Egypt’s Surprisingly High Potential in High-tech Industries

by Tarek Erfan Shafey

Personal computer processing chips

Egypt’s Potential

Egypt has the raw materials, favorable location and trade relations, and attractive workforce for production and exporting success in the highly profitable high-tech industries. For that to happen, it is essential to leverage and optimize utilization of those strategic advantages and create a favorable investment environment, but in a modern, balanced, equitable and sustainable way that also protects the rights of Egypt and its workers.

Many thriving world high-tech products are feasible in Egypt: computer processing chips, internet fiber optic cables, precision optics equipment , photovoltaic (PV) solar power cells and panels, mobile phones, TV sets, car electronics, plus the medium-tech but also profitable glass products. The linchpin is that Egypt has world’s largest (85 million tons) deposits of the finest white glass sand, which is the raw material for these products, along with abundant quantities of the important minerals tantalum and quartz. Glass sand is now exported at low prices and the others largely overlooked, which is a serious but rectifiable strategic mistake. The world market for high-tech products is vast, valued in the trillions of US Dollars, and world manufacturing is dominated by eastern and southeastern Asian countries, whose decades-old dominance is now unshakable, especially as regards markets in Asia and the Americas. It is now strongly and increasingly bolstered by China as an investment source and a huge and fast-growing market, along with Japanese, Taiwanese and Korean firms which have for decades utilized the lower labor costs in southeastern Asian countries, and Singaporean and Malaysian firms, which are newer, homegrown, quite innovative and profitable producers and exporters.

Egypt largely lacks the high-tech industrial base, but has four other key strategic advantages that allow it to attract investment from the dominant eastern Asian manufacturers to produce in Egypt, and compete and export successfully. It is ideally located, on the world’s busiest shipping routes via the Suez Canal, on Europe’s doorstep, very close to fellow Arab and African markets, and with strong trade relations with all three regions, which would be Egypt’s target markets. The workforce is very large, cost-competitive and readily trainable, with the Egyptian Pound’s weakness a further export advantage. PV solar power cells and panels hold special potential, for both domestic use and exports. All of Egypt is very sunny, and with a 102 million population the home market for many high-tech products is large and lucrative. The solar world market for solar power is booming, and as the world climate grows hotter and pollution worsens, demand for clean and economic, renewable energy booms with it. Solar power’s potential is very high in Egypt, and raw materials allow extensive investments in solar power stations, with very high output and profitable exports of electricity. Wind power as well has excellent potential and advantages, and can perfectly complement solar power in Egypt’s windy areas.

Egyptian private firms cleanly and efficiently produce TV sets, consumer electronics, and more recently PV cells and panels are produced by diverse firms, but still on a limited scale. Glass products are mainly produced in northern Cairo by old, inefficient, loss-making and polluting, state-owned enterprises, which need thorough reforms as outlined below. Egypt can clearly be very cost-competitive and successful, with quality, home-made, high-tech products domestically, exports in multiple billions of US Dollars, strong technological advances, plentiful, well-paying jobs, and high tax revenues for spending on health and education. Nonetheless, it is essential to start by making a smart and far-sighted decision to stop exporting the glass sand and other raw materials, and focus on building a successful and far more profitable, integrated home grown high-tech product manufacturing base, with all the needed reforms. It is also essential to balance a business-friendly environment, which includes a balanced, mobile and flexible labor market, with economic equitability and long-term environmental sustainability. Those are water and energy-intensive thermal industries, and may cause pollution and waste water and energy unless planning is thorough and excellent all-round, with water and energy efficiency and environment protection policies and regulations enacted and vigilantly enforced.

Balanced, Sustainable Success

We begin with the all-important location of the industries, along with sustainability. They need to be in special industrial zones with trading ports, on the sea, near the raw materials, on highways, far away from beach resort tourism, with easy imports of equipment and exports of finished products or easy transport to domestic markets. Three locations fit the bill perfectly: Bir El-Abd on Sinai’s northern, Mediterranean Sea coast, and Zaafarana and Qusseir further south, both on the Red Sea coast. They would use seawater: desalinated via concentrated solar power (CSP), treated and reused. As much as possible, automation and solar power (CSP and PV) would be used, along with wind power when windy: all year at Zaafarana and in winter at Bir El-Abd. For fuel, Bir El-Abd would use the fine, very clean and low-cost biogas, generated from agricultural, animal and organic waste from the rich farm areas nearby. On the Red Sea coast, which is oil-rich but has no agriculture, Liquid Petroleum Gas (LPG) is a fine, lower-cost substitute for natural gas. Water and energy efficiency and environment protection regulations and best-practice methods, with strict enforcement, are all a must.

Moving on to the business environment, adaptability and forward thinking are needed. Egypt’s five strategic advantages outlined above are a necessary but not sufficient condition for investment attraction and exporting success. The real key to attracting investment, especially in the cutting-edge and fast-moving high-tech sector, is not via excessive tax and profit repatriation privileges, but rather via reforms for ease of doing business, and clarity, transparency and fairness of the business, legal and regulatory environment. Those are essential advantages that provide much-needed certainty and stability, in return for which many businesses are typically willing to accept greater taxation and environmental regulation. Egypt is in need of such reforms, as well as others that facilitate and give preferential treatment to exporting. Engaging our trading partners, seeking closer trade relations and better access to their markets are also much-needed.

