Egypt is one of the economy in the Middle East and North Africa with great potential in terms of population size and natural resource reserves. As well, it may realize economic growth and diversification through industrialization because it doesn’t depend on oil or natural gas excessively and currently has basic foundations in manufacturing sectors.
Starting from this assessment on the Egyptian economy, this study inquires into the appropriate direction of Egypt’s future industrial policy and, further, aims to propose some policy measures to strengthen economic ties between Egypt and Korea.
Egypt, as Korea did, adopted industrial policies for industrialization and industrial up-grading merely to be unsuccessful. Import substitution industrial policy in the 1950s and 1960s led to only stagnant productivity and large trade deficits. Later in the 1990s, Egypt shifted its policy toward export promotion, but the policy ended with protection for vested interests of old uncompetitive manufacturers. The result left the Egyptian economy heavily dependent on staple industries with low value-added such as textile and clothing, food, and oil and chemistry.
While Korea promoted new high-tech industries as strategic sectors to level up its position in the international value chain, Egypt adopted a strategy to support all of manufacturing sectors rather selected industries. Policies to attract foreign direct investment, to develop attractive industrial zones, and to produce technology and skilled labors were also disappointing, which was mainly attributable to corruption and red-tape.
Relying on Korea’s experiences with consideration of the current situations in and around the Egyptian economy, this study suggests some directions for the future industrial policy in Egypt. First, Egypt needs to selectively support strategic industries with large employment absorption capacity. Second, Egypt needs to upgrade its industrial structure in the mid or long run, although in the short run it may focus on investment in infrastructure and mega civil engineering projects for prompt job creation. Third, Egypt needs to refine incentive mechanism to attract FDI by enhancing labor market flexibility and streamlining administrative procedure. Last, Egypt needs to ensure political stability, corruption control, and government efficiency, which are all pre-conditions for successful implementation of an industrial policy.
When selecting strategic industries, Egypt should mainly consider three aspects of candidate industries: static and dynamic comparative advantage, global market growth, economy-wide spill-over effect. Through considering and measuring these three aspects, this study selects 9 industries as Egyptian strategic sectors: primary metal manufacturing, non-metal mineral manufacturing, food and beverage, chemicals, textile, metal manufacturing, electric equipment, rubber and plastics, furniture. Further, this study proposes more active cooperation between Egypt and Korea in 5 industries out of 9 above: primary metal manufacturing, food and beverage, chemicals, electric equipment, rubber and plastics.
This selection is based on match-making between the Egyptian strategic industries and Korea’s overseas investing industries. As cooperation tools at industry level, this study suggests Korean companies’ participation in the Egypt’s electric power generation and distribution, creation of industrial zones in Egypt exclusively for Korean companies, sharing of Korea’s experiences in industrial policy, enhancing the Egyptian capacity for R&D and vocational training, and supporting the establishment of a national chemical research institute in Egypt.