the adoption of Industry 4.0 technologies in agro-food could be a game-changer for Egypt. Water scarcity is currently a major problem faced by the Egyptian agro-food sector. Agricultural lands have seen their access to water reduced. Egypt’s annual renewable water resources per capita stood at 596.2 m3/capita in 2017, below the threshold of water scarcity defined by the UN (700 m3/capita), while projections estimate that it will drop below the level of absolute scarcity (500 m3/capita) by 2030 (FAO, 2016[27]; 2021[28]). According to CAPMAS (2019), agriculture consumes three-quarters of all water available. Groundwater, which is increasingly rising in importance as a source of drinking water and irrigation for the country, is facing salinisation due to over extraction and lack of drainage systems (FAO, 2016[27]). Salinisation of intensely irrigated lands as well as sedimentation of dams, rivers and feeder canals contribute to the inefficiency of water use. Climate change could further exacerbate these challenges for agricultural production and the food industries it supports. The WFP estimates that by 2040 Upper Egypt could lose 30% of its food production (WFP, 2017[29]). Continuing and expanding existing investments in modernising irrigation schemes and improving the quality and efficiency of use of water resources will be crucial (FAO, COMESA, AgWA and the Government of Egypt, 2015[30]).

Technological and organisational solutions to improve the productivity of the agro-food system need to embrace more prominently the opportunities that digitalisation, the Internet of Things, big data, artificial intelligence, remote sensing and new IT technology provide. Such Agro-food 4.0 technologies, applied at the level of primary production as well as manufacturing, pave the way to a more resource-efficient intensification of agricultural production and value addition. This goes beyond precision-farm applications, and has an impact along the entire value chain, providing smart solutions to producers, suppliers, manufacturers and buyers for the optimisation of production processes, equipment performance, logistics and customer management. Finally, Agro-food 4.0 can also be important in saving water in production and processing, a key challenge for Egypt.

Public policies could do more to foster Industry 4.0 in the economy including in agro-food (see Chapter 2). Increasing support for innovation as a whole, and for Agro-food 4.0 in particular, both in the public research system and in businesses, is vital. Egypt should also consider fostering technology adoption and adaptation, an area which has been relatively neglected compared to upstream innovation efforts. To make this happen, Egypt needs to consider updating and modernising its policy mix, by diversifying policy instruments available for agro-food firms and linking direct and indirect support to the development and adoption of technologies. For example, integrating digitalisation with green-growth incentive schemes and regulations to reduce waste and improve natural resource use, such as through targeted loans and grants, could help reap the benefits of digital technologies for sustainability. Finally, increasing support for researchers to acquire skills in Agro-food 4.0 is essential.

Global partnerships can also contribute to foster innovation in agro-food, including in Agro-food 4.0. Innovation does not flourish in a vacuum; rather, it relies on multiple stakeholders interacting together over time, forming a dense and varied ecosystem. International linkages can be critical in this respect, fostering cross-border access to new technologies, facilitating knowledge sharing, and helping adapt innovations to local markets. In this respect, attracting foreign investment in high-value-added activities is an important component for learning and building capabilities. In 2015-20, Egypt was the third-largest African recipient of FDI related to R&D activities in agro-food. Although the entire continent is still playing a marginal role at the global level, with only 5% of the total, it represents a big leap with respect to 2005-10, when Africa absorbed only 1% of total global investment and Egypt recorded none (Financial Times, 2020[31]).

Other means of building international partnerships can involve multiple stakeholders and formats (e.g. co-operation between governments; between the public, research and private sectors; or even only among businesses). They can also have multiple objectives, from strengthening investments in basic agriculture research to joint applied and development activities that involve technology transfer and technical co-operation to increase competitiveness of both farmers and food producers. Egypt is also a member of the International Centre for Advanced Mediterranean Agronomic Studies (CIHEAM), which has fostered innovation and start-expansion in agro-food in Italy and its member countries (Box 3.5).

