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

40
MADE in EGYPT Challenges of Industrial Development in an Emerging Economy Tarek H. Selim IPC VisiDng Researcher MIT November 16 th , 2016 Fall 2016 Seminar Series on Emerging Economies Industrial Performance Center MassachuseNs InsDtute of Technology

Upload: trinhtuong

Post on 30-Aug-2018

241 views

Category:

Documents


1 download

TRANSCRIPT

MADEinEGYPTChallengesofIndustrialDevelopment

inanEmergingEconomy

TarekH.SelimIPCVisiDngResearcher

MITNovember16th,2016

Fall2016SeminarSeriesonEmergingEconomies

IndustrialPerformanceCenterMassachuseNsInsDtuteofTechnology

Objec'veofResearch

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

2

Outline

•  HistoricalMilestones–Poli'calEconomy•  IndustrialLandscape-CurrentSitua'on•  IndustrialPerformanceComparisonwithBRICS+EmergingEconomies

•  StrategiesforIndustrialDevelopment•  ConcludingRemarks•  FutureWork

3

HISTORICALMILESTONES&ECONOMICPOLICY

4

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”

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”

KeyLessonsLearnedfromEgypt’shistory①   StronginsDtuDonswithminimumtransacDoncostscreatesustainabilityand

higherVAàneedforfacilita<ngins<tu<ons②   LeadershipwithgoodplanningcreatesunprecedentedlaborproducDvity

increasesàneedforservantleadership③   ConcentraDngonlyonmegaprojectscreatesdebtanddeficitàneedforSMEsindustrialupgrading④   PosiDoningEgyptasatradelogisDcscenterisnotenoughàneedforGVCposi<oning⑤   State-ledindustrializaDoncanbeaniniDalbigpushbutisnotsustainableàneedforcri<calgovernment-ledplanningefforts⑥   Open-doortradepolicymustbecomplementedwithindustryspecializaDonàneedforauniquecompara<veadvantagewithintheglobalindustriallandscape⑦   PrivaDzaDonofSOEscanulDmatelyleadtonon-innovaDveprivatemonopoliesàneedforrelaxingbarrierstoentryandincen<vesforinnova<on

11

INDUSTRIALLANDSCAPEEgypt’sCurrentStatusQuo

12

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

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

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

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

“MADEinEGYPT”ForcesandFactors

EGYPT’SCOMPARATIVEPOSITIONRELATIVETOOTHEREMERGINGECONOMIES

18

19

WorldEconomyMap,GDP(PPP)percapita,IMF2016

20

EmergingEconomies,GDPGrowth2016

21

“BRICSPlus”Economies:BRICS,MINT,Jordan&TunisiaBRICS,Mexico,Indonesia,Nigeria,Turkey,Jordan,Tunisia

Egypt’sComparaDvePerformance

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

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

23

24

Egypt’sRelaDvePerformance-IndustrialPerformanceIndex

IPI

MfgCapacity“INSERTION”

MVApercapita,MfgExportpercapita

Technologicaldeepeningandindustrialupgrading

“UPGRADING”MediumandhightechMVAshare,

MediumandhightechMfgExportshare

MfgTradeShare“GLOBALIMPACT”

CountryshareinworldMVA,CountryshareinworldMfgExports

Source:UNIDO,UNCOMTRADE

I1

I3

I2 π

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

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

27

GoodI2,lowI1:GoodtechnologythatlacksexpansionarycapacityOnonehand,Egyptisdoingwellincompara'vetermsregardingindustrialtechnologyandupgrading,butlackstheinser'oncapabilitytoexpanditsproduc'oncapacity.Enactpoliciestarge'ngbiggerscaleviamorelocal(andMNEs)expansionaryinvestments.LowI3givenI2:Smallglobalimpactgivenadequatetechnology&skillsOntheotherhand,Egypt‘sglobalimpactissmallcomparedtoitsexis'nglevelofproduc'ontechnologyduetolackofspecializa'onShiofocusfromadiversifiedindustrymixtowardsadeeperdegreeofspecializa'ontoestablishauniquecompara'veadvantageglobally.

Egypt’sRelaDvePerformanceImportantInsights

STRATEGIESFORINDUSTRIALDEVELOPMENT

28

29

30

LongTermVisionforEgypt’sIndustrialDevelopment

“AchieveaUniqueGlobalAdvantage”i.e.ShiwfocusfromdiversificaDontowardsspecializaDontoachieve

globaladvantageandscale

31

STRATEGY1of5:AchieveBiggerScalewithCountrySpecializaDon§  "ThinkBigger"onscalebeyonddomes.cdemand...towards

globaldemand§  Governmentplanningtowardsefficiency-basedindustry

specializa.on(shorttomediumterm)&innova.on-based(longerterm)

StrategiesforEgypt’sIndustrialDevelopment

32

StrategiesforEgypt’sIndustrialDevelopment

STRATEGY2OF5:CapitalizeonTechnologyBase§  Enforceinterna.onalqualitystandards§  Achievefastertechnologicaldiffusionbeyondtheexis.nglocalleadfirmsusingopen-accesstechnologyasmuchaspossible

§  EstablishUniversity-industryappliedR&Dcoopera.on§  Launchhighqualityvoca.onal/professionaltrainingandeduca.onins.tutes

§  Reformindustryregulatoryins.tu.onstobefacilita.ngratherthanauthoritarian

33

StrategiesforEgypt’sIndustrialDevelopment

STRATEGY3OF5:MapLocalProducDonNetworkswithGlobalValueChains§  Breadthoflocalvaluechainsuppliersisagoodbasefor

feedingGVCs§  Maplocaldomes.ctechnologiestoGVCstoachievedepthof

globalpenetra.onandscale§  Financesub-componentSMEstoestablishstrongerdomes.c

produc.onlinkages

34

StrategiesforEgypt’sIndustrialDevelopment

STRATEGY4of5:IntensifyInvestmentsinManufacturing§  Promoteinvestmentsinmanufacturingbeyondresource-basedindustriese.g.automo.ve,furniture,whitegoods

§  A8ractlaborintensiveFDIsforexportmanufacturing§  Relaxbarrierstoentryindomes.cmonopolis.cmanufacturingindustries

§  Containinfla.onviainterestratepolicy...beyondthecurrencyfloatshock

35

StrategiesforEgypt’sIndustrialDevelopment

STRATEGY5OF5:PosiDonEgyptinrelaDontoOtherEmergingMarkets§  LearnfromBrazilandMexico...localinnova.onins.tutes(Brazil)andbiggermanufacturingscale(Mexico)

§  Capitalizeoncountrystability...Egyptispoli.callystablerela.vetoitsregion,andhasfinanciallystableBra.ngsoutlook

§  Geographicaladvantageinlogis.csisnotenough

CONCLUDINGREMARK

36

37

Egypt’spathofindustrialdevelopmentcanachieveauniqueglobaladvantagewithbiggerproduc.onscaleusingefficiency-drivencapabili.esapproachofindustryspecializa.onwithamorefocusedanddeeperglobalimpactforthecountry’sfuture

InConclusion…

NEXTSTEPS…FUTUREWORK

38

FUTUREWORK

•  TimelineStrategies•  StakeholderImpactAssessment•  On-SiteInterviews•  GVCMapping•  CaseStudies•  IPCWorkingPaper

39