Republic of Egypt: FILE COPY Survey of Small Scale Industry · 2016. 7. 11. · 1 Egyptian Pound (LE) = US$2.56 1 US Dollar = LE 0.39 Parallel Market Rate (from ... E. OBJECTIVES

Report No. 1818-EGT

Arab Republic of Egypt: FILE COPYSurvey ofSmall Scale IndustryDecember 2, 1977

IDF DivisionEMENA Projects

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties Its contents may nototherwise be disclosed without World Bank authorization

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

Official Rate

1 Egyptian Pound (LE) = US$2.561 US Dollar = LE 0.39

Parallel Market Rate (from December 1, 1976)

1 Egyptian Pound (LE) = US$1.431 US Dollar = LE 0.70

ABBREVIATIONS

CPO General Egyptian Organization for ProductiveCooperatives and Small Industries

DIB Development Industrial Bank

FEI Federation of Egyptian Industries

GOFI Government Organization for Industry

HIPCO Handicraft Industries and Productive CooperativesOrganization

PVT Productivity and Vocational Training Department(Ministry of Industry)

FOR OFFICIAL USE ONLY

ARAB REPUBLIC OF EGYPT:

SURVEY OF SMALL SCALE INDUSTRY

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ......... . . . . .................................. . i-viii

I. INTRODUCTION ...... ................... 1....................

A. MORPHOLOGY OF SMALL SCALE INDUSTRY . .................. 2-20

II. THE INDUSTRIAL SETTING ........ . ............................ ...... 2

III. STRUCTURAL FEATURES ...................................... 4

Pattern of Ownership ............ .................... 4Size Distribution ................................... 5Sectoral Distribution ......... * ..... * ....... 6Regional Distribution ........ ............... . 6Distribution of Employment ........ .................. 8

IV. THE ARTISANAL SEGMENT .................. .................. 10

V. ORGANIZATIONAL AND OPERATIONAL CHARACTERISTICS ........... 15

Form of Ownership ....... ....... ....... . . . .................. . 15Origin of Entrepreneurship .......................... 15Labor Skills ..................................................... 15Wages oe... **... ........................................... 16Equipmaent ..... ... *.o.............................................. 16Capacity Utilization . ......................................... 17Workplaces ............ ......... ..................... 17Specialization of Management Functions .......... .. ... 18Linkages ........................................ .0............... 18Procurement ................. .. .. . 19Marketing ......... ........... .......................... 19Sourees of Competition . ............ ... . ... 19Quality and Range of Output ................. 20

B. PERFORMANCE OF SMALL SCALE INDUSTRY ................. 21-29

VI. DIMENSIONS OF SSI PERFORMANCE .............. . ............. 21

This report is based on the findings of a mission composed of Messrs.G. C. Maniatis, S. Banerji and A. Neilson (Consultant), which visitedEgypt for approximately three weeks in March-April 1977. The reporthas been discussed with and cleared for release by the Government.

This document has re tricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

TABLE OF CONTENTS (Continued) Page No.

Production .......................................... 21

Exports ............................................. 22

Value Added .............................. ........... 23

Employment Generation ...... ......................... 23Investment .......................................... 24

C. THE INSTITUTIONAL AND POLICY FRAMEWORK . ............. 30-36

VII. THE ADMINISTRATIVE APPARATUS ............. .. .............. 30

VIII. THE EXISTING POLICY FRAMEWORK ............ ................ 31

Tax Structure ....................................... 31

Tax Incentives ..... ................................. 32

Price Controls ...................................... 32

Industrial Location Policy ..... ..................... 32Procurement and Sub-contracting Policies ............ 33Protection ........... . ............................... 33

Import and Export Incentives .... .................... 33

IX. SMALL SCALE INDUSTRY FINANCING ARRANGEMENTS .............. 35

D. SECTORAL PROBLEMS OF SMALL SCALE INDUSTRY ........... 37-40

X. PROBLEM AREAS ....................... ..................... 37

ADDENDUM: THE LEATHER INDUSTRY ............ .. ............ 38

E. OBJECTIVES OF SMALL SCALE INDUSTRY AND STRATEGY ..... 41-43

XI. OBJECTIVES AND STRATEGY - A SUGGESTED APPROACH .......... . 41

F. POTENTIAL OF SMALL SCALE INDUSTRY ................... 44-51

XII. PROMISING SUBSECTORS - TARGET GROUPS ..................... 44

XIII. THE PROPOSED TECHNICAL ASSISTANCE PROGRAM ...... .......... 46

Overview of the Program ...... ....................... 46

The Extension Service .................... o.......... 48Project Preparation Service for SSIs ................ 49Skill Upgrading .. .......................... ...... . 49

Accelerated Training .................. ... .50

Management Training ................................... 50

Conditions for Effective Delivery of TechnicalAssistance ....................................... 50

Financing Requirements and Funding ............ # ..... 51

TABLE OF CONTENTS (Continued) Page No.

G. RECOMMENDATIONS ................. .. .................. 52-54

XIV. RECOMNENDED ACTION ....................................... 52

Policy Aims ....... ............ .. .................... 52Technical Assistance ................... .. ........... 53Surveys ............................................. 54

LIST OF ANNEXES

Annex No.

1 Regional Distribution and Occupational Structure of IndustrialLabor Force by Size of Establishment - 1966/67

2 Production, Value Added, Raw Materials, Wages in Private SectorEstablishments by Province and Number of Workers - 1970/71

3 Licenses for New Manufacturing Establishments Issued by Governorateof Alexandria - 1974-76

4 Sectoral Distribution of Establishments, Employment & Value Addedin Private Sector - 1970/71

5 Regional Distribution of Gross Value Added (10+ Establishments)by Industry - 1966/67

6 Regional Distribution of Private Manufacturing Establishmentsby Size - 1966/67 and 1970/71

7 Regional Distribution and Structure of Private ManufacturingEmployment by Size of Establishment - 1966/67 and 1970/71

8 Shares of the Artisanal Sector in Total Manufacturing, GrossValue Added and Employment by Branch of Activity - 1966/67

9 Establishments, Employment and Production in the ArtisanalSector - 1974

10 Structure of Fixed Assets and Employment in the ArtisanalSector - 1974

11 The Cooperative Societies

Appendix 1: Handicraft Industries and Productive CooperativesOrganization (HIPCO) - Organization Chart

Appendix 2: Geographical Distribution of ProductiveCooperatives - 1974

Appendix 3: Geographical Distribution of ProductiveCooperatives - 1976

Appendix 4: Training Centers Operated by HIPCO andtheir Capacity

Appendix 5: Survey of the Artisanal Sector - DraftTerms of Reference

12 Specialization of Management Functions in Private SectorEstablishments

13 Gross Value and Structure of Manufacturing Output inPrivate Sector - 1972-1976

LIST OF ANNEXES (Continued)

14 Gross Value of Manufacturing Output - 1972-7615 Sectoral Distribution and Direction of Manufactured Exports - 1973-7616 Sectoral Distribution and Structural Features of GOFI's Investment

Approvals - 197417 Sectoral Distribution and Structural Features of GOFI's Investment

Approvals - 1975

18 Sectoral Distribution and Structural Features of GOFI's InvestmentApprovals - 1976

19 Sectoral Distribution and Employment Structure of Private SectorInvestment and Production - 1976

20 Sectoral Distribution and Structure of Private Sector FixedCapital - 1976

21 Sectoral Distribution and Structure of Private Sector Production - 197622 Regional Distribution of Private Sector Investment, Production,

Value Added and Employment - 197623 Administrative Structure and Functions24 Commodities Whose Prices are Controlled25 Customs Duty Rates on Selected Imports26 Import Tariff Rates for Selected Commodities27 Deficiencies in Production Engineering and Technical Assistance

Requirements in Major Subsectors28 Deficiencies in Management Techniques and Technical Assistance

Requirements in Major Subsectors29 Survey of the Leather Industry - Draft Terms of Reference30 Extension Service - Evaluation Criteria of First Stage Performance31 The Engineering and Industrial Design Development Center

Appendix 1: Activities of the Engineering and IndustrialDesign Development Center

Appendix 2: Organization ChartAppendix 3: Training Courses and Seminars Offered by the

Engineering and Industrial Design DevelopmentCenter

Appendix 4: Staff Deployment

32 Activities of the Productivity and Vocational Training Department

Appendix 1: Training Programs Offered by Productivity andVocational Training Department During 1977

Appendix 2: Training SpecialitiesAppendix 3: Organization Chart

33 The Federation of Egyptian Industries

Appendix 1: Affiliated Chambers of IndustryAppendix 2: Sectoral and Regional Breakdown of Membership - 1976Appendix 3: Organization Chart

34 Scope and Organization of the Proposed Extension Service Program

SUMMARY AND CONCLUSIONS

Introduction

i. This is the Bank's first attempt to gain insights and familiaritywith the structure and performance of the Small Scale Industry (SSI) sectorand to identify the basic problems and needs hampering the growth of the SSIin Egypt. The identification of potential target groups for possible Banksupport and the formulation of a technical assistance package that could betacked onto an upcoming DFC operation, have been additional major consider-ations.

ii. For the purposes of this report, establishments employing 1-9workers will be referred to as the artisanal sector, while those employing10-50 workers as SSI. Different boundaries, e.g. a 10-100 employment bracketfor SSI, could probably be equally defendable on grounds of low capital/laborratios. Information on private sector industry, particularly on the SSI seg-ment, is distressingly fragmentary and unreliable. It follows that tracingand assessing developments in the SSI sector becomes extremely difficult.Conclusions arrived at should therefore be treated with caution.

Structural Features of the SSI and Artisanal Sectors

iii. In the wake of the nationalizations and punitive sequestrationsin the early 1960's, only relatively small manufacturing establishments,mostly employing less than 50 workers, remained under private ownership. Theprivate sector has virtually been excluded from the intermediate and capitalgoods industries and its share tends to be larger in consumer goods andgenerally in industries where scale economies are not very important. Despitethe uninviting climate, SSI has managed to hold its own and even grow, ac-counting for about one-third of total value added generated in industry and54% of total industrial employment. The sectoral distribution of privateownership, given the narrow confines of private initiative until the recentchange in Government attitude, has not changed perceptibly during the pastdecade or so. Leather, woodworking and furniture, wearing apparel and en-gineering (including metallic products) remain the dominant industries ofprivate activity and, by extension, of small scale manufacturing. Thereare some 4,000 establishments employing 10 or more workers. Establishmentsemploying 10-50 workers account for 90% of the total number, and 57% of totalemployment (some 122,000), of establishments employing 10 or more workersin the private sector. There have been no discernible changes in the sizestructure of enterprises. Greater Cairo presents the major concentration ofprivate manufacturing industries, accounting for 57% of the total number, 64%of employment and 67% of the value added generated by the 10+ establishmentsin the private sector, a trend which remains virtually unchecked.

iv. The artisanal sector is heavily oriented toward the production ofa wide range of household goods for local markets. Based on sketchy infor-mation, it appears that the ranking of artisanal activities in terms ofemployment and number of establishments has not changed significantly in thepast decade, suggesting continuation of past trends. The order has beenroughly as follows: ready-made garments, woodworking and furniture, food

processing, engineering/metallurgy, textiles, shoes and leather products,repairs. About three-quarters of the artisanal establishments have fixedassets valued (in 1974) at less than LE 100 and 97% at less than LE 1,000.This underscores the very low capital intensity of the small artisanal work-shop. Over 72% of the establishments employ only one worker, while 98%five workers or less. The average employment per establishment remains twopersons during the last decade, indicating no structural changes. Employmentin the artisanal segment probably amounts to some 330,000. During the lastdecade, as a result of the inhospitable climate, the artisanal sector does notappear to have grown significantly. About 50% of the artisanal undertakingsare members of cooperative societies. The cooperative system provides vir-tually no credit facilities to its members; nor does it make it any easier forthem to obtain credit from institutional sources. Some assistance to membersis provided through bulk purchases of materials and by obtaining approvals offoreign exchange requirements for imports. A number of cooperatives in theready-made garments, shoemaking and furniture making trades purchase andmarket all or part of the output of their members. The quality of technicalassistance currently provided to the artisanal sector leaves much to bedesired.

Sectoral Problems

v. Major problems adversely affecting productivity, quality of outputor service and, by extension, constraining the growth of SSI include: 1/ out-of-date machinery; deficient production and management (product design anddevelopment, production planning and work methods, material selection, qualitycontrol, preventive maintenance, etc.; poor working conditions and house-keeping; and marketing problems. Their relative importance varies with theparticular industrial activity and size of establishment. To correct thesituation extension technical assistance is necessary. The introduction ofmore sophisticated techniques and specialized machines creates a need forskill upgrading, while increasing shortages of skills (mainly due to emigra-tion to oil rich Arab countries) suggest the need for accelerated training.Shortage of space is a vexing problem and calls for devising appropriateschemes to accommodate SSI - industrial complexes (flatted factories) orindustrial estates - a task fraught with difficulties. Wanting infrastructure,particularly in telecommunications and transport, adds to existing difficulties.Timely procurement of raw and intermediate materials, despite recent improve-ments, still poses problems. Finally, lack of access to institutional finance,particularly of SSIs occupying the lower end of the size range, as well as thepresence of certain institutional restraints compound the situation.

Institutional Framework

vi. Administrative responsibility over SSI is divided among half a dozenMinistries. Dispersed responsibility for SSI hampers the development of con-sistent regulations and their uniform implementation, defies focusing on common

1/ The same range of problems mutatis mutandis afflict the artisanal sector.

- iii -

problems, and stultifies the initiation of proper action and coordination of

effort. Designation of responsibility for all activities in the SSI sector,

probably excluding the handicraft segment, in the existing Small Industries

Department in the Ministry of Industry, properly reorganized and revitalized,

would be highly desirable. Administrative procedures per se do not seem to be

particularly cumbersome. Rather it is the processing phase and the manner of

conduct which create inconvenience and delays, and efforts to improve effi-

ciency in these areas should be beneficial. So far, the Government's measures

aim primarily at easing up various bureaucratic hurdles, particularly in the

issue of licenses and foreign exchange restraints for the importation of raw

materials and equipment, a policy which is yielding tangible results. There

are still certain areas where the SSI sector appears to be discriminated

against (taxation and duties on imports of capital goods, the 10% price margin

in favor of the public sector in purchases of Government stores, etc.) and

remedial action is called for to place them on an equal footing with the

public sector. Because of the massive problems of verification and policing,

price controls cannot be monitored judiciously. In addition, though affecting

a rather limited range of SSI products, price controls tend to thwart the

promotion of new projects or the modernization and expansion efforts in the

industries affected (shoemaking, textiles, food processing). Steps ought to

be taken to let prices attain levels reflecting true opportunity costs.