Leveraging Egypt’s country image is also a promising option to increase value addition. In a highly competitive global landscape, branding and reputation can help set Egyptian products apart and become an asset for penetrating new markets. Egypt could leverage on the country’s unique geography, history and culture to signal quality in high-value markets both abroad and domestically (Box 3.6). Within Egypt there is also scope to better familiarise local consumers with quality and culturally distinctive products from the country’s different regions by supporting marketing campaigns, setting up specialised shops and retail outlets and ensuring public food procurement takes into account the different local foods that Egypt is producing.

Realising the full potential of agro-food in Egypt requires addressing and minimising the dualism in the sector and identifying ways to better connect small, traditional farming with lead firms, domestically and internationally. The optimisation of food production – capital-intensive as it already is – will be easier to achieve in the higher-value food segments, especially for exports. It is important that the productivity increase also unfolds in traditional (staple) food production and processing that mainly caters to the domestic market, and this will require targeted and effective support – not only through adequate financing schemes, but especially through technical assistance and modernised extension services. In particular:

  • Co-operatives and shared infrastructure and services could do more to foster collaboration along the value chains. Co-operatives have a long history in Egypt, from the start of the 19th century, and now have a reach that includes almost all farmers in Egypt. However, they largely focus on carrying out administrative functions in relation to agricultural policies and strategies (Ghonem, 2019[33]; IFAD, 2018[34]). Going forward, initiatives such as jointly operated collection centres and packaging stations for primary and semi-processed food products (as well as joint arrangements for cultivation of land, use of technology and marketing of products) could be collective actions that can be fostered by co-operatives.

  • Increasing technical assistance is vital for raising productivity across the board. The traditional extension system can provide only part of the technical assistance that the smaller farmers need because it is overwhelmed by outdated skills among its agents, outdated training techniques, lack of resources and transportation facilities, and loss of reputation, among other factors. While upgrading of extension services seems to be an important element to improve farm operations among smallholders, private advisory services provided by input providers, buyers and finance institutions will also need to complement the diffusion of knowledge and innovation among farmers in Egypt. Technical assistance, demonstration courses and vocational training for the development of better skills are also required in the processing sector. In the food processing sector, continued efforts are necessary by MSMEDA and IMC to support small enterprises in product development, quality improvement, business development, and training and capacity-building, as well as in lending.

  • Facilitating access to finance is needed, particularly for micro and small firms. Public policies have been enhancing access to finance for micro, small and medium enterprises (MSMEs) in recent years. The Agricultural Bank of Egypt (ABE), the main source of agricultural finance, is undergoing reforms to improve its services and delivery to the agro-food sector and to also employ credit officers with knowledge of farming and agro-food to better cater to the sector’s needs. ABE has also entered into a twinning arrangement with Rabobank, an international corporate bank specialised in agricultural value chain finance, and has signed a contract with MSMEDA worth EGP 50 million (USD 2.791 million) to extend credits to agro-processing MSMEs. The National Bank of Egypt in 2019 also reported that 14% of its credit portfolio is going to primary agriculture and food processing, and the share of agriculture-related lending has risen at an increasing rate over the last few years. The COSOP, a programme with IFAD, is also aiming to impove access to finance firms to foster value chain development in agriculture (IFAD, 2018[34]).

    However, more can be done to increase financing for smaller firms. Only 2.26% of small agro-food firms receive loans compared to 21% of medium ones, according to CAPMAS (2018[9]). Expanding such initiatives to alleviate financing constraints for small firms – particularly devising instruments and increasing outreach for informal firms and those that may not be able to easily meet the collateral, credit history and other stringent requirements needed to access credit – will help unlock the potential of MSMEs in agro-food. In turn, using extension services to improve financial literacy among smallholders and MSMEs could also improve their ability to reach out to credit institutions to finance their needs. In addition, current land-reclamation initiatives could accommodate more small producers with limited access to resources. This would require additional investments in technical assistance and advisory services as well as specific credit schemes for small producers.

