made in egypt - mit industrial performance center in egypt... · made in egypt challenges of ......

MADEinEGYPTChallengesofIndustrialDevelopment

inanEmergingEconomy

TarekH.SelimIPCVisiDngResearcher

MITNovember16th,2016

Fall2016SeminarSeriesonEmergingEconomies

IndustrialPerformanceCenterMassachuseNsInsDtuteofTechnology

Objec'veofResearch

Theobjec'veofthisresearchistoexaminetheindustrialdevelopmentofanemergingeconomy,i.e.Egypt,usinghistorical'melineaswellascompara'veperformancewithBRICS+emergingeconomieswithrecommendedstrategiestowardsasustainablefuture.

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Outline

HistoricalMilestonesPoli'calEconomy IndustrialLandscape-CurrentSitua'on IndustrialPerformanceComparisonwithBRICS+EmergingEconomies

StrategiesforIndustrialDevelopment ConcludingRemarks FutureWork

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HISTORICALMILESTONES&ECONOMICPOLICY

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AncientEgyp'anEconomy(3000BC30BC)

Core:SolidIns.tu.onalframeworkwithminimumtransac.oncosts Industries:stone,jewelry/poNery,woodenproducts/furniture,

glass(fromsilica),texDles&linens,paper(papyrus),bronzeweapons,logisDcs

Industriala8ributes:specializedlabor,mechanicalropes,standards Economy-wideFeatures:

o Tradespecializa'onwithhighvalue-addedproductso Silverasarisk-freeuniversalmediumofexchangeo Impor'ngrawmaterialswhileexpor'nghighervalueoutput

Source:BrianMuhs(2016),UniversityofChicago,TheAncientEgyp'anEconomy,Published

byCambridgeUniversityPress.

Value chain management with efficient utilization of resources

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MehmetAliPasha(1805-1848)

CreditedasthefounderofmodernEgypt EndedO_omanruletomakeEgyptindependent Core:Highlyplannedeconomywith4xproduc.vityincrease Industries:armsweaponry,ship-building,texDlesDVC Economy-wideFeatureswithmassivereformin:

o Agriculture:Co_oncashcropsystemo Educa'onreformespeciallyreligiouseduca'ono Culturalchangetowardswomeno Statetaxcollec'onwithefficientcentraladministra'onSource:H.H.Dodwell,TheFounderofModernEgypt(1977)andA.Marsot,EgyptintheReignofMuhammadAli(1984);ColumbiaUniversityPress.

European import substitution

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KhedeviIsmail(1863-1879)

GrandsonofMehmetAli Core:MegaProjectswithHighDebt MegaProjectsinclude:

o TheSuezCanalo Na'onalRailwaysystemo Egyp'anPostOfficeo AlexandriaPort

Economyfeatures: Na'onalDebtincreasedsubstan'ally(300%ofGDP) WorldCo_onBoom HisplanswereLogis'cs-basedtradeposi'oning

Source:HelenChapin,Egypt:ACountryStudy,Washington,LibraryofCongressGPO,1990. 8

Geo-political logistics

TheFirstRepublic1952-2011

NASSER SADAT MUBARAK

1952-1970 1970-1981 1981-2011

DiversifiedState-ledIndustrializaDon

Open-doortradepolicy PrivaDzaDonleadingtocronyindustrialcapitalists

Tex'les,WhiteGoods,Electronics,Steel,Cement,Militaryproduc'on

Tradedeficitinmanufacturedgoods,andhighconsump'onofimports;Oilsurplus

Wealthconcentra'onofindustrialac'vitybyfamilybusiness,'eswithpoli'calregime;NewCairo

Importsubs'tu'on Opentrade Exportpromo'on

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TheSecondRepublic(2013-today)

MegaProjectso SuezCanalExpansion(doubling)o EgyptasLogis'cstradecentero Infrastructure

Economyfeatures:o Poli'calStabilityisKeyo Relianceonforeignaidforeconomystabiliza'ono Exchangeratefloa'ngshock&Debtconcerns