Performance

vii. The performance of the private manufacturing sector (which can be

viewed practically as coextensive with SSI) in the most recent years has been

impressive. Output, which stagnated during 1972-74, increased by a remarkable

annual average of 15% in real terms between 1974 and 1976, reflecting the

vitality and favorable response of the sector to the Government's encouragement

of private initiative. Leather, building materials, chemicals, woodworking and

furniture, and engineering industries were the fastest growing. The portion

of total private manufacturing output which is exported remains very small -

6% in 1976. On this low basis, private sector exports almost doubled between

1973 and 1975, the leading industries being chemicals, leather, garments and

furniture. Eastern European countries, particularly the USSR, account for 94%

of total private exports. Such heavy reliance renders exports highly vulner-

able to political developments and strongly suggests the need for redirection

of trade. Employment in the private sector grew at an impressive annual rate

of 6.7% during 1966-74, compared with 2.4% in the public sector, raising its

share in total industrial employment from 47% to 54%. The record of the

private sector is even more impressive if account is taken of the overstaffing

of public enterprises for social and political reasons. Private sector employ-

ment reached an estimated 623,000 in 1974, of which some 70,000 are employed

in 10-50 worker size of establishments and possibly some 330,000 in the

artisanal sector. The share of the private sector in total industrial invest-

ment has been exceedingly small during 1970-74, averaging about 4% per annum

in current prices. In 1975, private investment increased by sevenfold to

LE 108 million and accounted for 10% of total; the percentage was slightly

higher in 1976. On the basis of approvals by the Government Organization

for Industry, engineering, textiles, chemicals and food processing projects

- iv -

account for 90% of total planned investment in 1974-76. Average plannedinvestment per project for all industries in the private sector taken togetherhas been rising since 1970, but more dramatically in 1975 and 1976, reflectinga tendency toward larger size projects and increased capital intensity. Never-theless, capital/labor ratios (based on planned investment) in the order ofLE 2,600 ($4,000) should still be viewed as relatively low.

Objectives and Strategy - A Suggested Approach

viii. SSI's role should be perceived as complementing that of the largerpublic and private enterprises. To further the course of SSIs, policiesshould be based on a positive, developmental attitude, seeking to promoteefficiency, adaptation to new circumstances and growth, rather than toprotect out-of-date types of production against the competition of moremodern methods. In this regard, the effectiveness and chances of success ofthe SSI effort would be greatly enhanced if financial and technical assis-tarce could be combined. Extending support to SSI should not mean to implythe creation of a privileged situation for SSI--a sort of discrimination inreverse. Rather, it should be construed as putting the SSI on an equalfooting with public sector enterprises and as establishing conditions forequal opportunities.

ix. In devising a strategy toward SSI, two major and parallel objectivesstand out: employment generation and alleviation of problems constraining thegrowth and development of SSIs, the latter amounting essentially to effortsat improving productivity. Open unemployment in Egypt is reportedly low -probably around 2% of the labor force - although underemployment is known tobe much higher. Recently, in the absence of a reservoir of skills, shortagesof particular skills are becoming increasingly evident. Under these circum-stances, creation of employment opportunities, though an important consider-ation in the next 5-10 years in the face of a youthful and growing populationand labor force, is not the singular and overwhelming issue. An equallyimportant issue with far-reaching implications is the need to improve produc-tivity. This latter objective can be achieved primarily through modernizationof equipment and improvement of the operating efficiency of the small manufac-turing establishments through a well-conceived and properly tailored technicalassistance program, including skill upgrading and accelerated training. Theintroduction of more sophisticated and specialized equipment at this stage ofEgypt's development should not be discouraged. But this should not lead to anindiscriminate choice of highly capital-intensive techniques and equipment.Given the scarcity of capital and foreign exchange and the comparatively lowerwages in Egypt by world standards, a conscious effort should be made to adopt"appropriate" technologies suitable to the local circumstances.

x. In essence, the strategy should be to direct private investmentand to extend support primarily to SSIs with relatively high probability ofsurvival and success and conducive to promoting the gradual integration of theSSIs with the rest of the industrial sector. Viability and self-sustainedgrowth are most likely to be attained, it would seem, by focusing on indus-trial activities with promising growth potential and characterized by rather

insignificant economies of scale, catering to specialized or low-priced marketniches, or displaying complementarity with activities undertaken by largerfirms, including efficient import substitution. Such a conscious approach,effected through the lending procedures of financial intermediaries, wouldensure that SSIs fill interstices, command an interlocking position within theindustrial structure, and constitute vital par-ts of a functionally integratedwhole.

Promising Subsectors - Target Groups

xi. Industries which appear most promising in terms of potentialgrowth comprise the engineering (including transport equipment), food pro-cessing, ready-made garments, footwear and leather products, woodworking andfurniture, printing and chemicals. Aside from growing demand and exportpotential, factors reinforcing the potential growth and viability of the aboveindustries include relatively insignificant scale economies; complementaritywith larger industry, involving manufacturing operations in which the pro-cesses are readily separable (e.g. producing specialized machine products,components and tools), craft or precision handwork, simple operations ofassembly, mixing, or finishing, provision of services and repairs to otherindustries; and production of differentiated products for specialized markets.These industries belong to the so-called modern SSI sector but have a rela-tively low capital intensity, and their expansion should inter alia enlargeemployment for the urban poor. It can be expected that about 50% of theinvestment outlay in the next several years would be for replacement of oldequipment with zero employment effect;I/ some 45% for expansion projects and5% the result of new entry, both with a positive employment effect. Theinvestment per job created for expansion projects would vary among subsectors,but is likely to hover around LE 2-4,000 ($3-6,000). Within these subsectors,the target group should primarily comprise enterprises with sizes ranging from10-50 workers, preferably among those with some degree of specialization inthe management function, a feature which is likely to enhance their potentialfor continued viability and self-sustained growth. Support need not neces-sarily be confined to these subsectors or enterprise size distribution.Larger enterprises (e.g. employing 50-100 workers) may well have a lowcapital/labor ratio and thus a substantial employment effect (e.g. ready-madegarments). Modern establishments employing 9 or less workers should be cateredto, for similar reasons. Technical assistance should also be extended to allinterested enterprises employing 100 workers or less. However, an attempt toextend the scope of technical assistance to encompass a large number of sub-sectors, though desirable, would be impractical at this initial stage. Interms of priority, availability of technical assistance, though not unimpor-tant, is not crucial in the case of ready-made garments, food processing orprinting. The remaining indus'tries could greatly benefit from a well-conceivedand well-designed technical assistance scheme, and the Bank's early involvementcan have considerable impact on the development of the SSI sector in theseactivities.

1/ It is noteworthy that replacement of obsolete equipment ensures preser-vation of existing jobs, which otherwise might have been eliminated.

- vi -

Technical Assistance - A Proposed Program

xii. Technical assistance delivery agencies catering to SSIs are vir-tually non-existent. To help the small-scale manufacturing sector eliminatethe factors currently inhibiting its full development, and in conjunction withthe suggested financial support to SSIs, 1/ a two stage program of technicalassistance is proposed aiming to reach primarily the target group. Each stagewould have a duration of 18 months. In both stages efforts would be directedto:

(a) raise the productivity of enterprises, by improvingmanufacturing processes and extension of assistanceto solve problems in areas of production engineeringand management;

(b) increase the quantum of skills available to SSIs byaccelerated training and skill upgrading; and

(c) remedy deficiencies in the commercial aspects ofmanagement and facilitate project preparation(technico-economic aspects).

An evaluation of the progress made in the first stage would take place nearits completion, based on a set of quantitative and qualitative criteria. Pro-vided the results are satisfactory, a second stage is contemplated, leading toan expansion of the services offered. This trial period enhances flexibility,enabling the Government and the Bank to test the capabilities of the deliveryinstitutions, profit from the experience to be gained and, conceivably, re-direct efforts as appropriate. The institution most qualified to organizeand deliver the proposed extension service, provide skill upgrading in fieldssuch as precision engineering, and help in project preparation appears to bethe Engineering and Industrial Design Development Center, which operates asan autonomous agency under the Ministry of Industry. The Productivity andVocational Training Department in the Ministry of Industry could be entrustedwith the provision of accelerated training. Finally, the Federation ofEgyptian Industries could undertake to provide management training.

Recommendations

Policy Aims

xiii. In the context of the dialogue on industrial policies, the Bankshould impress on the Government the need to begin addressing problems con-straining the growth of SSIs, to delineate the prospective role of the SSIsector, including the supportive policy framework, and to devise a strategyfor gradual integration of the SSI sector with the rest of the industry, alongthe lines suggested above (paras. viii-x). Such thinking and formulation ofpolicies eventually ought to be incorporated in a Policy Statement and/or thePlan. Specific recommendations are as follows:

1/ The most suitable financial intermediary for this purpose is theDevelopment Industrial Bank (DIB).

- vii -

(a) devise a meaningful definition of SSI;

(b) develop a workable and reliable flow of statistical informa-tion system on SSI and the private sector more generally;

(c) undertake a census (or sample survey) of the private manufac-turing to establish the present status of the sector;

(d) work out a system whereby GOFI would follow up on the imple-mentation of the investment projects it approves;

(e) assign responsibility for all SSI activities, probably excludingthe traditional handicraft segment, to the Ministry of Industry,ensuring proper coordination with other ministries and agencies;

(f) streamline and improve on the efficiency of administrativeprocedures;

(g) eliminate existing biases against SSI with respect to incentives,procurement, taxation;

(h) review the existing incentives scheme to ascertain its effec-tiveness to redirect exports;

(i) eliminate controls on prices and profit margins;

(j) devise a sensible industrial relocation policy, including anincentives scheme;

(k) direct and properly strengthen GOFI to advise on appropriatetechnology and to promote regional dispersion;

(1) encourage sub-contracting arrangements; and

(m) consider the progressive elimination of tariffs and quantitativerestrictions.

Technical Assistance

xiv. It is recommended that the proposed technical assistance componentin para. xii be tacked on to the upcoming DIB loan. Among all financialinstitutions, DIB is the only one which is catering to the medium and longterm needs of SSIs on a project appraisal basis. In the form proposed, thetechnical assistance component requires minimal further preparatory work andrefinement. Failure to incorporate this element into the upcoming loan toDIB would unnecessarily delay the provision of an important service to SSIs,which is not available at present. Indeed, the proposed technical assistanceprogram should contribute positively toward promoting the efficiency of SSIs,

- viii -

making possible their adaptation to new circumstances and facilitating theirgrowth. I/

xv. The practical problems raised by small entrepreneurs and the expe-rience gained in the course of delivery of the extension service provide afeedback and the right focus for applied research activities. It is thereforeproposed that extension service and management training be complemented byestablishing an industrial research service. To meet the evolving needs ofsmall manufacturers, such research should encompass: (a) economic research,to assess market prospects, costs and location factors; (b) engineeringstudies to screen known technology for adaptation to local resources, factorprices, scale factors, etc.; and (c) management studies, to integrate tech-nical and economic factors and to adapt accounting, marketing and distribu-tion as well as other related management techniques to the needs of the SSI.Within the applied research program, establishment of a technical informationservice is of paramount importance. The availability of an SSI industrialresearch service would serve not only the small entrepreneurs but alsopolicy-makers.

Surveys

xvi. The following surveys are suggested:

(a) undertake a study of the leather industry in view of itsimportance in terms of employment and export potential;

(b) mount a survey of the artisanal sector and of HIPCO's activi-ties to determine the need for reorganization, strengtheningand funding to enable it to offer a high quality extensionservice to the artisanal sector; the investigation should alsolook closer into the performance and potential of the coopera-tives, the equity and credit needs of the artisanal sector,the advisability of establishing a guarantee fund, and themost suitable type of institutional financial intermediation.

The thrust of the surveys should be to devise the appropriate kind of technicalassistance these industry segments need in order to improve productivity andquality of output, and to suggest the proper institution (existing or new)needed to deliver such assistance.

1/ The proposed program has already been accepted by the Government and itwill be a component to the upcoming loan to DIB.

I. INTRODUCTION

1.01 This is the Bank's first attempt to gain insights and familiaritywith the structure and performance of the small scale industry (SSI) sector;to review the policy framework for the development of the SSI and its suit-ability; to assess the administrative setup and its effectiveness; and toidentify basic problems and needs hampering the growth of the SSI. Theidentification of potential target groups for possible Bank support, partic-ularly within the larger urban centers, and the formulation of a technicalassistance package that could be tacked onto an upcoming DFC operation, havebeen additional major considerations.

1.02 There is no official definition of SSI in Egypt. The only demar-cation adopted for administrative convenience is what is referred to as theartisanal sector, which encompasses establishments employing 1-9 workers. Forthe purposes of this report it is proposed to accept the definition of theartisanal segment of the SSI sector and to consider as small scale establish-ments employing 10-50 workers. Different boundaries, e.g. a 10-100 employmentbracket for SSI, could probably be equally defendable on grounds of lowcapital/labor ratios. The presentation of available statistical information,in effect, leaves virtually no other choice. It is noteworthy that the 10-50employment bracket accounts for 90% of all privately owned establishmentsemploying 10 or more workers and for some 70% of total private employment.This means that, in effect, the bulk of private industrial sector activity isindeed small scale manufacturing 1/ and, in the ensuing discussion, referencesto private sector should be viewed practically as coextensive with SSI.

1.03 The lack of reliable statistical information on important economicvariables in the private sector in general, and the SSI segment in particular,makes the review of the sector and the assessment of the performance of theSSIs extremely difficult. The more systematic, though far from flawless,source of data is the Census of Industrial Production (CIP) which was under-taken in 1966. Ever since, information on private industry is fragmentary.As can be expected, data on the artisanal sector are even harder to come byand much less reliable. Until a comprehensive census is taken, our knowledgeon vital statistics in the SSI sector is bound to remain incomplete, ouranalysis limited, perfunctory and deficient, and our approach impressionistic.With these caveats in mind, an attempt is made to piece together whatever dataare available so that ideas as to the structure and performance of the SSIsector can be formed. It follows, that the conclusions drawn should perforcebe treated with caution.

1/ This is indeed more so if the artisanal segment is included.

- 2 -

A. MORPHOLOGY OF SMALL SCALE INDUSTRY

II. THE INDUSTRIAL SETTING

2.01 The economic program of the 1952 Revolution did not aim at thedemise of the private enterprise; but it did assign a greater role for theindustrialization of the country to the Government. By 1956, a small publicsector had been created as a result of state investment in a few heavy indus-tries which had proved unattractive to the private sector. The public indus-trial sector expanded further following significant Government investmentsduring the First Industrial Plan (1957-60) and the sequestration of Britishand French firms after the 1956 war. Thus, by 1961 a mixed system had emergedin which the private sector co-existed with an expanding public sector, whilestate control and intervention in the economy were on the rise.

2.02 The radical change of the economic system took place in 1961-62.Successive waves of nationalizations and punitive sequestrations led to thetakeover of most establishments in the modern industrial sector, large depart-ment stores, financial institutions, construction and transport firms andlarge hotels. Foreign trade was placed entirely in the hands of new stateorganizations. Only relatively small scale enterprises, mostly employing lessthan 50 workers, remained under private ownership. Furthermore, the importsubstitution orientation of the industrialization drive resulted in increasedtariff protection, import licensing, and foreign exchange controls.

