Egypt looks to special economic zones to attract investment, shore up industry

Egypt has a well-established system of special zones, industrial zones and free zones, overseen primarily by the General Authority for Investment and Free Zones (GAFI). The current zones system was established in 1997 and includes 10 public free zones clustered in and around Cairo, Alexandria and in areas close to Cairo’s waterways.

The country’s various zones have a wide range of different sector focuses. The Media Public Free Zone, in suburban Cairo, for example, hosts radio and television companies; while the Shebin El Kom Public Free Zone is mostly populated by the textile spinning and weaving industry.

However, the established zones will soon be joined by a newcomer, the Suez Canal Economic Zone (SCZ one), which is currently under development. Clustered around the Suez Canal, which connects two oceans and two seas. The zone is part of the government’s multi-billion-dollar investment into the canal and the surrounding area. It is best understood as a series of zones in the area, with supporting residential and retail developments. The SCZ one will be developed over 461 sq km and reside on both sides of the newly expanded Suez Canal (see transport chapter).

Administration

The zone will fall under the purview of the General Authority for the SCZ one, which will act as a centralised shop for investors. The authority has been given autonomy over all matters in the zones, save for national security, meaning that investors can count on it for licensing, tax collection, dispute resolution and utilities provision, rather than having to source these from multiple government entities. Moreover, simplified labour cost options have been established for the zone. A 22.5% corporate income tax will be levied across the board with no value-added tax. A tailored Customs regime will exempt all cargo transiting through Egypt or used inside the zone, and tariffs will be levied only on products and goods entering the domestic market.

Cluster Approach

Activity under the SCZ one plan will cluster around six ports in four zones: East Port Said, at the north end of the canal on the Mediterranean Sea; East Ismailia and Qantara West, at roughly its mid-point on the east and west banks of the canal, respectively; and Ain Sokhna, at its southern mouth. Specific elements of the plan are still being shaped, and in 2016 the authorities hired US-based management and technology consulting services firm Booz Allen Hamilton to help in developing more specific plans for infrastructure development to service the zones.

For now, the strategy envisions grouping specialities in each of the four sites. The areas around Ain Sokhna, for example, have been set aside for heavy industry and renewable energy manufacturing – a suitable choice given that Ain Sokhna is situated near Egypt’s windiest region. The Ismailia zone is being targeted for agri-business, textiles and ICT activities, while the coastal areas near Port Said are earmarked for light industry and logistics.

The plan has already attracted a number of investors, such as China’s Tianjin Economic-Technical Development Area (TEDA) Corporation, a Chinese state-owned entity that specialises in developing free zones in China. Egypt has been in discussions with the TEDA corporation since 2010. As of January 2016, 32 Chinese companies had opened up in SCZ one, with a total investment of $400m. During a state visit to Egypt, Chinese President Xi Jinping said the Chinese government would be investing up to $2.5bn in 100 companies. Another government-to-government deal to populate SCZ one has resulted in a Russian-led area to be developed near East Port Said. The value of investments has been pegged at $107.8m, spread across 398 companies in engineering, machinery, shipbuilding and food.

 

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The Report: Egypt 2017

Industry & Retail chapter from The Report: Egypt 2017