  • Supporting businesses in complying with standards is needed to strengthen quality. Incentivising small businesses to access the quality infrastructure system – for example, by attaching relevant conditions to loans and other forms of direct and indirect support and training – has the potential to increase compliance. Designing a pay-off for the informal sector to participate will also be important. A starting point would be developing a culture of quality among producers and consumers. This could be initiated, for example, through a campaign for food safety that can be also linked to current COVID-19 containment measures, including on-line and in-person demonstrations for consumers and producers, starting with washing hands and handling food products. Demonstrations of new equipment and technology designed to improve quality management in production and distribution would then become a second step, to be followed by investment schemes that truly improve the income situation of informal businesses.

Globally, electronics and electrical equipment (E&E)1 is the top industry by manufacturing value added (MVA), accounting for nearly 13% of total, equal to the GDP of Korea [authors’ elaboration based on UNIDO (2021[5])]. Production E&E employs around 29 million people (equal to the population of the Netherlands and Greece combined), making it the top world manufacturing employer, together with textiles (which also has a global workforce of around 29 million workers). The top world producer is the People’s Republic of China (hereafter “China”), accounting for a third of the world’s total (33.6%), followed by the United States (17%) and Japan (9.8%). E&E accounts for approximately 20% of global merchandise exports during 2017-19. China is the world’s largest exporter (24%), followed by the United States (7%) and Germany (6%).

In Egypt, E&E generated around 3.8% of the country’s MVA in 2018, or approximately 0.6% of the country’s GDP. According to the latest establishment census, in 2017 the sector employed 55 000 people, or 2% of total manufacturing employment. Egypt is a small producer compared to global hubs, accounting for approximately 0.6% of E&E world value added and exports. However, it has potential within the African continent. UNIDO provides statistics on the value added generated by the industry for a group of eight countries in the continent. Out of these, Egypt was the third-largest hub, generating about 60% the value added of South Africa, the top performer, and accounting for nearly 23% of the group’s total. Similarly, Egypt is the fourth-largest exporter, after Morocco, Tunisia and South Africa – generating about 13% of the continental total and double the country’s average share of continental exports [authors’ elaboration based on UNIDO (2021[5]) and UN Comtrade (2021[2])].

E&E emerged in Egypt via the domestic market, mostly through state-owned enterprises that licenced foreign technologies or set up joint ventures with global leaders (UNIDO, 1994[35]). Since the mid-1970s, liberalisation reforms have enabled the entry of foreign and local firms into the sector (UNIDO, 1994[35]; UNCTAD, 1999[36]; Refaat, 1999[37]). Since Egypt’s entry into WTO and the development of bilateral and multilateral FTAs focused on neighbouring regions, the country has reduced tariffs for E&E overall. The average most favoured nation (MFN) tariff is 8.4%, while for many of Egypt’s FTA partners the rate is 0%. Nevertheless, an escalating tariff remains, with final products charged on average 10.5% (going as high as 60% for some radio and television receivers), while electronic components (e.g. chips) have zero tariffs (Table 3.1). The combination of regional FTAs, together with the proliferation of various zones that allow for duty-free intermediate imports as long as final products are exported (see Chapter 2), has encouraged some foreign investments in Egypt targeting Middle Eastern markets.

The lion’s share of production in Egypt is generated by domestic electrical appliances, which absorb 55% of employment in E&E and are mostly directed to the domestic market, followed by electric motors and generators (18%) and lighting equipment (7.3%). Wiring and measuring and testing equipment account for 5% respectively. Egypt’s pattern of specialisation in the production of final consumer appliances and some electrical components is markedly different to that of Malaysia, an export-oriented E&E hub in Southeast Asia that is among the world’s top 15 global producers in the industry. Malaysia specialises in upstream electronic components and boards, which account for 44% of total E&E employment in the country. Malaysia also produces relatively more sophisticated final products, such as computers and peripherals (14%) and consumer electronics (9%) (Figure 3.6).