Industries:Steel&Cement;FurnitureCluster(Damie_a);Gold&Marble;Automo've;NaturalGas(newdiscoveries)

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Sustainable Development

KeyLessonsLearnedfromEgyptshistory StronginsDtuDonswithminimumtransacDoncostscreatesustainabilityand

higherVAneedforfacilita

INDUSTRIALLANDSCAPEEgyptsCurrentStatusQuo

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RecentEconomicDataandWhatitmeansforIndustry

13Source:Abovedataisbasedon2015figuresfromUNIDO,WorldBank,WorldFactbook,

WorldEconomicForum,CentralBankofEgypt.

EconomyFactor EconomyFeatures WhatitMeanstoIndustry...GDP $1.1trillioneconomy

Ranked23rdworldwideMarketSize

Growth RealGDPGrowthis4.2%(+duringrecession)

DiversiFicationactsasashieldtoexternalshocks

Savings 10.7%SavingsrateHighprivateMPC=0.84

Consumption-driveneconomyinneedofforeigninvestments

Unemployment 13% Labor-intensiveindustry

InFlation 11% InFlationarycostpressures

Tax 20%

FavorabletaxforMNEs

Currency ExchangeRateShockLE8.9/$toLE17.5/$

Exportorientedindustrypotential

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agriculture11%

industry36%

services53%

Industry-GDPValueContribuDon

agriculture29%

industry24%

services47%

Industry-LaborForceContribuDon

GDP/Sector

RelaDveSectorEfficiency(Value-to-Labor)

Agriculture 0.4

INDUSTRY 1.5

Services 1.1

RelaDveSectorEfficiency

MadeinEgypt-Prospects

So,ontheposi.vesidemarketsize,availableskills,favorabletax,

exportpoten'al,rela'vesectorefficiency Andonthenega.vesideinfla'onarycostpressure,needfordiversifica'on

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EgyptsLeadingIndustries

16Source:COMTRADE(UN)2013-2015,andMinistryofIndustryReports,OfficeoftheMinister,2016

Industry ResourceBased?

LeadFirm

ScaleEffects Exportordomestic? AdditionalInfo

NaturalGas Yes No High Export(Surplus) 15thWorldwideRankinReserves

Gold Yes Yes Moderate Export GoldenTriangleinEastEgypt

Cement Yes Yes-Export High Both(LeadingMfgExport) LeadingMfgExport,MNEs

Steel Yes Yes High Domestic LocalleadFirm,Highlyenergydependent

ConsumerElectronics No Yes Moderate Export(CableTelcom) JointVentures,LeadFirm

Textiles Yes No Low Both(Segmented) Fragmented/VerticalSupplyChain,TechnologyIssues

Chemicals&Fertilizers No Yes Moderate Domestic StateMonopoly

FoodProcessing Yes No Moderate Both LocalDemandDriven

Pharmaceuticals No No High Domestic MNEsvs.SOEs(dualmarketschemes)

Automotive No No Moderate Domestic Assembly(German),Trucks

Furniture No No Low Domestic DamiettaIndustrialCluster(Governorate)

Ceramics No Yes High Export(Africa)

LeadingMfgExporttoAfrica

WhiteGoods&HomeAppliances

No Yes Moderate Domestic FamilyBusiness

LeatherProducts Yes No Low Domestic RobeikyCityCluster

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BUYERSOPHISTICATION

- PriceSensi've- Bandwagoneffect- Brandloyalty

(resistancetochange)

PRODUCT/TECHNOLOGY

- Marketsize- Lowvalue-added- Laborintensive- LimitedR&D- Slowtech.diffusion- Entrepreneurship

capabili'es

ENTRY&EXIT- CountryRiskisBstable- ImportanceofScaleon

entry- Assetapprecia'onon

exit

COMPETITIONAND

STRUCTURE- Diversified- Monopolis'c/

Oligopoly- FamilyBusiness- Importrestric'ons- Leadfirmdrio- NoleadMfgindustries

SUPPLIERSANDINPUTS- Laborunions- Socialperspec've- Equipmentimports- Supplychain

fragmenta'on

MADEinEGYPTForcesandFactors

EGYPTSCOMPARATIVEPOSITIONRELATIVETOOTHEREMERGINGECONOMIES

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WorldEconomyMap,GDP(PPP)percapita,IMF2016