2.03 The first signs of liberalization were manifested in 1967, whensome restrictions on private export trade were lifted. In 1971, a ForeignInvestment Law was promulgated, which provided tax incentives, created freezones and vouched that foreign assets would not be nationalized. In 1973, aparallel foreign exchange market was legally recognized and institutionalizedand the cumbersome procedures for import licenses were simplified. The "opendoor" policy enunciated in 1973 ushered in a period of waning state inter-vention and gave private initiative increasingly more leeway. In 1974, theForeign Investment Law was amended to provide greater incentives. In 1975,equities of public sector companies were offered to private investors, al-though ceilings were set on both individual holdings and on the extent ofprivate participation. These developments do not mean to imply a diminishingpublic sector industrial activity. On the contrary, the public sector remainsvery important and its position well-entrenched. Their significance ratherlies in the observed revival of industrial activity and investment in theprivate sector which have picked up considerably in 1975 and 1976 (see para.6.06), reflecting a favorable response to the Government's encouragement ofprivate initiative.

2.04 Small scale manufacturing appears to be endowed with skills andentrepreneurship and, to some extent, with capital. Despite the fact that ithas been benignly neglected in the past two decades, it has managed to holdits own and even grow. There is no official pronouncement supporting speci-fically the cause of the SSIs, let alone any concrete objectives, strategy,

policy framework on instruments to achieve them. Given the fact that the

Government only recently began paying attention to the private sector, such

lacunae are understandable. But in the context of the new economic policy

which invites the participation of private initiative in the country's devel-

opment effort, Government authorities are appreciative of the SSI potential

in growth of output, exports and employment generation, and can be expected

to become increasingly sensitized to its needs and prepared to take remedial

action to remove the hurdles hampering its development.

- 4 -

III. STRUCTURAL FEATURES OF SMALL SCALE INDUSTRY

The Pattern of Ownership

3.01 In the aftermath of the nationalization fervor (mid-1960's), sectorownership by size of enterprise presented the following picture: 95% ofindustrial establishments employing 500 persons or more were in the publicsector; the percentage declined to 65% in the 100-499 employment bracket,to 49% in the 50-99 bracket, and 7% in establishments with 10-49 employees.Almost all establishments in the 1-9 employment bracket were privately owned.The concentration of public ownership on large scale industrial establish-ments is explained by the fact that nationalization was selective, new publicprojects were large, and the Government's employment policy resulted in con-siderable overstaffing. The number of public enterprises, particularly inthe 100 or less brackets, has declined during the past decade, followinga process of successive regroupings and amalgamations. Of the 822 publicenterprises recorded in the 1966 census, only some 200 remain in 1977.

3.02 The sectoral pattern of ownership in industry is shown in the Tablebelow. The private sector is virtually excluded from the intermediate and

Private Sector Share in Gross Value Added in Manufacturing, 1966/67 and 1975(Percentages)

All manufacturing establishments /a

Code Industry 1966/67 1975

22 Tobacco 6 634 Basic metals 6 1131 Chemicals 6 1830 Rubber 7 723 Textiles 8 2327 Paper 9 237 Electrical machinery 10 1021 Beverages 12 1536 Non-electrical machinery 25 1233 Non-metallic products 35 1820 Food 40 6338 Transport equipment 41 1335 Metallic products 49 3529 Leather 80 8226 Furniture 80 8925 Wood 80 8024 Wearing apparel 86 8628 Printing 86 55

/a Excludes the petroleum sector.

Source: Adapted from R. Mabro, Industrialization in Egypt, 1939-73, 1976,p.97, for 1966/67; Ministry of Planning for 1975.

capital goods industries and its share tends to be larger in industries wherescale economies are not very important. In effect, the private sector is aresidual sector owning and operating relatively small establishments in suchindustries as leather, furniture, wood, wearing apparel, food processing,printing and, to a lesser extent, in metallic products, textiles, and chemi-cals. If anything, this tendency has been reinforced as evidenced by thedecline in the private sector's share in non-electrical machinery, metallicand non-metallic products, paper, and transport equipment in the last decade,although there are notable exceptions such as the observed growth in therespective shares of textiles, chemicals and basic metals.

3.03 In 1966/67, the private sector generated some 36% of gross value-added in total manufacturing and provided employment to about 47% of totalindustrial work force. By 1974, the share of private sector enterprises intotal gross value-added had decreased slightly (34%), but its share in totalemployment had increased to 54%.

The Size Distribution

3.04 The evolution of the size distribution of private sector establish-ments can be traced in Annexes 1 and 2 and is presented in a summary form inthe Table below. In the mid-60's, there were 3,970 private establishments

Size Distribution ofPrivate Establishments

Size Class 1966/67 1970/71(by Employment) No. % No. %

10 - 24 2,734 68.9 2,572 66.6

24 - 49 836 21.0 923 23.9

50 - 99 254 6.4 214 5.5

100 - 499 135 3.4 142 3.7

500 + 11 0.3 10 0.3

Total 3,970 100.0 3,861 100.0

Source: Annexes 1 and 2.

employing 10 or more workers, of which 90% in the 10-49 employment brackets,reflecting the predominance of' the small scale enterprise in the privatesector. The total number of private sector enterprises in the 10+ employmentbrackets appears to have declined slightly (by less than 3%) between 1966/67and 1970/71, possibly following the demise of a number of inefficient enter-prises whose problems were exacerbated by the adverse conditions of the time. 1/

1/ Because of underreporting of employment, particularly at the lower endof the 10+ bracket, the data base and the attendant interpretation invitecaution.

- 6 -

By the same token, the uninviting environment may have limited considerablynew entry. Inter-class shifts have not changed the size structure perceptiblyin subsequent years. Between 1966/67 and 1970/71, while the larger firms(100+) held their own, the number of establishments in the 10-24 employmentbracket declined by about 6%. Some of the missing enterprises undoubtedlygraduated to higher size brackets. Close to one-half are known to haveslipped to the 1-9 employment bracket, while the balance includes casualtiesof the 1967 war in the canal zone and attrition. During the same time span,the number of establishments in the 24-49 employment bracket increased by 10%,mostly drawing from the adjacent lower and upper size classes. These develop-ments attest to the endurance of the private sector under adverse circumstances.Judging from the licenses issued in Alexandria alone, where 458 new manufac-turing enterprises were established during 1974-76 almost evenly distributedeach year (see Annex 3), it can be reasonably assumed that, since 1974, thenumber of private sector enterprises in Egypt has been increasing. Industrieswhich experienced new entry include leather, metal and welding, woodworking,textiles and ready-made garments, rubber and plastics; they account for 78% oftotal new licenses issued. There is no information on the size distributionof the new entrants.

The Sectoral Distribution

3.05 The sectoral distribution of net value added in the private sectorin 1970/71 is shown in Annex 4. The petroleum sector, which comprises thelargest private enterprises and no small ones, accounted for 38% of total netvalue added. Industries with major shares include leather (12.1%), printing(11.8%), food processing (10.2%), textiles (9.3%), engineering (5.7%) andchemicals (4.9%), accounting for a total of 54% of total net value added and79% of employment. These latter fields are primarily the domain of enter-prises employing 100 or less workers.

The Regional Distribution

3.06 The regional distribution of industry (public and private establish-ments employing 10 or more workers) in 1966/67 is shown below and by sectorin Annex 5. Greater Cairo presents the major concentration of manufacturingindustries with over 50% of establishments, 44% of employment and close to 38%of gross value added. Over 70% of the gross value added in beverages, tobacco,furniture, printing, metallic products, basic metals, electrical and non-electrical machinery, are produced in Greater Cairo. Similarly, wearingapparel, paper, rubber industries are concentrated in Alexandria. There area few regional centers with some concentration in selected industries, notablyDamietta (woodworking) and Mehella (textiles). The value-added shares of theprovinces in all industries - except for textiles, food, and chemicals - areexceedingly small. Markets in rural provinces do not seem to have attractedmodern industry other than textiles and food - the major components of expen-ditures in the budgets of the poorer households. The high concentration inCairo and Alexandria, aside from the early development of industry in thesetwo cities, can be attributed to a combination of factors: the size anddiversity of these urban markets, the quality of the infrastructure, accessto supporting services, availability of skilled and unskilled labor, and theproximity of other firms - suppliers of inputs or consumers of industrialproducts and services.

- 7 -

Regional Distribution of Establishments,Value Added and Employment in Industry /a

1966/67

GrossArea Establishments Value Added Employment

Greater Cairo 51.6 37.7 44.1Alexandria 14.6 20.9 20.8Lower Egypt 20.6 24.4 23.5Upper Egypt 10.0 6.6 6.4Canal Zone 2.8 7.0 3.6Frontier Goverorates 0.4 3.4 1.6

Total 100.0 100.0 100.0

/a Includes establishments employing 10 or more workers (public andprivate).

3.07 Concentration in the number of private sector 10+ establishmentsin Cairo declined slightly between 1966/67 and 1970/71 - from 43.8% to 42.5%(Annex 6). However, concentration in Greater Cairo (includes Giza and Kalyubia)has increased from 54.3% to 57.3%. Similarly, the number of establishmentslocated in Alexandria rose from 14.1% to 15.0% during the same period. Concen-tration in both Greater Cairo and Alexandria appears to have increased furtherin recent years, reflecting the strong pull of the locational factors mentionedabove. In 1970/71, some 89% of all private establishments in the 10+ employ-ment bracket located in Cairo and Alexandria were employing 10-49 workers. Interms of the regional distribution of employment, there has been little changeduring the same time span (Annex 7). Greater Cairo continues to be the centerfor 64% of total employment provided by the 10+ establishments in the country,with 54% being employed in the 10-49 worker group establishments. Alexandriaaccounts for 13% of total employment generated by the 10+ establishments.Thus, 77% of private sector manufacturing employment is concentrated in twomajor industrial centers. This pattern appears to have persisted in morerecent years.

3.08 The regional distribution of production and net value added inprivate sector enterprises employing ten or more workers in 1970-71 is shownin Annex 2. Greater Cairo, as would be expected, accounts for 51% of produc-tion and 67% of net value added generated by the 10+ size establishments.Alexandria follows with 11% and 6%, respectively. Judging from approvalsof investment projects by the Government Organization for Industrialization(GOFI) which indicate that, in 1976, planned production of new and expansionprojects in Greater Cairo would account for 63% of production and 60% of netvalue added (see Annex 22), one can venture the view that concentration inGreater Cairo-Alexandria areas remains unarrested.

- 8-

The Distribution of Employment

3.09 The development of the employment structure between 1966/67 and1970/71 by enterprise size in the private sector is shown in the Table below.Although the number of establishments in the 10+ class sizes seems to havedeclined by some 3% between 1966/67 and 1970/71, total employment increased by1%, suggesting the existence of an expansionary trend among the more dynamicenterprises, particularly within the 25-49 and 100+ employment brackets. 1/However, since the attendant structural shifts were far from dramatic, thesize distribution of employment in establishments within the 10-500 employmentbrackets, as well as the average employment per establishment, has remainedfairly stable during the time span under examination. This reflects the lowlevel of investment and the absence of technological improvements whichcharacterize the last decade.

Size Distribution of Employment

1966/67

Size of No. of AverageEstablishment Establish- No. of Employment perby Employment ments % Workers /a % Establishment

10 - 24 2,734 68.9 41,221 34.1 1525 - 49 836 21.0 28,201 23.3 3450 - 99 254 6.4 16,798 13.9 66

100 - 499 135 3.4 24,978 20.6 185500+ 11 0.3 9,753 8.1 887

Total 3,970 100.0 120,951 100.0 30

1970/71

10 - 24 2,572 66.7 39,213 32.1 1525 - 49 923 23.9 30,343 24.8 3350 - 99 214 5.5 14,468 11.9 68

100 - 499 142 3.7 26,902 22.0 190500+ 10 0.1 11,184 9.2 1,118

Total 3,861 100.0 122,110 100.0 31

/a Including employers.

Source: CIP 1966; Central Agency for General Mobilization & Statistics- December 1975.

1/ Underreporting of employment, the magnitude of which cannot be estimated,tends to understate the employment effect.

- 9 -

3.10 Establishments employing 10-24 workers, which account for two-thirdsof the 10+ establishments, provide about one-third of the jobs in the privatesector (excluding the artisanal sector). Roughly another quarter is employedin the 25-49 worker group, which accounts for over 20% of the 10+ establish-ments. Thus, the 10-49 employment bracket, wl.ich accounts for 90% of thetotal number of the 10+ establishments, provides 57% of the total employmentin the 10+ establishments; only 12% are employed in establishments with 50-99workers; and the remaining 31% are found in the 100+ employment brackets.Adding some 330,000 employed in the 1-9 worker group (1974 estimate, see para.6.04) to the 70,000 employed in the 10-50 brackets, a staggering total of

400,000 persons are employed in establishments employing less than 50 workers,attesting to the significant employment contribution of the small scale manu-facturing industry.

3.11 Data suggestive of labor productivity patterns by size of enterprisein individual industrial branches are not available. Thus, the most informa-tive aspects of productivity behavior elude us. To form impressions, estimatesof labor productivity by size of establishments in all industrial branchestogether are presented in the Table below. For 1970/71 it is noteworthy thatten enterprises, operating in sectors which are exclusively the domain of thehighly capital intensive and large scale enterprises (e.g. petroleum), accountfor 54% of total net value added. Of the remaining, establishments in the10-49 employment bracket contributed 49% while those in the 50-500 groups 51%,suggesting a considerable SSI contribution. Labor productivity is rising withthe size of establishment, although not very rapidly in establishments employ-ing up to 100 workers. This probably reflects the low level of investment andtechnology in the private sector and the relatively small importance of scaleeconomies. Absolute levels of productivity, because of underreporting anddifficulties in estimation, are likely to be higher. Yet, conditions in theproduction and management fields inimical to efficient operation (see para.10.01), undoubtedly have kept productivity levels below attainable levels.Among external factors adversely affecting productivity are substitution andbackwash effects caused by the establishment of larger scale industries in thepublic sector in competing products (e.g. textiles, food processing), slowgrowth of demand among low income consumers, difficulty in obtaining importedraw materials, marketing problems and, possibly, credit.

Distribution of Value Added and Labor Productivity - 1970-71

Establishment Size No. of Net Value Net Value(by Employment) Employees Added Added per Worker

(LE) (LE) Index

10 - 24 39,213 7,976 203 10025 - 49 30,343 8,046 265 13050 - 99 14,468 4,462 308 152100 - 499 26,902 12,564 467 230500+ 11,184 39,105 3,496 1,722

Total 122,110 72,113

Source: Mission calculations based on Annex 2.

