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  • MADEinEGYPTChallengesofIndustrialDevelopment

    inanEmergingEconomy

    TarekH.SelimIPCVisiDngResearcher

    MITNovember16th,2016

    Fall2016SeminarSeriesonEmergingEconomies

    IndustrialPerformanceCenterMassachuseNsInsDtuteofTechnology

  • Objec'veofResearch

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

    2

  • Outline

    HistoricalMilestonesPoli'calEconomy IndustrialLandscape-CurrentSitua'on IndustrialPerformanceComparisonwithBRICS+EmergingEconomies

    StrategiesforIndustrialDevelopment ConcludingRemarks FutureWork

    3

  • HISTORICALMILESTONES&ECONOMICPOLICY

    4

  • 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

    5

  • 6

  • 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

    7

  • 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

    9

  • 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)

    10

    Sustainable Development

  • KeyLessonsLearnedfromEgyptshistory StronginsDtuDonswithminimumtransacDoncostscreatesustainabilityand

    higherVAneedforfacilita

  • INDUSTRIALLANDSCAPEEgyptsCurrentStatusQuo

    12

  • 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

  • 14

    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

    15

  • 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

  • 17

    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

    18

  • 19

    WorldEconomyMap,GDP(PPP)percapita,IMF2016

  • 20

    EmergingEconomies,GDPGrowth2016

  • 21

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

    EgyptsComparaDvePerformance

    llllllllllllll

  • 22

    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

    23

  • 24

    EgyptsRelaDvePerformance-IndustrialPerformanceIndex

    IPI

    MfgCapacityINSERTION

    MVApercapita,MfgExportpercapita

    Technologicaldeepeningandindustrialupgrading

    UPGRADINGMediumandhightechMVAshare,

    MediumandhightechMfgExportshare

    MfgTradeShareGLOBALIMPACT

    CountryshareinworldMVA,CountryshareinworldMfgExports

    Source:UNIDO,UNCOMTRADE

    I1

    I3

    I2

  • 25

    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

  • 26

    EgyptsPerformanceRelaDvetoBRICSPlusSub-Index

    Descrip

  • 27

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