made in egypt - mit industrial performance center … in egypt... · made in egypt challenges of...
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MADEinEGYPTChallengesofIndustrialDevelopment
inanEmergingEconomy
TarekH.SelimIPCVisiDngResearcher
MITNovember16th,2016
Fall2016SeminarSeriesonEmergingEconomies
IndustrialPerformanceCenterMassachuseNsInsDtuteofTechnology
Objec'veofResearch
Theobjec'veofthisresearchistoexaminetheindustrialdevelopmentofanemergingeconomy,i.e.Egypt,usinghistorical'melineaswellascompara'veperformancewithBRICS+emergingeconomieswithrecommendedstrategiestowardsasustainablefuture.
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Outline
• HistoricalMilestones–Poli'calEconomy• IndustrialLandscape-CurrentSitua'on• IndustrialPerformanceComparisonwithBRICS+EmergingEconomies
• StrategiesforIndustrialDevelopment• ConcludingRemarks• FutureWork
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AncientEgyp'anEconomy(3000BC–30BC)
• 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”
KeyLessonsLearnedfromEgypt’shistory① StronginsDtuDonswithminimumtransacDoncostscreatesustainabilityand
higherVAàneedforfacilita<ngins<tu<ons② LeadershipwithgoodplanningcreatesunprecedentedlaborproducDvity
increasesàneedforservantleadership③ ConcentraDngonlyonmegaprojectscreatesdebtanddeficitàneedforSMEsindustrialupgrading④ PosiDoningEgyptasatradelogisDcscenterisnotenoughàneedforGVCposi<oning⑤ State-ledindustrializaDoncanbeaniniDalbigpushbutisnotsustainableàneedforcri<calgovernment-ledplanningefforts⑥ Open-doortradepolicymustbecomplementedwithindustryspecializaDonàneedforauniquecompara<veadvantagewithintheglobalindustriallandscape⑦ PrivaDzaDonofSOEscanulDmatelyleadtonon-innovaDveprivatemonopoliesàneedforrelaxingbarrierstoentryandincen<vesforinnova<on
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RecentEconomicDataandWhatitmeansforIndustry…
13Source:Abovedataisbasedon2015figuresfromUNIDO,WorldBank,WorldFactbook,
WorldEconomicForum,CentralBankofEgypt.
EconomyFactor EconomyFeatures WhatitMeanstoIndustry...
GDP $1.1trillioneconomyRanked23rdworldwide
MarketSize
Growth RealGDPGrowthis4.2%(+duringrecession)
DiversiFicationactsasashieldtoexternalshocks
Savings 10.7%SavingsrateHighprivateMPC=0.84
Consumption-driveneconomyinneedofforeigninvestments
Unemployment 13% Labor-intensiveindustry
InFlation 11% InFlationarycostpressures
Tax 20%
FavorabletaxforMNEs
Currency ExchangeRateShockLE8.9/$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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Egypt’sLeadingIndustries…
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
“MADEinEGYPT”ForcesandFactors
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“BRICSPlus”Economies:BRICS,MINT,Jordan&TunisiaBRICS,Mexico,Indonesia,Nigeria,Turkey,Jordan,Tunisia
Egypt’sComparaDvePerformance
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
Egypt’sRelaDvePerformancetoBRICS
Egypt’sRelaDvePerformanceHighlights
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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Egypt’sRelaDvePerformance-IndustrialPerformanceIndex
IPI
MfgCapacity“INSERTION”
MVApercapita,MfgExportpercapita
Technologicaldeepeningandindustrialupgrading
“UPGRADING”MediumandhightechMVAshare,
MediumandhightechMfgExportshare
MfgTradeShare“GLOBALIMPACT”
CountryshareinworldMVA,CountryshareinworldMfgExports
Source:UNIDO,UNCOMTRADE
I1
I3
I2 π
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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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Egypt’sPerformanceRelaDvetoBRICSPlusSub-Index
Descrip<on/Factor
Rela<veRa<ng
I1 InserDon/IndustrialCapacity 25%I2 Technological&IndustrialUpgrading 84%I3 GlobalImpact 7%
IPIIndex IndustrialPerformancerelaDvetoBRICSPlus 0.65IPICategory
RankMiddle-IncomeEmergingEconomies 7th
IPIGeneralRank
AllCountries 71st
TopFiveIPIs1.Germany2.Japan3.Korea4.UnitedStates5.China
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GoodI2,lowI1:GoodtechnologythatlacksexpansionarycapacityOnonehand,Egyptisdoingwellincompara'vetermsregardingindustrialtechnologyandupgrading,butlackstheinser'oncapabilitytoexpanditsproduc'oncapacity.Enactpoliciestarge'ngbiggerscaleviamorelocal(andMNEs)expansionaryinvestments.LowI3givenI2:Smallglobalimpactgivenadequatetechnology&skillsOntheotherhand,Egypt‘sglobalimpactissmallcomparedtoitsexis'nglevelofproduc'ontechnologyduetolackofspecializa'onShiofocusfromadiversifiedindustrymixtowardsadeeperdegreeofspecializa'ontoestablishauniquecompara'veadvantageglobally.