- 10 -

IV. THE ARTISANAL SEGMENT

4.01 Information on the artisanal sector, as establishments employing1-9 workers are referred to in Egypt, is very scanty. Small establishmentsand self-employed artisans, if they do not escape the enumerators of thecensus or survey, do not keep books at all, or at best, in a very rudimentaryform. Also, the exclusion of the itinerant jobbing artisans (i.e. those whohave no fixed place of work) implies that a considerable amount of activitycannot be accounted for. What is perhaps more important, a confluence offactors create a tendency for establishments to underreport the actual numberof workers employed and, by extension, for production and value added to beunderestimated. Collusion between owner and worker to avoid social securitypayments is quite frequent, being mutually advantageous - the employer fore-goes a 22% levy on the wage-bill while for the worker the non-withholding ofhis part of the levy translates into an 11% indirect wage increase. Further-more, underreporting of workers enables the owner to conceal actual levels ofproduction and sales and thereby reduce his tax burden. 1/

4.02 The 1966/67 census of Industrial Production records 144,000 estab-lishments employing less than ten workers, providing employment to some 283,900persons, or 33% of total manufacturing labor force. Gross value added is esti-mated at 16% of the total generated in the manufacturing sector. About 51% ofthe establishments are operated by a single individual, while 93% employ fiveor less persons. Average employment per establishment in the 1-9 worker groupis two persons. Thus, proprietors and self-employed constitute the bulk ofthe work force (some 60%), with the balance made up of weekly paid workers.The number of salaried clerks, technicians, and professionals is negligible(0.5%). The work force is composed primarily of adult males (86.4%). Adultfemales account for 7.4% and children for 6.2%.

4.03 The sectoral distribution of gross value added and employment inthe artisanal sector in 1966/67, including their respective shares in totalmanufacturing, is shown in Annex 8. Wearing apparel, wood and furniture, andleather, in terms both of value added and employment, are predominantly smallscale industries, with shares in total manufacturing exceeding 50%. Theartisanal sector is heavily oriented toward the production of a wide rangeof household goods for local markets, including some basic consumer staples -clothes, shoes, food, furniture, metallic products. The concentration onthese branches reflects the existence of a competitive edge in artisanaltype of operations mainly because of the absence of scale economies, productdifferentiation or low-priced market niches, availability of relatively cheaplabor, minimal overhead costs, and a substantial personal contribution in theform of long work hours. The Table below provides a ranking of the eight mostimportant branches in the artisanal sector in terms of number of establishments,

1/ Underreporting is not uncommon also among SSIs, particularly thoseoccupying the lower end of the size range, for the same reasons. Inaddition, keeping a low profile may allay lingering fears of possiblegovernment takeovers among still apprehensive entrepreneurs.

- 11 -

employment and value added, accounting for about 70% of the sector. Clothesand garments top the list in every regard. The furniture and fixtures branch,producing a wide range of household items and linked to some extent to the

Ranking of Employment, Establishments and Gross Value Addedin the Artisanal Sector 1966/67

Employment Establishments Gross Value AddedCode Branch Numbers Rank Numbers Rank LE(OO0) Rank

243 Clothes andgarments 63,623 1 42,926 1 8,690 1

260 Furnitureand fixtures 27,849 2 15,447 2 6,667 2

350 MetalProducts 27,706 3 13,404 3 5,493 4

231 Spinning andweaving 20,835 4 9,685 4 2,830 7

241 Shoes 18,874 5 9,693 5 3,702 5206 Bakeries 14,258 6 2,955 8 5,625 3205 Grain milling 14,222 7 3,747 7 2,972 6384 Car repairs 12,213 8 4,749 6 2,214 8

Total 199,580 102,606 38,193

Percentage of total (70) (71) (67)

Source: Mabro, Industrial Development of Egypt, p. 123, based on CIP.

construction industry, is an activity where artisanal industry also appears tothrive. The metal products branch is an all-encompassing activity, involvinga variety of crafts and embracing a wide range of consumer and intermediateproducts. It is linked with modern industry, particularly smaller factorieswhich do not have their own workshops. Spinning and weaving occupies a sig-nificant position in the artisanal sector, especially in terms of employment.However, increasing competition from the modern sector would suggest the needfor adjustments and greater concentration on specialized markets. Shoe-makingis an important small scale activity which can compete with larger establish-ments by catering to the requirements of particular types of clientele.Finally, car repairs is another activity with important employment generationimplications and considerable potential in a modernizing economy.

4.04 The largest portion of artisanal scale manufacturing in the mid-1960's is located in urban centers - 63% of the total number of establishments,69% of employment and 79% of gross value added. In Cairo and Alexandria, thecorresponding figures are 30%, 35% and 46%. There is also regional speciali-zation in particular branches: woodmaking and furniture in Damietta andCairo; textiles in Garbya, Assyut, Sohag and Kena; shoemaking in Cairo andAlexandria.

- 12 -

4.05 A survey of the artisanal sector was conducted by the HandicraftIndustries and Productive Cooperatives Organization (HIPCO) covering the year1974. The coverage of this survey is much narrower than that of the 1966census and, as a result, comparisons are not always meaningful. The 1974survey is craft-oriented and certain processing activities are not included.In addition, the survey excludes unskilled workers, while the possibility thatself-employed persons may have escaped enumerators should not be ruled out.Therefore, there is no way of determining the growth of the number of artisanalestablishments and employment between 1966 and 1974. If allowance is made forsome entry due to low barriers to entry as well as some slippage from the 10+employment brackets, the number of establishments - and possibly employment -must have increased. However, taking into account the fact that the environ-ment until very recently was far from conducive to the development of privateinitiative as well as the possibility of some attrition, one may speculatethat the artisanal sector probably stagnated or, at best, did not grow signifi-cantly. The situation may have changed somewhat in the past few years withthe change in conditions and attitudes.

4.06 Be that as it may, some of the findings of the survey provide in-teresting insights on particular structural aspects of the artisanal sectorand seem worth reviewing. Based on Annex 9, the Table below provides a rankingof the seven most important branches in the artisanal sector, accounting for

Ranking of Employment, Establishments and Productionin the Artisanal Sector - 1974

Employment Establishment ProductActivity Numbers Rank Numbers Rank Value Rank

LE(000)

Ready-made garments 52,366 1 35,701 1 7,336 4Woodwork & Furniture 40,469 2 20,467 2 38,364 1Food Processing 29,605 3 8,912 6 20,487 3Engineering/Metallurgy 26,984 4 12,001 3 6,244 5

Textiles 21,780 5 10,669 5 1,326 7Shoe-making andLeather products 21,087 6 11,906 4 20,638 2

Repairs 13,047 7 5,494 7 1,917 6

Total 205,338 105,150 96,312

Percent of TotalArtisanal Sector 93% 93% 89%

Source: Annex 9.

- 13 -

93% of employment, 93% of the establishments and 89% of production in theartisanal sector. It is notable that the rankings are not very dissimilarfrom those observed in 1966/67, suggesting continuation of past trends. Interms of absolute figures, one noticeable development seems to have been thedecline in both'the number of establishments aind employment of the clothes andgarments branch and the corresponding increase of woodwork and furniture. Theobserved decline in clothes and garments probably reflects inability of thesmall artisans to weather increasing competition from larger establishmentsand to hold their own. The growth of the woodworking and furniture branchreflects rising incomes in particular segments of the population and thedevelopment of exports.

4.07 The structure of fixed assets and employment in the artisanalsector is presented in Annex 10. Some 74% of the establishments have fixedassets valued at less than LE 100 and 97% at less than LE 1,000. This findingunderscores the very low capital intensity of the small artisanal workshop.The fact that certain processing industries are not included probably doesnot affect the observed capital intensity significantly. With regard to thestructure of employment, over 72% of the establishments surveyed employ onlyone worker, while 98% employ five workers or less. The average employment perestablishment is two, which remains the same as in the mid-1960's, indicatingno perceptible structural changes in the past decade.

4.08 About 50% of the artisanal undertakings are members of coopertitivesocieties. In 1976, there were 332 cooperatives with a membership of 65,000.In the past two years there has been a decline in membership by some 12,000,probably because the liberalization of import and foreign exchange restrictionsrenders membership not particularly attractive. The cooperative system pro-vides virtually no credit facilities to its members; nor does it make it anyeasier for them to obtain credit from institutional sources. Some assistanceto members is provided through bulk purchases of materials and by obtainingapprovals of foreign exchange requirements for imports. Some cooperatives inthe ready-made garments, shoemaking and furniture making trades purchase andmarket all or part of the output of their members. The main needs of thecooperatively organized establishments, and of the artisanal sector moregenerally, are instruction in keeping accounts and costing/pricing, advice onmaking new products, new designs (furniture, shoemaking, textiles), materialselection, quality control, modern work methods, preventive maintenance - allof which could be provided by an efficiently run technical assistance programinvolving an extension service.' There is need for mechanization and moderni-zation in particular branches ('e.g. shoemaking, furniture) in order to improvequality and produce standard pr'oducts. Also workers need to be retrainedon new techniques and in the handling of new materials. Shortage of spaceremains a vexing problem. Limited own funds in many instances raises thequestion of equity and credit supply and of the appropriate type of financialintermediation.

4.09 The Handicraft Industries and Productive Cooperatives Organization(HIPCO) under the Ministry of Local Government has inter alia the responsi-bility of providing training and extension services in the artisanal sector.

- 14 -

However, HIPCO is neither organized nor adequately staffed and funded to pro-vide the necessary extension services. The efficacy of its training programsis also questionable. It is recommended, therefore, that a survey be mountedon the activities of HIPCO in the artisanal sector to determine if it requiresto be re-organized and strengthened to support effectively the sector and, ifso, what changes in organization and fields of action are needed. In thisregard, it may be advisable that the responsibility for training be transferredto the Productivity and Vocational Training Department in the Ministry ofIndustry, which is properly equipped and has the major responsibility in thecountry for technical training. The survey should also assess the performanceand potential of the cooperatives and suggest measures to strengthen them.The survey should focus primarily on aspects of technical assistance to improveproductivity and product quality, and on building up (or establishing) aneffective delivery agency. 1/ The organization, activities and problems ofthe cooperative societies are discussed briefly in Annex 11.

1/ Draft terms of reference for such a survey are given in Annex 11,Appendix 5.

- 15 -

V. ORGANIZATIONAL AND OPERATIONAL CHARACTERISTICS

5.01 Major organizational and operational features of the SSI, basedon observations from visits to over fifty manufacturing establishments, are

highlighted below.

5.02 Form of Ownership. The most common forms of ownership in theprivate sector are the individual proprietorship and partnership. Based ona sample of some 1,500 establishments employing 10 workers or more in theCairo-Alexandria areas, partnerships accounted for 48% of the total number ofestablishments. In the artisanal sector, ownership by an individual is thepredominant form (see Annex 10). Joint stock companies are the exception.This should be attributed to the nationalization policies of the past and theprevailing labor regulations, whereby profit-sharing, adjudication of disputesand dismissals, and worker participation in management are mandatory in allprivate firms employing 100 or more workers, which are the most likely candi-dates to use this organizational form. 1/

5.03 Origin of Entrepreneurship. Entrepreneurs in many cases have risenfrom the shop floor. This has especial reference to the general engineering,shoemaking and woodworking trades. They started as apprentices, becameartisan-entrepreneurs before graduating to the SSI. This is also true ofthe ready-made garment trade, although apprenticeship might not be involved.In other branches of the textile industry, the chemical industry and somesub-sectors of the food industry, all of which involve a much higher initialinvestment, the entrepreneur in most cases has been a businessman or a profes-sional who has had experience in the industry.

5.04 The mission was favorably impressed with the quality of entrepreneur-ship in many SSIs. Owners of establishments appeared energetic, resourceful

and hardworking. They displayed initiative, deep knowledge of their trade,confidence and, in certain instances, considerable ingenuity in the develop-ment of machines. Small manufacturing firms have demonstrated an ability toimprovise and add to their capital stock by manufacturing machinery in theirown machine shops or by reconditioning old equipment. In certain otherrespects, however, they remain traditional: they are less amenable to new waysof doing things, have a paternalistic attitude toward workers, and are unappre-ciative of good housekeeping.

5.05 Labor Skills. There are no officially sanctioned apprenticeshipschemes, although informal/traditional forms persist. There is a bias infavor of on-the-job training and only a small fraction of the throughput fromvocational training schools finds its way to the private sector. Familymembers, paid or unpaid, can be found in all but the largest individuallyowned enterprises. Female participation is very low, representing only 5% oftotal industrial employment. The ready-made garment and weaving industrialbranches are the main employers of female labor. Child employment is notuncommon.

1/ Law 91/1959.

- 16 -

5.06 In some branches the general level of skills is low. Tanning andthe manufacture of footwear are examples. This probably is due to the persis-tence of old fashioned and "rule of thumb" methods in tanning and to thefailure to introduce modern equipment and methods in shoemaking. The percent-age of illiterates in small scale manufacturing, although decreasing, is stillhigh. This situation tends to inhibit the introduction of new techniques.Often, a small manufacturer is unable to provide year-round employment, par-ticularly in the footwear industry. Since the most able workers seek and findmore regular employment, the quality of skill in the particular enterprisedeclines. There is a continuous loss of skilled workers by emigration tooil-rich Arab states where they are attracted by much higher wages than thoseprevailing in Egypt. There is need for skill upgrading in tasks requiringhigh precision work. For instance, in the engineering field, there is needto train fitters and machinists to become capable of making press tools, dies,jigs and fixtures; in furniture making, skills are needed to operate machinessuch as large lathes, copying lathes, multi-purpose milling machines, etc. aswell as to inculcate working to tolerances.

5.07 Wages. Data on wage levels in the private manufacturing sector arenot available. As a result, trends in nominal and real wages, structuralaspects, and regional wage levels cannot be dealt with meaningfully. The

mission's enquiries indicate that wages for skilled workers in 1976 rangedfrom a minimum LE 240 to a maximum of LE 420 per annum; the legal minimum wageis LE 168. Wages in the public sector reportedly averaged LE 443. In general,wages in the private sector are lower than in the public sector. But the in-creasing emigration of skilled workers and the resultant shortage has led toa steady rise of wage levels, particularly in the industries mostly affected,e.g. engineering, woodworking and construction.

5.08 Equipment. The bulk of the machinery in use is of foreign origin.Many of the more recent acquisitions are from Eastern Bloc countries. No caseof imported second-hand machinery was noted. The import of such machinery is

permitted provided it is not more than 3 years old. Locally made lathes andmilling machines are produced by factories under military control. The smallscale sector has shown considerable skill and ingenuity in making such capitalequipment as lining and stitching machines for the printing industry, solestitching machines for footwear, tile making machines, and machines for wiredrawing and the extrusion of plastics.

5.09 A good part of the machinery employed, particularly in the leather,textiles, food processing and metal working industries, is outdated, affectingadversely productivity levels. However, to a considerable extent, the observedlow level of productivity is attributable either to frequent breakdowns or tothe machines no longer being capable of consistently turning out acceptablework. Both are due to lack of adequate maintenance. Bearing in mind thedifference in the cost of labor between Egypt and the industrially developedcountries, there is still a place in Egypt for the utilization of less sophis-ticated equipment. Serious losses of productivity are attributable to lackof attention to the lay-out of machinery and to good housekeeping. There is

- 17 -

much "lost motion" in that machines are not correctly located for sequentialoperations. Admittedly, many of the small-scale manufacturing units arehoused in domestic or commercial premises so structurally sub-divided as tomake a rational work flow impossible. Good housekeeping, except in a very

few instances, appears to be honored in the b-each. But even in unsuitable

accommodations, some improvements could be made in that direction. Virtuallyno attention is paid to the guarding of dangerous machinery. Where machine

tools are supplied with protective devices by makers they are removed -presumably in the mistaken idea that they retard production.