E&E firms concentrate in or near Greater Cairo. Greater Cairo, which includes the governorates of Cairo, Giza and Qalyubiya, accounts for 50% of all firms in the industry; within this, Giza accounts for the highest share, with 19% of total. An additional 15% of E&E firms are located in Sharqia governorate, and 9% in Alexandria (CAPMAS, 2017[39]). This review cross-checked lists of exporting manufacturing E&E firms provided by three different online sources, the International Trade Centre (ITC) through Kompass database, the Engineering Export Council (EEC) and the Information Technology Industry Development Agency (ITIDA). Additional research was conducted to locate the addresses of manufacturing facilities of these businesses through company websites and reports. The results were narrowed down to 104 Egyptian firms and foreign subsidiaries. In line with the census data, the majority of these firms were concentrated in Greater Cairo (57%). Most (17.3%) were in 6th of October, a city that was developed to house industries in Giza; the El Obour industrial zone (8%); and other Cairo and Giza locations. 10th of Ramadan, one of Egypt’s largest industrial areas located 60km away from Cairo at Sharqia, hosted 28% of these firms.

Even though the country is a net importer in E&E, both exports and imports have been rising rapidly, more than doubling since 2010. Egypt’s E&E exports have been among the most dynamic in Egypt’s export basket, increasing by 10.6% annually during 2010-19, 6.3 times the merchandise export average (1.68%) and higher than E&E imports (8.4%) [authors’ elaboration based on UN Comtrade (2021[2])]. During 2020, E&E exports fell by 8.7%, less than the overall contraction of 12.5% experienced overall (ibid.). Exports of E&E now account for approximately 6% of Egypt’s total merchandise exports (2018-20), higher than at the beginning of the decade (4% during 2010-12). Egypt imports E&E mostly from China (which accounts for 46.5% of total imports), followed by Germany (6.4%), Italy, and Korea (approximately 5% each) (Figure 3.7). East Asia as a whole accounts for 53% of imports and Europe for 24%, while Africa accounts for less than 1%. In terms of exports, the top three export destinations in 2018-20 were the United Kingdom (17%), the United Arab Emirates (12%), and Saudi Arabia (8%). Africa accounted for 15.8% of Egyptian E&E exports, in line with the continent’s overall share in Egyptian merchandise exports, and MENA for 43.2%, higher than the region’s overall share at 31%.

Egypt participates in value chains by manufacturing and assembling consumer products, which account for 63% of E&E exports (Figure 3.8). Typically, producers in the E&E value chain reap higher value when they are specialised in upstream segments that are complex and require high technology and skills, such as integrated circuits. Assembling these into final products is a less sophisticated process that can take place in a higher number of locations worldwide. The high share of final product exports suggests that Egypt connects to value chains downstream, at the end of the assembly process. Egypt mainly exports televisions (42% of E&E exports), whose export value has increased by ten times since 2012, while big and small domestic appliances (where Egyptian production is concentrated and where domestic brands are active) account for 17% of the total. Further upstream, Egypt exports wires and cables, which generate a quarter (23.6%) of total exports. Egypt exports few sophisticated upstream components, such as integrated circuits (ICs) (chips), and sub-assemblies for E&E, such as panels. In contrast, Malaysia has become a big value-chain participant by tapping into more-upstream segments. In Malaysia, ICs account for 44% of total E&E exports, and other types of electronics components reached 12.8%; these go to other countries to be assembled into final products. In addition, Malaysia exports more product categories along the value chain, with 33 products accounting for more than 0.1% of total Malaysian E&E exports, double with respect to Egypt’s 15. The variety of exports is an indication of the more diverse ecosystem and existing expertise across a number of fields in Malaysia in this industry, which can be attractive for value chains.