Egypt’sRelaDvePerformanceImportantInsights
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LongTermVisionforEgypt’sIndustrialDevelopment
“AchieveaUniqueGlobalAdvantage”i.e.ShiwfocusfromdiversificaDontowardsspecializaDontoachieve
globaladvantageandscale
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STRATEGY1of5:AchieveBiggerScalewithCountrySpecializaDon§ "ThinkBigger"onscalebeyonddomes.cdemand...towards
globaldemand§ Governmentplanningtowardsefficiency-basedindustry
specializa.on(shorttomediumterm)&innova.on-based(longerterm)
StrategiesforEgypt’sIndustrialDevelopment
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StrategiesforEgypt’sIndustrialDevelopment
STRATEGY2OF5:CapitalizeonTechnologyBase§ Enforceinterna.onalqualitystandards§ Achievefastertechnologicaldiffusionbeyondtheexis.nglocalleadfirmsusingopen-accesstechnologyasmuchaspossible
§ EstablishUniversity-industryappliedR&Dcoopera.on§ Launchhighqualityvoca.onal/professionaltrainingandeduca.onins.tutes
§ Reformindustryregulatoryins.tu.onstobefacilita.ngratherthanauthoritarian
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StrategiesforEgypt’sIndustrialDevelopment
STRATEGY3OF5:MapLocalProducDonNetworkswithGlobalValueChains§ Breadthoflocalvaluechainsuppliersisagoodbasefor
feedingGVCs§ Maplocaldomes.ctechnologiestoGVCstoachievedepthof
globalpenetra.onandscale§ Financesub-componentSMEstoestablishstrongerdomes.c
produc.onlinkages
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StrategiesforEgypt’sIndustrialDevelopment
STRATEGY4of5:IntensifyInvestmentsinManufacturing§ Promoteinvestmentsinmanufacturingbeyondresource-basedindustriese.g.automo.ve,furniture,whitegoods
§ A8ractlaborintensiveFDIsforexportmanufacturing§ Relaxbarrierstoentryindomes.cmonopolis.cmanufacturingindustries
§ Containinfla.onviainterestratepolicy...beyondthecurrencyfloatshock
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StrategiesforEgypt’sIndustrialDevelopment
STRATEGY5OF5:PosiDonEgyptinrelaDontoOtherEmergingMarkets§ LearnfromBrazilandMexico...localinnova.onins.tutes(Brazil)andbiggermanufacturingscale(Mexico)
§ Capitalizeoncountrystability...Egyptispoli.callystablerela.vetoitsregion,andhasfinanciallystableBra.ngsoutlook
§ Geographicaladvantageinlogis.csisnotenough
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Egypt’spathofindustrialdevelopmentcanachieveauniqueglobaladvantagewithbiggerproduc.onscaleusingefficiency-drivencapabili.esapproachofindustryspecializa.onwithamorefocusedanddeeperglobalimpactforthecountry’sfuture
InConclusion…
FUTUREWORK
• TimelineStrategies• StakeholderImpactAssessment• On-SiteInterviews• GVCMapping• CaseStudies• IPCWorkingPaper
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