5.10 In certain fields the technical processes used are outdated. For

fine machining the lathe is still employed. There is very little grindingequipment in the private sector. Only in the Engineering and Industrial

Design Development Center were there facilities for plain, external and

internal cylindrical grinding. Wood turners who may be producing thousands

of identical items (e.g., tapered legs for furniture, bobbins for the textiletrade) have neither copying lathes nor even taper turning attachments. In the

production of metal hollow-wares spinning has not replaced deep-drawing. Thetanning methods used in the private sector are unscientific and not quiteeffective (see paras 10.07 - 10.16).

5.11 Capacity Utilization. Concerning the degree of utilization of

equipment, it can be said that the jobbing engineering shops, with only few

exceptions, were working to capacity. The machines used in the making and

finishing of footwear (with the exception of those in the service cente,s run

by HIPCO) were fully utilized. Two metal pressing shops were underutilized

by about 30%. In the one factory making camelback that was seen the degreeof utilization was very low. The machines in weaving sheds visited were all

working two shifts. The same is true for the tanning section of the leather

industry. In the furniture trade (with the exception of that part of italmost exclusively engaged in woodturning) the machinery was not used to its

full extent. On the whole, there was no gross under-utilization of equipmentin the majority of firms visited.

5.12 Workplaces. A large number of the small jobbing engineers and

joiners' shops are housed in premises that can be described only as "holes inthe wall". They are without the most elementary sanitary facilities, often

badly lit, and open to the wind and weather. The working conditions are very

bad. There is literally no room for expansion. Good work cannot consistentlybe turned out in such circumstances. In general, most workplaces are too

small for the machinery they contain. The situation is exacerbated by poorhousekeeping - passageways and staircases are obstructed by materials in

progress or scrap, while little attention is paid to the cleanliness of work

places, floors and passages. Although in the leather tanning industry theworkplaces are less cramped, the working conditions defy adequate description.

Pools of spent tanning chemicals, mostly toxic chromium salts, are everywhere.The whole district is polluted by tanning liquids leaking into the roadways

and by the dumping of the sediment from degreasing tanks in the streets.

- 18 -

5.13 Specialization of Management Functions. A characteristic of thesmall scale manufacturing sector is the concentration of the managerial andproduction functions in one or two persons. In the small establishments ofthe sector, the proprietor carries out all the activities - except the actualproduction operations - involved in the running of his business. In theartisanal field he frequently engages in the production process as well.Obviously these individuals have neither the expertise nor the time adequatelyto carry out all the required tasks. In most cases these persons have risenfrom the floor shop and have had only primary education. It is only naturalto concentrate on the production side and pay scant attention to the rest.The critical point in the development of an industrial establishment isreached when it becomes essential to delegate managerial functions. Manyentrepreneurs are incapable or, at least, find it very difficult to takethis step. In consequence, the growth potential of their establishments islimited. It is difficult to help such individuals, as it is necessary toovercome entrenched attitudes, and they have neither the time and patiencenor the realization of their need for assistance. It follows, therefore,that the class of establishment with a realizable potential for growth, andconsequently for continuing viability, is likely to be the one in which thereis some degree of specialization in the management function. It is not adifficult matter to recognize individual enterprises where this delegationhas taken place. On the basis of some statistical evidence (see Annex 12),specialization of management functions in Egypt has been observed to commencewhen an enterprise reaches the 10-24 employment bracket and increases progres-sively with the size of establishment.

5.14 Linkages. The small scale manufacturing sector is basically orientedtoward the production of consumer goods and, in consequence, forward linkagesare limited. Reliance for inputs and materials to large industrial enterprisesand to other non-industrial sectors attest to its stronger backward linkages.There is a considerable degree of horizontal integration, particularly withinthe textile industry. Bleaching, dyeing, impregnations, calendaring, andstentoring operations are carried out by private sector establishments undercontracts to weavers, some of whom belong to the public sector. The furniturebranch has linkages with the metal products branch (hinges, locks, mountings),the textile industry (furniture fabrics) and the chemical industry (paints,varnishes). The plastics industry also has forward linkages with many indus-tries. There is a strong linkage betweent the engineering jobbing shops andthe users of machinery in both the private and public sectors. There is alsoa considerable degree of specialization, one shop specializing in parts forlooms, another in automobile replacement parts, a third in housings for ballraces and so on. This has resulted in a measure of inter-trading. Some ofthese shops even undertake the manufacture of capital equipment (e.g., print-ing machinery and simple machine tools). The small private workshop appearsto be able to perform certain tasks more efficiently than the larger publicenterprise and subcontracting becomes mutually advantageous. Subcontractingopportunities for larger firms producing capital and consumer durable goodsboth in the public and private sectors appear to be increasing and ought to beencouraged. This would add to the viability and growth of the SSI and wouldfacilitate the SSI's integration with the rest of the industrial sector.

- 19 -

5.15 Procurement. While it is now theoretically possible for the privatesector to obtain the imported raw and intermediate materials it needs, thereare still practical difficulties. If an entrepreneur places an import order,either directly or through an intermediary, the parallel market foreign ex-change quota may be fully committed at the time. He may have to wait untilthe next quarterly allocation. This leads to a "stop-go" situation whichadversely affects his business. 1/ In fields where there is competitionbetween the public and private sectors (e.g. metal products), the relativelysmall orders placed by small scale entrepreneurs to not qualify for thediscounts available to the larger purchaser, and the transport costs of theformer usually are greater. In the matter of quality of raw and intermediatematerials, the small scale entrepreneur has little control and often he has totake what is available.

5.16 Marketing. Distribution is generally through middlemen as faras the lower end of the SSI is concerned. Cooperatives have played a limitedrole in marketing. Members of the leather and ready-made garments coopera-tives can dispose of their goods through their respective organizations. Manyhowever prefer to sell to specialized distributors or directly to customers.In dealing with specialist distributors, the small scale manufacturer often isforced to accept a low margin of profit and to have to wait for payment untilthe distributor disposes of the stock. The larger units have arrangementswith supply houses.

5.17 Although some small scale manufacturers, notably in the footwearand made-up garment fields, have succeeded in securing export orders, thesmall scale sector does not pay great attention to either internal or externalmarketing. The bulk of the sales are made directly to the consumer or throughsome specialized distributor. The reasons for failing to exploit the fullpotential for the market lie in commercial inexperience - lack of knowledge ofexport procedures - and the inability to pay for market information. Much ofthe export trade of the small scale sector in furniture, garments and footwearhas resulted from trade agreements with Eastern Bloc countries.

5.18 Source of Competition. Competition from the public sector in thefields of concentration of SSI is rather limited, except for textiles, foodprocessing and metal products. For instance, there is little competition inthe household furniture line, the public sector dealing mainly with furniturefor Government offices. Foreign competition is not important as the goodsimported are of a different quality and higher price brackets. Apart fromcapital goods, local production enjoys a considerable level of protection(see para. 8.07).

1/ Unavailability or irregular supply of materials inter alia increasesthe working capital requirements and tends to undermine the stabilityand growth of the SSI.

- 20 -

Quality and Range of Output

5.19 Footwear. The quality of men's footwear is undoubtedly inferior.The range of styles is limited. Shoemakers have tried unsuccessfully tomake shoes with platform soles. They have stated they are unable to obtainthe proper adhesives. This, however, is only part of the problem; they lackthe techniques. The quality is higher and the range wider in ladies' shoes.The manufacturers, however, consider the range should be increased.

5.20 Furniture. The quality is good, but the bulk of the production,as judged by the amount seen in the showrooms, is in the over-elaborateLouis XVI style. The market is limited by the price, for it is expensiveto produce, and its unsuitability for middle and working class dwellings.There is a need to introduce contemporary styles, incorporating locallyarising particle and hardboards. It is unfortunate that many of the metalfittings now used are unworthy of the craftmanship that goes into the makingof furniture.

5.21 Metal products. The range of goods produced is very wide and thequality variable. Such items as nails, screws, taps, valves, transformers andmetal hollow-ware could compete with those made elsewhere. Such electricalfittings as plugs, outlets and sockets are made to a standard not accepted inWestern Europe. The electric washing machines are of poor quality. The gasstoves are only sligtly better. The range of capital equipment made is smalland the quality appears to be satisfactory.

5.22 Plastic goods. One would have expected the variety of plasticproducts to be greater. The quality is medium to good. In the glass fibrere-enforced plastic section the quality left something to be desired.

5.23 Food. The quality of canned foods varies. The Egyptian does notbuy much in this line as fresh supplies are available. Exports are almostentirely to neighboring countries. The trade has not penetrated the WesternEuropean market either because the products are too expensive or the qualityis below acceptable standards.

5.24 Quality Control. Seldom is there any form of real quality controlwithin the enterprise or by a competent authority. Even in export products,which are subject to Government inspection, control is unsystematic and casual.Employers find it difficult to make workers produce to specifications. Thisapplies particularly to the footwear industry.

- 21 -

B. PERFORMANCE OF SMALL SCALE INDUSTRY

VI. DIMENSIONS OF SMALL SCALE INDUSTRY PERFORMANCE

Production

6.01 Production trends and the structure of manufacturing output in theprivate sector (10+ establishments) are shown in the Table below. Total output,

Gross Value and Structure of Manufacturing Output in Private Sector(LE million; Constant Prices: 1970 = 100)

RealAverageAnnualIncrease1974-76

Industry 1972 % 1973 % 1974 % 1975 % 1976 % (%)

Textiles 129 33 125 31 117 31 140 31 134 26 7.0Food 108 28 107 26 103 27 112 25 117 23 6.5Chemical 32 9 35 9 35 9 45 10 46 9 14.6Leather 38 10 52 13 49 12 65 14 113 22 52.0Engineering 33 9 37 9 38 10 43 10 46 9 10.0Woodworking 35 9 36 9 34 9 31 7 42 8 11.2Building materials 9 2 11 3 10 3 13 3 14 3 18.5

Total 384 100 403 100 386 100 449 100 511 100 15.0

Wholesale PriceIndex 101.5 108.4 124.0 133.3 144.0

Source: Ministry of Industry; mission calculations.

which in most industries stagnated or declined during 1972-74, increased bya remarkable annual average of 15% in real terms between 1974 and 1976. 1/Leather (52.0%), building materials (18.5%), chemicals (14.6%), woodworking(11.2%) and engineering (10.0%) industries were the fastest growing, incontrast with the textile and food processing sectors, accounting for 49%of the total value of output, which performed modestly. The period 1972-76experienced some interesting structural shifts. The share of textiles andfood processing in total output declined from 33% and 28% to 26% and 23%,respectively, probably reflecting increasing competition from the publicsector. At the same time, the share of the leather industry increased from10% to a notable 22%, stimulated by rising domestic demand and exports.The sectoral shares of the private sector in the value of manufacturing

1/ In current prices, the respective annual growth was 24% (Annex 13).

- 22 -

output are shown in Annex 14. Between 1972 and 1976, the private sector'sshare in total output rose from 25% to 27%, affirming continued growth. 1/Chemicals, textiles and food processing industries each accounts for aboutone quarter of the respective total sectoral output.

Exports

6.02 The portion.of total private manufacturing output which is exportedremains very small - only 6% in 1976. Private sector exports, on a low basis,almost doubled between 1973 and 1975 as the Table below indicates. Exportindustries with significant shares in total exports are chemicals (31%),

Private Sector Exports(LE million; Current Prices)

Industry 1973 % 1974 % 1975 % 1976 %

Leather 11,023 36.5 21,661 39.9 17,263 29.3 11,007 24.8Textiles 6,608 21.8 12,577 23.1 12,254 20.8 8,598 19.4Chemical 5,650 18.7 10,909 20.5 19,888 33.8 13,937 31.5Woodworking 3,812 12.6 5,449 10.0 5,683 9.6 4,947 11.2Khan-el-Khalili 2,436 8.0 2,797 5.1 3,272 5.5 3,115 7.0Food 442 1.4 119 0.2 30 - 1,306 3.0Engineering andMetallurgicalProducts 140 0.4 467 0.8 381 0.7 1,240 2.8

Building 91 0.3 332 0.6 177 0.3 144 0.3

Total 30.202 100.0 54,311 100.0 58,947 100.0 44,294 100.0

Source: Ministry of Industry and Mineral Resources.

leather (25%), textiles (19%), and woodworking (11%). The chemical industryhas shown the greatest growth through exportation of such traditional items asessential oils and cosmetics. Leather exports comprise mainly footwear and toa lesser extent an assortment of leather products (garments, gloves, handbags,etc.). Two-thirds of the value of textile exports consist of knitwear andready-made garments, while furniture is the major exportable item in wood-working. Egypt's major trading partners have been the Eastern European coun-tries, particularly the USSR (see Annex 15), accounting for 94% of totalprivate exports. Such heavy reliance on the Soviet bloc countries rendersexports highly vulnerable to political developments and points to the needfor redirection of trade. This was the case indeed in 1976, when exports toclearing countries declined by 76% compared with 1975, reducing the share ofprivate sector to total exports from 25.5% to 21.4%. All exporting industries

1/ Private sector output grew at an annual average rate of 17.2% comparedto 13.6% of the public sector.

- 23 -

are bound to be adversely affected by such events, since penetration of

western markets would require considerable improvements in product quality

and marketing.

Value Added

6.03 Value added data for the private manufacturing sector are not

available on a consistent basis. Estimates of gross value added are pieced

together and presented in the Table below. Gross value added in the private

Manufacturing /a /a /a /b /b

Sector 1969/70 1970/71 1971/72 1974 1975(LE million; Current prices)

Private 112.2 123.2 134.2 244.0 265.9Public 394.5 437.8 459.2 477.2 583.5

Total 506.7 561.0 593.4 721.2 849.4Share of Private inTotal Manufacturing 22.1% 21.9% 22.6% 33.8% 31.3%

/a Institute of National Planning, "Small Scale Industries in A.R.E.",

p.22. Excludes the artisanal sector (i.e. enterprises employing1-9 workers).

/b Ministry of Planning. Includes the artisanal sector. Total figure

excludes petroleum production but includes quarrying.

sector has been growing at about the same pace as in the public sector during

1969/70 - 1971/72, despite the massive investments in the latter, and has

maintained its relative share in total manufacturing value added, accounting

for about 22% of total. Data with greater coverage for 1974 and 1975 raise

the share of the private sector to roughly one-third of total. This perfor-mance reflects the dynamism of the private sector and its potential, shouldan environment more conducive to growth be restored and steps to raise produc-

tivity be taken.

Employment Generation

6.04 Employment figures for the industrial sector are presented in the

Table below. Because of their limited reliability, are offered only as orders

of magnitude. Employment in industry is estimated to have reached 1.1 million

in 1974, accounting for about 13% of the civilian labor force. It has grown

by 36% between 1966/67 and 1974, or at an annual rate of 4.5%. Employment in

the private sector, despite adverse circumstances, increased by an impressive

55%, or 6.7% per annum, raising its share in total industrial employment from

47% in 1966/67 to 54% in 1974. Of the estimated 623,000 employed in theprivate secLor, about 234,000, or 38%, are employed in the 1-9 worker group

- 24 -

establishments. 1/ Public sector employment grew by 23% only, or at anannual rate of 2.4%, reflecting the much higher capital intensity of publicsector projects. The employment generation record of the private sector iseven more impressive if one takes cognizance of the featherbedding practices

employed in the public sector, as a result of social and political pressures.