It is important, while protecting copyrights, to import, acquire and appropriate in Egypt the latest technologies, including automation and the use of robots, and require partnering with qualified private Egyptian firms. A flexible and balanced labor market is another must to attract investors. Egypt needs to mandate the training and hiring of Egyptian staff, especially lower-skill workers, along with managers, engineers, production supervisors and technicians. A flexible and mobile labor market is a must, with ease of hiring, laying off staff and switching jobs. This is a sensitive aspect in Egypt, where the economy has in past decades been state-dominated, statist ideology remains stubbornly well-supported, and private sector workers typically lack important social safety nets such as jobless benefits, retirement pensions and health insurance. This leads many industrial workers to prefer state enterprises due to their very generous benefits and even demand profit-share bonuses, despite those firms’ lower wages, poorer work environment, inefficiency and loss-making.

Thorough reform is needed. Denmark’s “flexicurity” job market has proved a great success, with ease of hiring, laying off staff and job switching, and generous but conditional and time-limited jobless benefits that foster a quick return to the job market, a low jobless rate, healthy labor turnover, wage levels and growth, and good industrial relations with worker unions that provide for their members and use their bargaining power responsibly. Highly recommended are universal health insurance, modeled on Canada’s efficient scheme with additional funding by taxes on high-profit firms, and a national universal retirement pension, modeled on the USA’s prized Social Security. Egypt’s population is much younger than nearly all developed countries, which would lead to higher revenues, lower pension burdens, and keep the scheme sustainably solvent for many decades, during which suitable reforms can be enacted as needed for continued solvency.

Labor education, skills, productivity, profits and wages are a related, important and integrated element. Egypt’s labor costs, skills, productivity and quality of education are generally fairly low, but Egyptians have long and repeatedly proven eager and able to learn, disciplined, hardworking and very productive when holding jobs that pay well, provide a good and fair work environment, with appropriate social safety nets, and are worth keeping. Formal education of managers and engineers, and technical and vocational education and job training of technicians and workers, need improvement. Funding and foreign expertise are needed, and German formal and vocational education in industrial and mechanical engineering has long proven outstanding and yielded standout products and very productive, highly-paid labor.

Firms will need to offer good wages, while workers and unions need to accept that wages and wage growth will need to be in line with labor productivity and the cost of living. Requiring the tying of wage growth to productivity growth would incentivize hard work and productivity growth, which in turn raises both profits and wages. It would also provide healthy wage growth and worker security and avoid labor exploitation, with workers and their unions patiently awaiting and working to help achieve those worthy goals. Public opinion would support that state of affairs, provided that the media explains it to them properly and convincingly. Profit reinvestment requirements would also help a lot in this respect.

Supporting Reforms

Egypt still needs to restructure its glass industries north of Cairo, and enact further, supporting reforms. Those industries have existed since the 1950s and cause the problems outlined above, apart from wasting taxpayer money by their inefficiency and loss-making. They need to be privatized and moved to Zaafarana, which has many advantages including its proximity to 60% of Egypt’s white glass sand. Public policy needs to firmly target the national interest in an equitable, economically efficient and sustainable way, and both minimize economic and social dislocations and support those negatively impacted by reform and change, as well as win broad public approval and support in what in Egypt is a sensitive issue, though once again navigable via fairness in addition to properly and convincingly informing the public.

Workers can be aided in relocating to Zaafarana, offered compensation or generous early retirement packages, retrained and helped find jobs in other industries or fields, or helped start microbusinesses should they choose. To help employ citizens in Greater Cairo (22 million people), other, profitable but cleaner industries can be encouraged, mostly oriented to the huge market, such as food, pharmaceuticals, wood, paper, publishing and medium-tech, labor-intensive consumer electronics. Other clean and lucrative job sources include service sector activities such as management and engineering consulting, business process outsourcing, financial, medical and legal services, retail trade, and tourism.

Lastly, thorough reform is needed to attract relocation by skilled employees to new, fairly remote areas for high-value industries. Livable cities are needed, with good, well-paying jobs, good infrastructure, streets with trees, safety and security, roomy, comfortable and affordable homes to buy or rent, cheaper, renewable energy, cheap, easy transport, ample vacations to visit their relatives far away, a clean environment, healthy and active lifestyle, and high quality of life. Decentralization is needed at the local and provincial levels, for decision making, resource allocation, and the provision of good health, education, and other social and government services. In the interests of fairness, revenues from licensing and taxes from their mineral wealth need to be shared equally with the host province, in order to allow revenues and spending on such provinces, most of which are less developed, along with spending on more populous and developed provinces in Egypt’s north. Mineral processing should be either locally when environmentally and economically feasible and advisable, with employment priority to locals, especially in lower-skill jobs, otherwise the province with the minerals would be amply compensated. Great opportunity beckons for Egypt, and success is surely achievable.

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Business & policy analyst since 1988 at The World Bank (DC), The Arab Fund (Kuwait) & others. MBA in 1993, & six books & regular articles published since 2013.

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Tarek Shafey

Tarek Shafey

Business & policy analyst since 1988 at The World Bank (DC), The Arab Fund (Kuwait) & others. MBA in 1993, & six books & regular articles published since 2013.

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