Following meetings with representatives from Egypt’s industrial sector, including the Federation of Egyptian Industries, the Egyptian Businessmen’s Association, and the Federation of Investors in Small and Medium Enterprises, Prime Minister Mustafa Madbouli said a framework has been drawn up for a government initiative to support the industrial sector.

The initiative is meant to enhance local production and cement the country’s ability to withstand global crises, Madbouli said.

It is expected that the LE150 billion initiative will be approved during the next meeting of the cabinet. It is slated to last for five years and offers loans to the industrial sector at an 11 per cent interest rate.

The initiative will help the industrial sector to grow and expand, especially in the light of the increasing interest rate on certificates of deposit at the banks, which makes putting money in them more lucrative and easier than investing in industry, said Bassel Shoaira, head of the Industrial Development Division at the Federation of Egyptian Industries.

By supporting the sector, the state can increase its foreign currency sources and the country’s exports, he said. But funding is key, particularly with the rising cost of lending at the banks, which now averages 18 to 19 per cent.

The initiative should continue until the interest rates at the banks start going down to 11 to 12 per cent, Shoaira said, suggesting that the government also launch another initiative with an interest rate of eight per cent as it did three years ago.

More funding should be made available to factories to encourage production, he noted.

Funding is a major problem for the industrial sector, the ability of which to grow has been limited due to the high interest rates at the banks, said Mohamed Hanafi, head of the Chamber of Metallurgical Industries at the Federation of Egyptian Industries.

At its last meeting in 2022, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) raised interest rates by three per cent to contain inflationary pressures with the aim of limiting average inflation to seven per cent (±2 per cent) during the fourth quarter of 2024 and five per cent (±2 per cent) during the last quarter of 2026.

Over the course of 2022 the MPC raised interest rates by eight per cent overall, finally setting the overnight deposit, lending, and main operations rates at 16.25 per cent, 17.25 per cent, and 16.75 per cent, respectively.

The extent to which the industrial sector will benefit from the new initiative depends on its executive regulations and whether all sub-sectors will benefit, Hanafi said.

Some LE140 billion of the LE150 billion total will be directed to financing working capital operations and the rest to the purchase of capital goods. The initiative comes weeks after the CBE halted its own eight per cent initiative supporting the industrial sector.

Minister of Finance Mohamed Maait said the amount of credit available to each company under the new initiative would be determined by the size of the business and the banking rules in its regard.

He stressed that financing would be provided to companies at the comparatively low interest rate of 11 per cent, with the state shouldering the difference between this and commercial rates.

The earlier CBE initiative also benefited the industrial sector, said Mohamed Al-Mohandess, head of the Engineering Industries Chamber at the Federation of Egyptian Industries, adding that “it is too early to judge whether the new one will also benefit it.”

The previous initiative had saved many factories whose businesses were slowing down and helped other businesses to grow, he noted. The industrial sector had grown by 9.9 per cent by the end of 2021-22 and by 6.5 per cent the year before.

Media reports said in May last year that the CBE had allocated LE450 billion to fund its previous initiative, up from the LE200 billion decided earlier to overcome the repercussions of the Ukraine war and inflation and to maintain production.

In December 2019, the CBE launched an initiative to support the private industrial sector in Egypt at an interest rate of 10 per cent. Later on, it included the agricultural, manufacturing, and contracting sectors and reduced the interest rate to eight per cent for companies whose annual turnover or revenues exceeded LE50 million.

The initiative also focused on sectors that employ a large number of workers.

*A version of this article appears in print in the 19 January, 2023 edition of Al-Ahram Weekly.