Home-grown E&E brands have emerged in E&E in Egypt (Box 3.7). Several firms – such as Unionaire, Universal and Fresh Electrics – have tried to capture the lucrative home-appliance market, where demand grows with increasing incomes and urbanisation. Some firms are assembling smartphones domestically, such as SICO. The emergence of these Egyptian players together with foreign subsidiaries has led to a relatively large number of medium- and large-sized firms in the sector, both in relation to other sectors within Egypt and with respect to other countries (Figure 3.9). Firms with over 50 employees make up 14.5% of the total in electronics manufacturing and 11% in electrical, similar to motor vehicles and beverages, and far higher than the manufacturing total of 1%. The sector average of 12% brings the country in line with Finland and Brazil in terms of firm structure, but still far from Switzerland (23%), and lower than Austria, Germany and the United States (all between 15%-16%), where medium-sized firms have been historically able to flourish.

Four main factors explain the rise of E&E in Egypt:

  • A sizeable talent pool in relevant subject areas. Egypt’s tertiary education has been an asset for the E&E industry. While it is difficult to judge educational quality, various world rankings are often used for this purpose by prospective students and policy makers looking to boost the image of their educational institutions and compete for talent (OECD, 2019[43]). One of these is the QS World University Rankings, produced by a UK-based consultancy. According to this ranking, Egypt’s universities hold a top position in Africa in relevant subject areas, such as electrical and electronic engineering and computer science, with three universities among the world’s top 250 in the former and one in the latter (Table 3.2). Graduates from these universities have been the force behind the development of some of Egypt’s innovative technology firms in the E&E industry (TechCrunch, 2017[44]). A survey of 200 tech firms by Endeavor Analytics and MC Egypt in 2014 found that a third of the firms had at least one founder that attended the American University of Cairo (17%), Ain Shams University (16%) or Cairo University (9%) (Endeavour Insights and MCEgypt, 2015[45]).

    Nevertheless, there is room for improvement. In the QS ranking, Malaysia, despite having a population nearly three times smaller than Egypt, has two universities in these subject areas in the top world 100 (Universiti Malaya and Universiti Teknologi Malaysia) and another 10 in the top 500. Moreover, Egypt is also facing skill shortages in some areas and a brain drain in others, indicating that in the future the talent pool may not be able to sustain the industry’s further development and upgrading.

    One area for improvement is technical and vocational education (TVE). Overall, despite tertiary graduates facing the highest unemployment in Egypt, students have a higher preference for choosing colleges instead of TVE, which is associated with a lower social status (Álvarez-Galván, 2015[46]; Jemalli and El-Hamidi, 2018[47]). Creating targeted, future-oriented TVE programmes that cater to the emerging needs of the E&E value chain could boost the country’s competitiveness. This would require strong collaboration between bodies in charge of industrial development, the Ministry of Education that is overseeing TVE programmes, and the private sector to ensure that programmes reflect on-the-ground needs. In addition, talent development also needs to target higher-end and specialised skills, such as materials development and chip design. Stronger linkages between the E&E industry and local universities and international collaboration with diverse technology providers, from academia to private sector, would be key to strengthening capabilities in this respect, particularly for more advanced technologies. For example, the Interuniversity Microelectronics Centre (IMEC) in Belgium, which is a top research and innovation hub in nanoelectronics and other digital technologies, was a key partner in developing SilTerra, a chip maker in Malaysia. IMEC needed a chip designed for a DNA-sequencing machine, and through technology collaboration with SilTerra, the latter was able to expand local skills by making chips tailored to life sciences.

Source: Authors’ elaboration on QS (2020[48]), World University Rankings, https://www.topuniversities.com/university-rankings

  • A growing emphasis on attracting foreign investments and encouraging exports. Egypt is among the key players in this emerging industry in Africa. Africa attracted 29 manufacturing projects and 50 knowledge-intensive service projects in E&E during 2017-20 (through July 2020). In manufacturing, Egypt attracted the most in the continent (6 projects) during this period, while in knowledge-intensive services it ranked second.