Employment in Industry(000)

Share of/a /b Private Sector

Year Public Sector Private Sector Total Industry %Number Index Number Index Number Index

1966/7 445.0 100.0 401.7 100.0 846.7 100.0 47.4

1972 505.3 113.0 589.0 146.6 1094.3 129.2 53.81973 514.9 115.7 597.5 149.0 1112.4 131.4 53.71974 526.3 118.2 623.2 155.0 1149.5 135.7 54.2

Source: Ministry of Industry

/a Covers enterprises under jurisdiction of Ministry of Industry./b Calculated as residual from total industrial employment.

6.05 An interesting feature regarding the sex distribution of employmentis the low female participation, which should be attributed to social andcultural barriers. Female employment accounts for only 5% of total industrialemployment. Nevertheless, attitudes are slowly changing and an increasingnumber of female workers can be expected to be sought after in such industrialbranches as ready-made garments, textiles and other industrial activities.

Investment

6.06 The available data on private investment in manufacturing leave muchto be desired. There are indications that official statistics tend to under-estimate the actual level of private investment. For instance, investmentsless than LE 8,000, because they do not require GOFI's approval, are grosslyunderestimated. Furthermore, the mission has come across enterprises whichhave added to their capital stock by manufacturing machinery in their ownmachine shops or by reconditioning old equipment. Official data are presentedin the Table below. During 1970-74, the share of private industry in totalprivate investment in all sectors was roughtly 10%. The share of the privatesector in total industrial investment has been exceedingly small, averagingabout 4% per annum. In 1975, following the institution of more liberal

1/ Including unskilled and seasonal workers, and taking into accountunderreporting of employment, which is very common, the figure isprobably around 330,000.

- 25 -

Gross Fixed Investment in Industry(LE million; Current Prices)

Economy Mining & Manufacturing Share ofYear Public Private Public Private Private (%)

1969/70 317.3 38.7 89.1 3.2 3.4

1970/71 324.3 37.2 89.7 3.0 3.21971/72 333.4 36.1 116.1 6.0 4.91973 427.1 38.6 120.0 6.0 5.01974 617.2 30.4 186.4 3.5 1.91975 /a 1096.3 107.6 239.4 25.0 10.4

/a Provisional data.

Source: Ministry of Planning.

policies, private investment increased by sevenfold and accounted for 10% oftotal industrial investment. The 1976-80 (draft) Plan envisages an investmentof LE 300 million by the private sector, with the share of joint ventures withforeigners estimated at LE 860 million, out of a total planned industrialinvestment of LE 2,865 million. Given the needs of the private sector forreplacement and modernization of equipment and its growth potential, theplanned figure appears too low.

6.07 In the absence of detailed statistical information, insights onsome structural features of private investment can be gained by analyzing theinvestment licenses issued by GOFI. However, the conclusions drawn shouldbe viewed with caution, as the figures are not based on detailed projectappraisals, while a good fraction - impossible to determine with precision -of such planned investments do not materialize for a variety of reasons or areimplemented with a time lag. It is unfortunate that GOFI does not follow upon the implementation of the licenses it grants every year. Past implementa-tion rates could roughly be estimated at one-third of the investment levelapproved.

6.08 Investment licenses granted by GOFI 1/ provide information on theinvestment plans of the private sector by industry, region, size of projects,employment, value of production, production costs, and net value added. TheTable below-summarizes GOFI's approvals for the period 1970-76. The period1970-74 is one of low investment activity. Between 1974 and 1976, the numberof projects approved has more than doubled while planned investment increasedfive-fold. Engineering, textiles, chemicals and food processing projects

1/ GOFI's data make no distinction between projects undertaken by existingenterprises for expansion or replacement of equipment and new enterprises.It can be reasonably assumed, however, that the bulk of investment isundertaken by existing enterprises.

- 26 -

Analysis of GOFI's Investment Approvals in Private Sector 1970-76(Current Prices; LE 000)

AverageAverage Value of

Net Invest- ProductionNo. of Investment Value of Value ment Per Per

Year Projects (Planned) Production Added Employment Wages Project Project

1970 314 5,000 10,800 2,300 5,635 775 15,9 34,41971 280 6,900 12,500 2,500 4,944 855 24,6 44,61972 350 8,600 16,500 2,600 6,308 1,035 24,6 47,11973 332 16,700 19,700 4,600 10,546 1,693 50,3 59,31974 358 19,100 28,700 4,300 8,589 1,732 53,6 80,21975 740 67,100 132,300 40,000 17,231 5,100 90,7 178,81976 693 94,773 213,297 53,811 20,655 6,805 136,8 307,8

Source: GOFI.

account for some 90% of the total number of projects and total planned invest-ment (Annexes 16, 17 and 18). This clearly reflects the favorable responseof the private sector to the Government's encouragement of private initiativeand the easing up of foreign exchange and import restrictions. The averageplanned investment per project shows a steep increase from LE 15,900 in 1970to LE 136,800 in 1976, while average planned value of production an increasefrom LE 34,400 to LE 307,800 per project during the same time span. The mostdramatic increases in project size were registered during 1974-76. Assumingthat GOFI approvals reflect the investment intentions of entrepreneurs, pri-vate sector investment plans exhibit a tendency toward larger size projectsand increased capital intensity. The Table below provides calculations ofcapital/labor ratios for 1974, 1975 and 1976. The picture is blurred for theyears 1974 and 1975, because investment includes working capital. But thetrend is unmistakenly clear: average capital intensity has been steadilyrising from LE 2,224 in 1974 to LE 4,588 in 1976. In part, the increase incapital intensity reflects the effect of the de facto devaluation of theEgyptian pound (i.e. imports through the parallel market) and domestic andworld inflation. Nevertheless, an average fixed assets/labor ratio of LE2,625 ($3,940) in 1976 is still relatively low. 1/ Chemicals, food processingand leather appear to be the relatively most capital intensive sectors. It isinteresting to note that the capital intensity of projects in the engineeringindustry is below the average capital intensity calculated for all sectors.

1/ The marginal capital/labor ratio of a small sample of expansion projectsin DIB's pipeline was estimated at LE 4,180. If the investment forprojects aiming at replacement (i.e. generating no new employment) isadded, the marginal capital/labor ratio becomes LE 7,050. The averagefixed investment per worker, i.e. including the value of existing invest-ment and employment, for the same sample amounts to LE 2,050.

- 27 -

/aSector Capital Intensity 1974-76 -

1974 1975 1976Fixed Assets

Sector Capital/Labor Capital/Labor Capital/Labor /Labor(LE) (LE) (LE) (LE)

Food 1,452 5,044 6,833 3,130Textiles 4,051 2,739 3,213 2,030Chemical 2,861 5,212 6,682 4,290Engineering 1,574 3,327 3,786 2,060Metallurgy 1,907 4,466 3,548 2,260Electrical 4,214 2,622 1,325 760Leather 1,761 3,528 5,354 2,800Mining 2,728 6,204 3,933 2,330

Average 2,224 3,894 4,588 2,625

/a Projects exceeding LE 8,000.

Source: Calculations based on Annexes 16, 17, 18 and 20.

6.09 Capital intensity by employment size and sector are shown in theTable below. GOFI makes no effort during the approval process neither to

/aCapital Intensity (K/L Ratios) by Employment and Sector Size - 19764-

Employment SizeSector 20 Workers 21-50 Workers 50-100 Workers l00+Workers

(LE) (LE) (LE) (LE)

Food 5,250 7,810 6,380 11,040Textiles 3,210 4,470 3,510 2,430Chemical 5,335 7,030 6,220 7,810Engineering 6,650 3,020 3,985 3,310Metallurgy 2,955 3,245 4,275 -Electrical 1,625 920 - -

Leather 3,450 7,260 4,700 2,870Mining 2,500 2,600 5,135 -

Average 4,710 5,555 4,255 3,935

/a Projects exceeding LE 8,000; capital includes working capital.

Source: Mission calculations based on Annex 19.

- 28 -

inform applicants on the availability of alternative techniques or processesnor to promote the introduction of labor-intensive techniques, in the beliefthat the entrepreneur should not be interferred with in the choice of equip-ment. The most capital intensive projects approved by GOFI fall in the 21-50employment bracket and the least intensive in the 100+ worker group, with theexception of projects in the food processing and chemical industries. Thisfinding probably reflects a modernization spree on the part of enterprises inthe 50 or less groups and a propensity for the acquisition of highly sophis-ticated equipment with limited or no employment generation. Indeed, themission was told about the importation of 60 electronically controlled lathesthrough the Nasser Social Fund on behalf of small entrepreneurs. Deliberateunderestimation of prospective employment and creation of excess capacity inanticipation of future expansion are equally plausible hypotheses. It mightalso reflect investment in balancing equipment or favorable exchange rates forimported equipment from Eastern European countries in the 50+ groups. Further-more, the inclusion of working capital tends to becloud the capital intensity.As the accuracy and representativeness of the underlying data is questionable,the matter of capital intensity can be meaningfully probed into only when moreempirical evidence could be compiled (see para. 6.10).

6.10 Structural features of GOFI's approvals are available only for 1976and are presented in Annexes 19, 20, 21 and 22. The following summary pro-vides insight into the employment structure of the approved private investmentprojects. Some 85% of the number of projects and 53% of the total planned

Employment Structure of Planned Investment - 1976

Planned Average Average /aProject Size No. of Invest- Investment Employ- Employment Capital/ /b(by Employment) Projects ment /a per Project ment per Project Labor Ratio

(LE 000) (LE 000) (LE)

Less than 20 431 20,669 48 4,389 10 4,70921 - 50 161 29,360 182 5,286 33 5,55451 - 100 68 20,339 299 4,779 70 4,256100+ 33 24,405 740 6,201 188 3,936

/a Includes working capital./b Working capital is estimated roughly as 50% of total capital. In con-

sequence, fixed investment per job created should be about 50% less ineach project size.

Source: Annex 19.

investment falls into projects with employment generation prospects of lessthan 50 jobs. Average investment and employment per project rise rapidly withproject size, particularly in the 50+ groups. In the light of these observa-tions, it could be argued that the 50 or less size projects are undertaken bysmall scale industry. In terms of employment generation and capital intensity,the data suggest that larger projects contribute equally, if not more, toemployment generation and possibly at lower capital/labor ratios. However,

- 29 -

given the poor quality of the data (para. 6.09), such a conclusion is not

warranted at this stage. This finding would have to be verified on the basis

of actual data and at a more disaggregated level. GOFI should devise a system

to follow up on the implementation of the projects it approves. This would

enable it to compile valuable information on the investment performance of

the private sector, which would serve as the underpinning for meaningful

policy decisions.

6.11 If fixed capital is used to analyze the size distribution of GOFI's

investment approvals, the following results are obtained. Employing a cut-off

point of LE 200,000 in fixed capital to demarcate small scale industry proj-

ects, 89% of the number of projects and 57% of fixed investment would fall into

this category. This certainly indicates the importance of SSI investment. 1/

Size Distribution of Planned Investment - 1976

No. of Fixed Average FixedFixed Capital Projects Investment Investment

LE LE LE

Less than 25,000 337 3,311,000 9,820

25-50,000 122 4,631,000 37,95050-100,000 95 6,743,000 70,970100-200,000 62 8,674,000 139,900

200,000 & Over 77 30,862,000 400,800Total 693 53,671,000 77,375

Source: Annex 20.

6.12 Annex 22 shows the regional distribution of GOFI's investmentapprovals. Greater Cairo accounts for 52% of planned investment, 46% planne

production, 48% of net value added and 53% of expected employment generatio

This attests to the continuation of past trends and the absence of any con

scious effort on the part of GOFI to influence the location of industry a

to promote regional dispersion.

1/ For the sectoral distribution of other key structuralAnnexes 18, 19, 20 and 21.

- 30 -

C. THE INSTITUTIONAL AND POLICY FRAMEWORK

VII. THE ADMINISTRATIVE APPARATUS

7.01 Responsibility for implementation of various administrative regula-tions affecting SSIs is shared by six Ministries, among which the lines ofcommunication are not always open. This hampers the development of consistentregulations and their uniform implementation, defies focussing on commonproblems, and stultifies the initiation of proper action and coordination ofeffort. The absence of a SSI official definition and the patent inadequacy ofthe existing information system regarding the status and activities of the SSIcompound the difficulties. There is therefore need to devise a meaningfuldefinition of SSI in light of present realities and to develop a suitable andreliable statistical information system on SSI, so that purposeful and effec-tive regulation - and policy formulation - is feasible. Designation ofresponsibility for all activities in the SSI sector, probably excluding thetraditional handcraft segment, in the existing Small Industries Departmentin the Ministry of Industry, properly reorganized and revitalized, would behighly desirable. Administrative procedures per se do not seem to be partic-ularly cumbersome. Rather it is the processing phase and the manner of conductwhich create inconvenience and delays, and efforts to improve efficiency inthese areas should be beneficial. The administrative set-up and licensingprocedures are described in Annex 23.

- 31 -

VIII. THE EXISTING POLICY FRAMEWORK

8.01 The Government's policies toward the private sector, and the SSI inparticular, have yet to be articulated in specific terms. The new economic

policy, by inviting the participation of private sector firms in the country's

development effort, purported to clear up in the minds of the entrepreneurs

the uncertainty about the prospective role of the private initiative, and to

alleviate some of the severe problems plaguing the sector. The performance

of the private sector in the past few years reflects increased confidence,

although some entrepreneurs take a cautious stance (see Section VI). So far,

the Government's measures aim primarily at easing up various bureaucratic

hurdles, particularly in the issue of licenses and foreign exchange restraints

for the importation of raw materials and equipment, a policy which is yielding

tangible results. There are still certain areas where the SSI sector appears

to be discriminated against (taxation and duties on imports of capital goods,

the 10% price margin in favor of the public sector in purchases of Governmentstores, etc.) and remedial action is called for to place them on an equal

footing with the public sector. Additional major areas where the concern of

the Government is invited include problems constraining the growth and devel-

opment of the SSI and a strategy to integrate the SSI sector with the rest

of the industrial sector (see paras. 10.03 and 10.04). The main aspects of

the existing policy framework and suggested corrective action are discussed

briefly below.

8.02 The Tax Structure. In addition to a corporate profit tax of 40%,

personal income in excess of LE 1,000 is subject to a steep general income taxstarting at 9% and peaking at 95% for incomes exceeding LE 10,000. Only firms

that do not employ hired workers are exempt from the corporate tax -- or about

3% of the total number of establishments. High marginal tax rates tend to

dampen the propensity to invest and encourage tax evasion. The tax laws now

under review by the Government are expected to rectify the situation, byreducing tax coefficients. In this regard, and for reasons of tax admin-istration, it may be worth considering the advisability of exempting the

artisanal sector from income tax altogether. On a related matter, there is

a general feeling that often the income of small establishments is assessed

at higher than the actual level, resulting in inability to pay and penalties.