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EmergingEconomies,GDPGrowth2016

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BRICSPlusEconomies:BRICS,MINT,Jordan&TunisiaBRICS,Mexico,Indonesia,Nigeria,Turkey,Jordan,Tunisia

EgyptsComparaDvePerformance

llllllllllllll

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Size ProducDvity CompeDDveness InnovaDon

(Rank) (Value) (Rank) (Rank)EGYPT 25 $10,249 115 122BRICS 12 $13,974 48 50

BRICSPlus 24 $12,937 61 60RelativePerformance

Egypt/BRICS 48% 73% 42% 41%Egypt/BRICSPlus 96% 78% 53% 49%

Notes:-Sizeisaweightedaverageofdomes'candforeignmarketsize,GDPPPP,andExportsas%ofGDP.- Produc'vityisanindexofGDPPPPpercapita.- Compe''venessisbasedon12pillars:Ins'tu'ons,Infrastructure,MacroEnvironment,Health,Educa'on,GoodsMarketEfficiency,LaborMarketEfficiency,FinancialMarketDevelopment,MarketSize,Technology,Innova'on,andBusinessSophis'ca'on.- Innova'onisbasedonCapacityforInnova'on,Qualityofscien'ficresearchins'tu'ons,CompanyspendingonR&D,University-industryR&Dcoopera'on,Gov.procurementofadvancedtech.products,Talentavailability,andpatentapplica'onspermillionpopula'on.Sources:WorldBank,IMF,UNDP,WorldEconomicForum,TradingEconomics.com

EgyptsRelaDvePerformancetoBRICS

EgyptsRelaDvePerformanceHighlights

WhatEgyptactuallyperformswellin? Marketsize Produc'vity Highereduca'on Talentavailability Logis'csportsandair

transportquality Breadthofvaluechain

suppliers

WhatEgyptneedscriDcalimprovementsin? AppliedR&D University-industry

coopera'on Technologicaldiffusion Roadsandrailways Qualityofbasiceduca'on Voca'onal/technical

ins'tutes

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EgyptsRelaDvePerformance-IndustrialPerformanceIndex

IPI

MfgCapacityINSERTION

MVApercapita,MfgExportpercapita

Technologicaldeepeningandindustrialupgrading

UPGRADINGMediumandhightechMVAshare,

MediumandhightechMfgExportshare

MfgTradeShareGLOBALIMPACT

CountryshareinworldMVA,CountryshareinworldMfgExports

Source:UNIDO,UNCOMTRADE

I1

I3

I2

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EgyptBrazil

Russia

India

China

S.Africa

Mexico

Indonesia

Nigeria

TurkeyJordan Tunisia

0.0

0.5

1.0

1.5

2.0

0.0 0.5 1.0 1.5 2.0 2.5

I1 Capacity/Inser'on

I 2

Techn

ology/

Upgrading

I3 GlobalImpact=BubbleSizeAllCountriesrela'vetoBRICS+

SourcedataextractedfromUNIDO,UNCOMRTRADE,&WorldBank,2015forallcountries

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EgyptsPerformanceRelaDvetoBRICSPlusSub-Index

Descrip

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GoodI2,lowI1:GoodtechnologythatlacksexpansionarycapacityOnonehand,Egyptisdoingwellincompara'vetermsregardingindustrialtechnologyandupgrading,butlackstheinser'oncapabilitytoexpanditsproduc'oncapacity.Enactpoliciestarge'ngbiggerscaleviamorelocal(andMNEs)expansionaryinvestments.LowI3give