    Foreign investments in the industry increasingly eye Egypt as a regional export hub for consumer electronics. Investments by Samsung and LG in recent years have expanded the country’s production and export of televisions, while some Chinese investors, such as Transsion, are focusing on smartphone production and have started to see Egypt as a hub for regional production (Egypt Independent, 2019[49]; Daily News Egypt, 2018[50]). However, the number of FDI projects in E&E going to Africa, and Egypt within it, is small with respect to the global industry. Mexico alone attracted 47 manufacturing projects and 39 knowledge-intensive service projects during the same period. Moreover, the overall engagement of the country with global value chains is low, restricting opportunities for fast growth and learning to operate in global markets (Figure 3.10). The share of foreign value added (FVA) in total exports was 20% in Egypt, compared to 40.83% in Malaysia and 60.3% in Viet Nam, according to calculations based on the UNCTAD-Eora Global Value Chain Database.

  • A large domestic market with linkages to nearby fast-growing regions. Not only is Egypt’s population large (just over 100 million people), but the country is also located within fast-growing markets, such as Africa and the Middle East. According to data gathered by Kearney (2020[51]), total retail sales in Egypt reached USD 115.5 billion in 2019, similar to Nigeria and Malaysia. The latest figures for the market of E&E are from 2016, when it reached some USD 10.4 billion (8% of the total retail market); about one-fourth of this is spent in Cairo (CAPMAS, 2018[52]). The growth of e-commerce in Egypt is also fast and could boost E&E. Total sales in 2017 reached USD 1.6 billion dollars, up from USD 1.1 billion in 2014, reaching a penetration rate of 2.5%. For Egypt and Gulf Cooperation Council Countries, E&E was the top e-commerce category, accounting for 16%, particularly mobile phones (Bain & Company and Google, 2019[53]). Higher demand for E&E can also stimulate output growth from other industries, resulting in multiple benefits for the local economy (Box 3.8).

  • A targeted policy for E&E. Egypt prioritises the development of the E&E industry through targeted policies. The 2016 Industry and Trade Development Strategy (ITDS), elaborated by the Ministry of Trade and Industry (MTI), highlights engineering industries (an industrial grouping that combines E&E, machinery, metals manufacturing and automotive). The National Strategy for Science, Technology and Innovation 2030 also highlights the need to create local capabilities in production of science and knowledge in several sectors, including in E&E. In addition, Egypt launched in 2017 the Presidential “Egypt Makes Electronics” (EME) Initiative, led by the Ministry of Communications and Information Technology (MCIT) (Table 3.4). The aim of this initiative is to boost exports in electronics and electrical (E&E), reduce import dependency and foster job creation. The initiative has two focuses: enabling the design and production of electronic circuits to take place in Egypt, and fostering a manufacturing industrial ecosystem with a focus on employment creation. It is also looking to boost investments in start-ups that are working on Industry 4.0, IoT and electronics design.

In addition to the overall incentives for manufacturing in Egypt, firms in E&E benefit from targeted support. ITIDA runs an export development programme for ICT exporting firms. Since 2010 the ITIDA subsidy has supported more than 185 companies with more than EGP 350 million (MCIT, 2020[54]). In addition, the electronics design automation (EDA) programme by TIEC (Technology Innovation & Entrepreneurship Center) during 2015-18 financed between 50% and 95% of the cost of EDA tools for SMEs for the design of circuit boards and semiconductors. Support for start-ups in the E&E industry is provided by private venture capital through the EME programme, operationalised by ITIDA (Table 3.4). ITIDA also finances research and co-operation between academia and the private sector (financing of up to EGP 1 million for developing a prototype and up to EGP 2 million for the commercialisation of a product).