As many small firms do not keep accounts, continuous disputes with the tax

authorities arise over assessment. The situation is exacerbated by the

irregular assessment of tax obligations and the attendant cumulation of taxesdue. Since the small entrepreneur makes no provision for taxes payable, the

disbursement of a substantial amount constitutes a significant drain in his

working capital. 1/ Provision for regular assessment of tax obligations and

collection should be beneficial to both the taxpayer and the fiscus.

1/ However, delay in assessment and payment of taxes amounts to an interestfree loan!

- 32 -

8.03 Tax Incentives. Under Law 86/1974, private domestic companies areeligible for tax benefits, 1/ provided the investment projects are included inthe National Plan. Tax holidays are normally for a five-year period but theyare extendable to 8 years for cause. Dividend payments up to 5% of investmentare also exempt' from personal income tax. This provision remains ineffectualso far as the projects involved are far beyond the financial capability of theprivate sector. The Federation of Industries is lobbying for the inclusionof smaller projects. Should they succeed, a bias is inadvertently createdagainst the SSI. The provision should be extended to all projects regardlessof whether or not they are specified in the Plan, as long as they are incompliance with the Government's sectoral objectives and targets. The lattershould be duly determined and publicized, while an expeditious procedure ofcertification should be devised.

8.04 Price Controls. Although the general trend is to reduce the numberof products subject to price control, the list still includes a wide rangeof products (Annex 24). Price controls are enforced rather loosely in theprivate sector. Nevertheless, promotion of new projects in products subjectto price control (tanning, shoe-making, textiles and food processing) could beadversely affected. Modernization or expansion efforts in these industriesmight also be thwarted. Rent controls in the urban areas, providing in effecta subsidy toward production costs, create an advantage for existing SSIs overnew entrants, frustrate relocation policies, inhibit expansion due to lackof space and perpetuate the present atrocious situation in workplaces. Con-trolled prices provide no guidance to entrepreneurs and distort resource allo-cation. Besides, due to the massive problems of verification and policing,they cannot be monitored judiciously. Price controls should be dispensed withand prices must be let to attain levels reflecting true opportunity costs.

8.05 Industrial Location Policy. Because of scarcity of vacant indus-trial land in both Cairo and Alexandria, new private enterprises are excludedfrom large sections of both cities, although the lack of zoning laws makescontrol difficult. The pressure on available space has prompted the Depart-ment of Physical Planning to embark on a new town development program involv-ing three locations 40-50 miles away from Cairo. Industrial estates would beestablished in these new towns and private sector firms would be attracted.However, because of the problems of relocating existing small enterprises,arising from low rentals and the possible disruption of their existing busi-ness connections, these industrial estates would primarily accommodate newand relatively large private firms. Since there is no space to construct anindustrial estate of viable size (minimum about 40 acres) in Cairo to accom-modate SSI, workshop clusters could be erected on either vacant or clearedsites near the center of the industrial district(s). Also, industrial com-plexes (flatted .factories) could be built or existing buildings zoned exclu-sively for industrial use. It would be possible, practicable and sound

l/ Joint ventures are eligible for these benefits under Law 43/1974, asamended by Law 32/1977.

- 33 -

financially to raze some of the semi-derelict, single or two story buildings

and erect flatted factories in their place. 1/

8.06 Procurement and Sub-contracting Policies. At present, public

sector enterprises enjoy a 10% price margin compared to private suppliers

for government purchases. This is a manifest bias against the SSI (and the

larger private enterprises) and steps should be taken to eliminate this

preferential margin. Also, there is no policy to encourage sub-contracting

between public and private firms, though some activity is going on informally.

E.g. in the textile industry, the private sector has supplied low-cost grades

of fabrics to public sector firms and Bata, a public sector footwear manu-

facturer, procures ladies shoes from private establishments. The Government

should actively promote sub-contracting on a more formal basis, inter alia,

under its new town development program where the strategy calls for estab-

lishing a nucleus of large public enterprises and encouraging private firms

to locate in industrial estates in an ancillary relationship. The Federation

of Industries, representing both public and private firms, is in a unique

position to foster linkages between the two sectors as well as between larger

and smaller private establishments.

8.07 Protection. Duties on imported raw materials and intermediate

and capital goods are relatively low -- up to 20%, and for selected items

up to 50%. Duties on imported consumer non-durable goods range from 35% to

100%, and on durables from 35% to 200% (see Annexes 25 and 26). Effective

protection therefore is much higher. There are quantitative restrictions,

exercised primarily through the national foreign exchange budget, supportive

of the import substitution policy of basic intermediate products and consumer

durables. Both public and private firms face the same import duties and

levies and undoubtedly the viability of many small manufacturing enterprises

owes to this protective umbrella. Hasty and indiscriminate liberalization of

imports before the SSI has had the chance to modernize, improve productivity

and quality of output, and reorient itself toward specialized domestic markets

and exports may lead to high mortality rates. A well thought-out and progres-

sive reduction of protective barriers could foster the requisite changes

and improve competitiveness.

8.08 Import and Export Incentives. At present, the importation of raw

materials, spare parts, and some types of machinery by the private sector

through the parallel market does not appear to pose serious difficulties.

Imports of capital goods are in effect restricted as there is no provision in

the national foreign exchange budget for capital goods imports in the private

sector. Until recently, foreign exchange for the importation of capital goods

was available only through DIB. The parallel market and the "own exchange

scheme" are now additional sources. Nevertheless, the continuous availability

of these latter sources is in doubt.

1/ There are in effect flatted factories in Cairo in as much as heavy

activities are carried on at ground floor level and light industry

(footwear, electrical fitting) on upper levels. But since the buildings

were designed as dwellings, there are also non-industrial occupants.

- 34 -

8.09 Private sector firms are allowed to import intermediate and rawmaterials on a duty-free basis under a system of "provisional allowance",provided all end products are exported. Alternatively, a drawback schemeexists under which 100% of the import duty is refunded (it takes about twoyears) although not specific import levies, which amount to 12.5% of thec.i.f. value of imports. Import duties are not levied under the provisionalallowance scheme. A further export incentive provided to both private andpublic enterprises is that 50% of export receipts in excess of the annualtargets for traditional exports, or 100% of receipts from non-traditionalexports, may be used within six months to import inputs required in produc-tion, including capital goods. After six months, unutilized export receiptsmust be surrendered to the parallel market at the advantageous exchange rate.This incentive, together with the facilities available under the "own exchangescheme", has eased somewhat the difficulties of private enterprises in obtain-ing foreign exchange for capital and intermediate goods. However, the work-ability and effectiveness of the export incentives, particularly in redirectingtrade, needs to be established.

- 35 -

IX. SMALL SCALE INDUSTRY FINANCING ARRANGEMENTS

9.01 Lack of access to institutional finance, particularly of SSIs occupy-

ing the lower end of the size range, is also noticeable. However, the true

dimensions of its extent and severity are hard to ascertain, in view of thereluctance of many SSIs to seek financial assistance from banking institutions.

Often, owners are unwilling to disclose their true financial position or are

afraid of possible interference of the bank with their operations. Short-sightedness and complacency may also play a role. The Development Industrial

Bank (DIB) remains the major supplier of short and medium term funds to SSIs,

but so far it has had a limited impact.l/ However, increasing competition and

the need to replace obsolete equipment can be expected to bring about a change

in attitudes and to increase perceptibly the demand for term lending in the

next several years. This demand would be further enhanced by the expansion

of the larger size and more dynamic SSIs, particularly in faster growing

subsectors. Such devices as "key money", hire-purchase, hypothecation of

purchased equipment and small personal loans to trustworthy entrepreneurs now

applied by DIB should increase considerably the ability of small entrepreneurs

lacking collateral to borrow and should stimulate further the demand for term

loans. Nevertheless, the advisability of setting up a credit guarantee fund

should be investigated. The existing financial institutional set-up catering

to SSI is discussed below.

9.02 Institutional financing to SSI is provided by the National Bank,the Nasser Social Fund, and DIB. A brief review of their activities follows.

The National Bank. This institution introduced a "small loans

scheme" in 1965 to cater to the needs of artisans. It has now a special

department with ten staff members. The National Bank provides mainly short-

term and occasionally medium-term local currency loans. At the end of 1975,

outstanding loans to SSI amounted to LE 486,000 (compared with a protfolioof LE 1.4 billion) involving 3,475 clients. The average size of loan is verysmall--less than LE 150. The loans extended are mainly in the regions: 69%

in Lower Egypt and Canal Line; 20% in Upper Egypt; and 11% in Cairo andAlexandria. An additional LE 2-3 million loans are made to middlemen whoput out orders to various small artisans.

The Nasser Social Fund. Because of the social character of its

loans, the Nasser Fund cannot charge interest. Loans are made primarily

for such social purposes as education, pilgrimage, etc., and to some extent

for productive purposes. SSI financing has been limited to bulk purchasing

from abroad of machinery and equipment (lathes, woodworking, etc.), taxis,

tourist buses, and resale on an installment basis. It normally requires a10-20% down payment and extends credit up to three years. It occasionally

1/ The role of cooperatives in this regard is discussed briefly in para 4.08

and Annex 11, paras 6 and 7.

- 36 -

grants credit for raw materials to members of cooperatives, which is repaidwhen the final product is sold. Such loans are guaranteed by members of thecooperative committee. The Nasser Fund charges a fee for its services. Totallending to SSI has not been very significant

DIB. This institution remains by far the major supplier of short-and medium-term funds to SSIs. During the first six months of 1977, SSIshort-term financing 1/ accounted for about 75% (some LE 3.5 million) of DIB'slocal currency approvals. During the same period, medium- and long-termlending to SSI amounted to 18% (LE 3 million) of total approvals in theprivate sector. About one-half of DIB's loans are concentrated in the GreaterCairo area. Food processing, textiles (especially dyeing and finishing),chemicals, engineering and woodworking are the major borrowing industries.DIB appraisals center basically on the ability of the borrower to performsatisfactorily and to repay the loan. To establish this, DIB checks on theborrower's investment and production plans to satisfy itself that the newmachinery and the proposed capacity are actually needed, estimates his needsin working capital, considers the availability of raw materials, assesses hisability to fulfill contracts, estimates the value of his assets, obtainsinformation on his reputation, etc. By and large, DIB's appraisal and lendingprocedures are simple and expeditious. Follow-up is rather spotty with afocus on problem areas. The design of a suitable monitoring system for thesupervision of SSI sub-projects would be useful. Rejections of loan applica-tions (20%) are mainly because of arrears in tax and social security pa.yments,inadequacy of space to install the new equipment, uncreditworthiness, or un-willingness to supply information. DIB extends loans to small entrepreneursusing such schemes as "key money", hire-purchase, hypothecation of purchasedequipment which alleviate the problem of collateral. DIB makes no equityparticipations. Lending rates for local currency loans of all maturities are8-9% while for medium- and long-term in foreign currency 10-11%. These ratesapply to all private and public sector enterprises. Availability of fundscould enhance DIB's volume of lending to SSIs.

1/ SSI is defined for this purpose as establishments with fixed assetsup to LE 170,000 ($250,000).

- 37 -

D. SECTORAL PROBLEMS OF SMALL SCALE INDUSTRY

X. PROBLEM AREAS IN SMALL SCALE INDUSTRY

10.01 As already alluded above (sections IV, V), the mission's surveydisclosed conditions in both the production and management fields in the SSIsector that are inimical to efficient operation and, as a result, deserveimmediate attention. Major problems adversely affecting productivity, qualityof output or service and, by extension, constraining the growth of SSI include:(a) out-of-date machinery; (b) deficient production engineering and management(product design and development, production planning and work methods, materialselection, quality control, preventative maintenance, etc.); (c) poor workingconditions and housekeeping, in part due to shortage of space; and (d) market-ing problems. Not all of these apply to every SSI. Their relative importancevaries with the particular industrial activity and size of establishment.Annexes 27 and 28 provide an assessment of these deficiencies in five indus-tries: engineering, chemicals, woodworking, leather and ready-made garments.The presence of these problems does not mean to imply that SSIs are necessarilyinefficient. But it does attest to a built-in weakness, namely the lackof specialized technical and managerial expertise within a small organization.To rectify the situation, extension technical assistance is called for.

10.02 The introduction of more sophisticated techniques and specializedmachines is creating a demand for such highly skilled tradesmen as designers,tool and die makers, tool setters and precision machinists in the engineeringbranches. The requirements of the plastic branch of the chemicals industrymust be met from the engineering trades, particularly by upgrading the skillsof fitters and machine men. In the furniture making branch contemporarydesigns are needed. There is lack of experienced operators of shoe makingmachinery and in the woodworking trades. The lack of skilled workers mayprove a restraining factor on the growth of these industries. Furthermore,due to continued emigration, shortage of skilled workers is increasingly feltand is reflected in rising wages. To remedy the situation, there is need totrain more skilled workers and to upgrade the skills of those employed inthese crafts. The ready-made garment industry is able quickly to train theworkers it requires. Other sectors of small scale industry rely mainly on anew employee acquiring training by watching and assisting experienced workers.This is the old apprenticeship system. It involves very low wages for theapprentice but in the long-term is more costly for the employer. The formalapprenticeship scheme or accelerated training can provide the solution.

10.03 External problems tend to compound the internal ones. Inadequacyof space has resulted in cramped, overcrowded and unsanitary working condi-tions. The Government would have to take steps to provide proper accommoda-tions by relocating SSIs to industrial complexes (flatted factories) orindustrial estates -- a task fraught with difficulties. To succeed, arelocation policy would have to provide sufficient incentive to compensatethose concerned for the extremely low rents they now pay for occupying rent-controlled premises. In addition, relocation schemes may run into opposition

- 38 -

by SSIs for fear of loss of clientele and/or workers. Nevertheless, thematter would have to be addressed. Wanting infrastructure, particularlytelecommunications and transportation, also adds to existing difficulties.Timely procurement of raw and intermediate materials, handled through publicimporting companies, still poses problems.

10.04 Institutional restraints relating to the administrative set-upoverseeing SSI and the existing general policy framework, including suggestedcourses of action, were discussed above in sections VII and VIII. Issues ofSSI financing were raised in section IX, while the question of the appropriatetype of financial intermediation to cut to the needs of the artisanal segmentin section IV, para. 4.08.

10.05 In view of its importance in terms of employment and export poten-tial, a cursory review of the leather industry and the range of problems itfaces are presented in the Addendum to this section.

ADDENDUM: THE LEATHER INDUSTRY

10.06 The leather industry includes leather tanning, footwear and manu-facture of assorted leather goods (gloves, handbags, belts and the like).

10.07 Tanning. There are 272 tanneries in the private sector out of atotal 274. Most of the tanneries are small; about 75% of the tanneries haveless than 10 drums, with the maximum number of drums in an enterprise notexceeding 17. Only 20 tanneries have fixed assets amounting to aboutLE 100,000. The Government believes that there is excess capacity in thetanning industry, particularly in the field of light leathers. A technicalcommittee recommended to the Ministry of Industry that no increase in capacitybe permitted until 1977. 1/ The production of tanned hides and skins wasLE 17.4 million in 1975, compared to LE 14.5 million in 1974. 2/ Exports ofsole leather are allowed, but exports of upper leathers are prohibited, exceptfor some semi-finished articles.