The E&E industry is expected to be a fast-growing one in the post-COVID-19 industrial landscape, shaped by growing demand from existing and new consumers, new opportunities opened up by Industry 4.0, and growing integration between digital and industrial components. The traditional approach to fostering industrial development in E&E in Egypt would benefit from an update which looks more at the overall value chain in terms of changing needs, opportunities for value generation and capture, and the job-creation potential of the various stages and agents involved in the production process in Egypt, Africa and globally (Box 3.9).

  • Aligning FDI attraction and domestic industrial capabilities could be strengthened to ensure that FDI not only delivers quality jobs, but that it serves as a gateway for domestic industrial capability development. At present, support is fragmented and driven by the different institutions, each targeting specific agents in the value chain. For example, MTI, IMC and the Engineering Export Council work closely with stakeholders across the chain (e.g. electrical equipment makers, component makers and assemblers), while MCIT and ITIDA also target some upstream players (e.g. semiconductor designers and manufacturers), ICT start-ups, and telecommunication and some electronics manufacturers (e.g. those engaged in making computers and phones). Meanwhile, GAFI also plays a big role in attracting foreign investors. Ensuring that support is harmonised and that mechanisms exists for players across the value chain to interact and network with each other will be important – particularly in an era of technological convergence, where combining capabilities across different fields in E&E will be important. In Malaysia, for example, in addition to ministerial councils, implementation is facilitated by the fact that the responsibilities for developing the E&E manufacturing value chain have been brought under one roof. The Malaysian Investment Development Authority (MIDA) has a directorate that is responsible for increasing both domestic and foreign investments in the industry. Local agencies (e.g. industrial park operators/managers and local development agencies) act as co-ordinators and facilitators, helping firms ensure they have access to all support available. While “one-stop shops” have been established in Egypt to simplify business licensing, more is needed to ensure the support is continuous over the lifetime of the business and that adequate advisory and financial support is offered to firms in their expansion phase.

  • Building trust and prioritising and signalling quality. Tapping into the potential African market and developing a denser continental E&E value chain requires building trust and increasing competitiveness. Competition in the E&E value chain is fierce, particularly from low-cost and already trusted exporters outside Africa. Initiatives such as the ones already in place by the EEC that organise trade missions and collective participation to trade fairs should be continued and expanded where possible, in an effort to increase interactions with the African market and identify new opportunities. A quality infrastructure system that meets the needs of this sector by offering local reliable and accessible testing and certification services will be crucial in enabling Egypt to further develop the industry.

  • Increasing the efficiency of logistics. The E&E value chain is particularly trade-intensive and even small changes in logistical costs can make a big difference in product competitiveness. Access to both port and airport infrastructure close to production and export sites is crucial, as high-value components can often travel via air cargo. The importance of air cargo is demonstrated by its resilience during COVID-19. The active fleet of air cargo globally dropped by 22% in February 2020 compared to 2019, but subsequently increased by a monthly average of 5% during March-December (ICAO, 2021[55]). Increasing the density of connections is also important for reducing time to production. Finally, the need for multiple component imports for exported products means that simplifying import procedures is necessary, beyond the SEZs.

In addition to the above, new opportunities are emerging for some E&E segments, such as the medical device industry, which includes electro-medical goods and other medical supplies (Box 3.10). Medical devices face similar challenges to the E&E industry as a whole as the industry moves towards greater digitalisation, but also unique ones that stem from their role in protecting human health and the need for high regulatory oversight (Box 3.11). In this context, Egypt would benefit from actions to link businesses to the growing regional and global markets, ensure quality and conformity to standards and harness linkages along the value chain.

  • Tapping into the benefits of the continental markets. The ongoing COVID-19 pandemic is strengthening the need to develop continental supply chains in medical devices to increase resilience (Box 3.10). Africa is a marginal market for medical devices, with the continent accounting for roughly 2% of total global revenues in medical devices. The difficulty of sourcing needed medical equipment and supplies increased exponentially during the pandemic – a major risk for a continent that is home to 17% of the world’s population. And apart from Tunisia and Morocco, which are the continent’s top exporters of protective garments, all countries in Africa, including Egypt, are net importers of Personal Protective Equipment (PPE). 65% of PPE in Egypt come from two countries (Malaysia and China in 2018-20), with Malaysia being the main glove source and China the source of protective garments, masks and visors (Figure 3.11). Egypt is also dependent on imports of high-tech medical devices such as medical and imaging equipment and therapeutic equipment, from x-ray machines to ventilators and implanted devices. In these medium-to-high-tech segments, imports are sourced from advanced economies, such as Germany (19.4%), and the United States (16.9%). In terms of exports, Egypt was the fourth largest exporter of PPE in Africa, accounting for 6.4% of the continent’s total during 2017-19, after Morocco, Tunisia and South Africa.

  • Investing in safety and quality. Even the simplest medical devices can have large consequences on human health and this increases the requirements for such products to be reliable and safe for human use. Expanding and improving the quality infrastructure system to provide fast and low-cost access to the full range of testing and certification needs for both the local and the export market is crucial. Given the increasing digitalisation of medical devices, this will also necessitate co-operation across the quality infrastructure system and potentially the development of new services to meet this demand. Adapting the policy mix to incentivise investments in quality in innovation by medical device makers could also help unlock their potential (see Chapter 2).

  • Improving linkages along the value chain. As the medical device sector moves towards greater digitalisation and the incorporation of more electronic and ICT technologies in final products, Egypt could look to boost linkages and co-operation with E&E players and start-ups. For example, exploring joint actions, such as networking and match-making initiatives, by respective business associations could help in this regard. Aligning policies that support E&E as a whole with those that support medical devices and ensuring that E&E actions also take into account the specific challenges faced by electromedical firms will also be important to create synergies. In addition, linkages could also be strengthened with the cotton and chemicals value chains to develop products that rely heavily on these as raw materials, such as face masks and other PPE. Malaysia, the world’s top surgical glove exporter, leveraged its ample rubber resources and built capabilities in rubber-based goods by investing in institutions and partnerships to increase value addition. For example, the Malaysian Rubber Board and the Rubber and Plastics Institute Malaysia conduct R&D along the rubber value chain, from crops to processing and derivative materials and products.

Worldwide, the agro-food and E&E industries have been undergoing rapid changes, even before the COVID-19 pandemic, that have been redefining the assets needed to compete in a global market. The pandemic has accelerated some of these trends, notably a shift towards digitalisation and an emphasis on regional markets and sustainability. While the future remains highly uncertain, Egypt will need to update its traditional approach to unleash the potential of these two industries and enable them to continue growing in this new landscape. Already the country has taken some positive steps. In agro-food, the establishment of the National Food Safety Authority (NFSA) represents an advancement in fostering quality in local food production; while for E&E, policies have paid increasing attention to start-ups. Drawing on peer learning from Italy and Malaysia, the PTPR process has identified elements for a forward-looking strategy in each of the two industries, given their unique history, structure and potential. For agro-food, Egypt should focus on building and enhancing partnerships for Agro-food 4.0 to make it sustainable, inclusive and innovative; on updating branding and signalling quality; and on taking actions that will enable MSMEs to better capture the potential of a growing industry. For E&E, priority actions should include ensuring better alignment between policies and institutions (to attract FDI and build domestic capabilities), prioritising quality and building trust, increasing logistics efficiency, and tapping into the benefits of continental markets.

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Note

← 1. E&E encompasses products that rely on electrical and electronic technologies to function. According to the International Standard Industrial Classification (ISIC) Rev. 4, E&E encompasses the following activities:

  • Manufacture of computer, electronic and optical products. Sub-groups include electronic components, computers and peripherals, communication equipment, consumer electronics, measuring and testing equipment and electromedical equipment.

  • Manufacture of electrical equipment. Sub-groups include batteries, cables, motors, wires, lighting equipment and domestic appliances.

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