10.08 Footwear. The footwear industry is the most dynamic subsector inthe leather industry group. The real annual growth rate of the leather sectorbetween 1974 and 1976 was 52%, with most of the growth attributed to footwearproducts. The production of footwear in 1976 is estimated at LE 140 million(at current prices), up from LE 75 million in 1975 and LE 46 million in 1974.Footwear exports, however, have been declining, from LE 17 million in 1974 toLE 13 million in 1975, and to an estimated LE 7 million in 1976. The declinein footwear exports is due to the reduced procurement under bilateral agree-ments with Eastern European countries. This trend is likely to result in

1/ Federation of Egyptian Industries, Year Book 1976.

2/ Federation of Egyptian Industries, Pamphlet 1976.

- 39 -

under-utilization of capacity in the private sector because of the difficultiesof redirecting exports to free currency markets. The prospects of growth inthe manufacture of footwear depend on the use of good quality raw material,adoption of improved production techniques and introduction of new designs.There is also need for training to improve the skills of craftsmen producingleather footwear.

10.09 Leather Goods. Total production of leather goods is estimated atLE 12 million in 1975 down from LE 13.3 million in 1974. Exports of miscel-laneous leather articles is estimated at about LE 4 million annually during1974-76. The prospects for exports of miscellaneous leather products aregood, provided that only good quality leather and fittings are used. Inparticular, there is considerable potential for exports of leather garments.

10.10 Problems/Needs. Although locally arising hides and skins form onlyabout 20% of those used in public sector tanneries, they constitute a muchhigher percentage - probably more than 50% - of those tanned in the privatesector. The local hides are not of a good quality. They are marred by cutsand insect attack. M4any of the hides are damaged in flaying. There isevidence to suggest that, in some instances, ineffective or no action has beentaken to arrest bacterial deterioration in the interregnum between flaying andtanning. It may be necessary to introduce new methods of flaying and "saltingdown" or otherwise preserving the raw hides and skins. 1/ Clearly, thereappears to be a need for a hide improvement scheme.

10.11 The private sector tanning industry is characterized by unscientific,rule of thumb, methods; many tanning drums but few machines for hide splittingand for finishing the leather; old equipment and badly maintained; tanningprocess carried out with inadequate chemicals; layouts that involve muchunnecessary handling and prevent the use of any transporting device; extremelybad housekeeping and excessive contribution to environmental pollution. Asite has already been prepared at Besatrin (near Cairo) for the transfer ofexisting private sector tanneries. Reportedly, the private tanneries haverefused to move out due to high costs of transfer. The Government would haveto devise an incentive scheme to encourage relocation.

10.12 In the leather product division of the industry, the most importantitem is footwear. The private sector units generally are small although, interms of number of workers employed-, many are above the artisanal level. Yet,artisanal methods are widely employed. Only the larger units have the machineryto turn out a finished product; the majority have to rely on service centersto perform the final operations. The shoemakers claim they have littlecontrol over the quality of their production and blame the poor quality of theleather and the failure of their workmen to produce goods to the required

1/ A good part of the imported hides comes from Sudan. Their qualityis equally inferior.

- 40 -

specification. This has an element of truth, but part of the blame must reston the continuing use of obsolete methods and on their dependence on servicecenters. The latter carry out stitching and finishing and apparently havelittle interest in the marketability of the f_nal product. 1/

10.13 Shoes made for export are subject to Government inspection. Suchinspection is sporadic, visual and casual. It is understood that the shoeswould not be saleable in Western European markets. The price of footwearin the domestic market is controlled. Profits at all successive stages ofproduction are limited to 6% on production costs. Price controls seem toprovide a disincentive to modernize the industry.

10.14 There is a vocational training center for tanners in both Cairo andAlexandria run by the Productivity and Vocational Training Department of theMinistry of Industry. A three year course is offered on the lines of theformal apprenticeship scheme of the P.V.T. 2/ Some 30 trainees were passedout per year, with few from the private sector. The reason for the low privateattendance seems to be the dislike for this type of work and the conditionsunder which it is performed. Only those who expect to eventually take overthe family enterprise are interested in getting trained. The impression wasreceived that the Cairo Vocational Training Center was run mainly to provideemployment for the sons of workers in the public sector tannery at Besatrin,and that passed-out trainees were engaged irrespective of the need for them.

10.15 Training for leather workers is provided in three of the eighteenvocational training centers operated by HIPCO. Only one (in Cairo) was seen.There were only three trainees. The equipment was old and there was no attemptto introduce better production procedures. Whether this section of the centeris providing any useful service to the leather industry is open to question.

10.16 The leather industry is a very large employer of labor (para. 4.06)and, provided the quality of its production is improved, could have a goodpotential in the export field. It is considered that, before any but piecemealrecommendations could be made, a survey of the leather industry is necessary,encompassing hide improvement, tanning methods, production technology andmethods, distribution and marketing, including an assessment of export poten-tial. The thrust of the survey should be to devise the appropriate kindof technical assistance the sector needs to improve productivity and qualityof output, and to recommend the type of institution (existing or new) neededto deliver such assistance. Draft terms of reference for the survey are givenin Annex 29.

1/ Aside from four service centers operated by HIPCO, there are 250-300small privately owned commercial units.

2/ Accelerated training courses of 6 weeks duration are also available.

- 41 -

E. OBJECTIVES OF SMALL SCALE INDUSTRY AND STRATEGY

XI. OBJECTIVES AND STRATEGY - A SUGGESTED APPROACH

11.01 The importance of the SSI sector to the Egyptian economy, both in

terms of employment and output, remains unequivocal. Furthermore, therecan be no doubt that a modern SSI sector can contribute considerably to the

country's industrial development, while active promotion of small but viablemanufacturing enterprises could have tangible social advantages. 1/ Support

to SSI is likely to enable the most efficient and dynamic enterprises to growin size and graduate to the 50+ employment brackets, which are now very thinlypopulated. To further the cause of SSIs, policies should be based on a posi-tive, developmental attitude, seeking to promote efficiency, adaptation to

new circumstances and growth, rather than to protect out-of-date types ofproduction against the competition of more modern methods. In this regard,the effectiveness and chances of success of the SSI effort would be greatlyenhanced if financial and technical assistance could be combined. In the

latter case, not only a structured technical assistance program would have to

be devised but, more importantly, it would have to be administered in such a

fashion as to reach the small entrepreneur (extension service); simply making

facilities available and relying on the small entrepreneur to take theinitiative is not likely to achieve the desired results.

11.02 In devising a strategy toward SSI, two major and parallel objectivesstand out: employment generation and alleviation of problems constraining the

growth and development of SSIs, the latter amounting essentially to effortsat improving productivity. 2/ Open unemployment in Egypt is reportedly low -probably around 2% of the labor force - although underemployment is known to

be much higher. Recently, in the absence of a reservoir of skills, shortagesof particular skills are becoming increasingly evident. In the light of these

circumstances, it would appear that creation of employment opportunities,though an important longer range (next 5-10 years) consideration in the faceof a youthful and growing population and labor force, 3/ is not the singularand overwhelming issue. An equally important issue with far-reaching implica-tions is the need to improve productivity. This latter objective can be

l/ The organization of industrial activity in smaller units can be expectedto provide greater scope for initiative, innovation and the developmentof technical and managerial skills; promote redistribution of income;stimulate savings and investment; improve working conditions; etc.

2/ The range of problems in the SSI sector has been summarized in section X.

3/ In 1970, 42% of total population was in the 14 year or less age structure

group while 19% in the 15-24. In 1972, over 30% of the labor force fell

within the 12-25 age group. These structural developments imply thatpolicy-makers ought to recognize and put in proper perspective the need

to generate employment opportunities.

- 42 -

achieved primarily through modernization of equipment and improvement of theoperating efficiency of the small manufacturing establishments through awell-conceived and properly tailored technical assistance program, includingskill upgrading and accelerated training. 1/ It follows that the introduc-tion of more sophisticated and specialized equipment at this stage of Egypt'sdevelopment should not be discouraged. This should not be interpreted as anendorsement to an indiscriminate choice of highly capital-intensive techniquesand equipment. Given the scarcity of capital and foreign exchange and thecomparatively lower wages in Egypt by world standards, a conscious effortshould be made to adopt "appropriate" technologies suitable to the local cir-cumstance. 2/ However, the task of ascertaining, promoting, demonstratingand disseminating appropriate technologies is a difficult one, and willnecessitate the extension of technical assistance to the Government to enableit to carry it out. In this regard, GOFI, properly strengthened and assisted,could be assigned the task to advise on matters of technology in the course ofapprovals of investment projects (see para. 6.09).

11.03 SSI's role should be perceived as complementing that of the largerpublic and private enterprises. Therefore, extending a helping hand in theform of advice to improve efficiency, effort to alleviate the shortage ofspace, training, improving access to appropriate technologies, or eliminatingpolicy and institutional biases, should not mean to imply the creation of apriviliged situation for SSI - a sort of discrimination in reverse. Ratherit should be construed as putting the SSI on an equal footing with the public

1/ The youthful structure of the labor force should imply greater occupa-tional and geographical mobility and readiness to acquire higher skills.Yet, illiteracy seems to restrict considerably participation of the adultpopulation in the labor force.

2/ Appropriate technology (low-cost or intermediate technology are othervariants of this concept) should be viewed rather as a complement to,and not a substitute for, modern technology. The concept implies lowcapital intensity, foreign exchange requirements and labor skills or other(locally) scarce inputs. It may also mean scaled-down plant and levelsof output. Appropriate technology (= a set of inputs and processes) ispremised on the existence of a spectrum of technologies either on theshelf or in the form of possibilities for adaptive development. Althoughappropriate technology could conceivably be imported, the emphasis is onbuilding up an indigenous technological innovative capability. The ideais to tap the existing pool of technology, both in hardware and software,employed in the developing (and possibly developed) countries by numeroussmall industrial workshops, individual entrepreneurs and innovativefarmers which remains virtually unsurveyed, to modify it, and to makeit an integral part of the development effort. To facilitate diffusion,appropriate technology options should display engineering efficiency,economic viability and social acceptability.

- 43 -

sector enterprises and as establishing a policy framework providing for equalopportunities. Furthermore, it should be appreciated that the public sectoralso stands to gain from the existence of an efficient SSI.

11.04 In essence, the strategy should be to direct private investment andto extend support primarily to SSIs with relatively high probability of sur-vival and success and conducive to promoting the gradual integration of theSSIs with the rest of the industrial sector. Viability and self-sustainedgrowth are most likely to be attained, it would seem, by focusing on indus-trial activities with promising growth potential and characterized by ratherinsignificant economies of scale, catering to specialized or low-priced marketniches, or displaying complementarity with activities undertaken by largerfirms, including efficient import substitution. 1/ Such a conscious approach,effected through the lending procedures of financial intermediaries, wouldensure that SSIs fill interstices, command an interlocking position within theindustrial structure, and constitute vital parts of a functionally integratedwhole.

1/ Items such as instruments, electrical control equipment, parts for airconditioning and refrigeration equipment, vehicle components, etc. couldbe manufactured by small enterprises which can develop the requisiteskill. In fact, to some extent, a range of such items is being manu-factured. The requirement is to develop the capability to manufacture awide range of items of each type each in relatively low volume production.The development of such skills and capability could lead to a considerablereduction of engineering industry imports.

- 44 -

F. POTENTIAL OF SMALL SCALE INDUSTRY

XII. PROMISING SUBSECTORS - TARGET GROUPS

12.01 Industries which appear most promising in terms of potentialgrowth 1/, comprise the engineering (including transport equipment) 2/, foodprocessing 3/, ready-made garments, footwear and leather products, woodworkingand furniture 4/, printing and chemicals 5/. Aside from growing demand andexport potential, factors reinforcing the potential growth and viability ofthe above industries include relatively insignificant scale economies; com-plementarity with larger industry, involving manufacturing operations in whichthe processes are readily separable (e.g. producing specialized machine pro-ducts, components and tools), craft or precision handwork, simple operationsof assembly, mixing, or finishing, provision of services and repairs to otherindustries; and production of differentiated products for specialized markets.These industries belong to the so-called modern SSI sector but have a rela-tively low capital intensity, and their expansion should inter alia enlargeemployment for the urban poor. It can be expected that about 50% of the

1/ Based on their performance in recent years, investment plans (GOFIapprovals and DIB's approvals and pipeline), and on the mission'sassessment drawing inter alia on informal contacts.

2/ There are good prospects in the production of domestic utensils in copper,aluminum and ferrous metals (cutlery, cooking pots, containers, razorblades, etc.); fabrication of such consumer durables as electric washingmachines, gas stoves, light fittings, and such capital goods as lathes,milling machines, pumps, machines for the printing, textile and shoemakingindustries; production of engineering supplies (taps, valves, rails,screws, locks, wire) and replacement parts for bicycles and automobiles;heat treating and annealing of steel, electroplating and polishing,metal coating and engraving; a wide range of machine products; secondarysmelting, refining and alloying of non-ferrous metals; brass, bronzeand copper castings; special dies and tools (jigs and fixtures, press,extrusion, forging and die-casting dies, special gauges, industrial molds).

3/ Making of biscuits, pastas, dry confectionery, carbonated soft drinks,canning of fruit, meat, fish and vegetables, ice.

4/ Bobbins for the textile industry, parquetry, knocked-down furniture.

5/ Manufacture of paints, varnishes, inks, cosmetics, perfumes, aromaticoils and essences, and pharmaceuticals; production of plastic goods(plates, cups, fancy goods, pipes, conduits, footwear, closures, con-tainers) by extrusion and impression moulding; rubber goods, and drybatteries; electro-deposition of metals and anodizing; camelback.

- 45 -

investment outlay in the next several years would be for replacement of oldequipment with zero employment effect; 1/ some 45% would derive from expansionprojects and 5% from new entry, both with a positive employment effect. Theinvestment per job created for expansion projects would vary among subsectors,but is likely to hover around LE 2-4,000 ($3-6,000). Within these subsectors,the target group should primarily comprise enterprises with sizes ranging from10-50 workers, preferably among those with some degree of specialization inthe management function, a feature which is likely to enhance their potentialfor continued viability and self-sustained growth (see para. 5.13). Suchindustries deserve DIB's financial support, although the latter's operationsneed not necessarily be confined to these subsectors or enterprise sizedistribution. Larger enterprises (e.g. employing 50-100 workers) may wellhave a low capital/labor ratio and thus a substantial employment effect (e.g.ready-made garments). Modern establishments employing 9 or less workersshould be catered to, for similar reasons. 2/ Technical assistance (see nextSection XIII) should also be extended to all interested enterprises employing100 workers or less. However, an attempt to extend the scope of technicalassistance to encompass a large number of subsectors, though desirable, wouldbe impractical at this initial stage. In terms of priority, availability oftechnical assistance, though not unimportant, is not crucial in the case ofready-made garments, food processing or printing. The remaining industries, 3/however, could greatly benefit from a well-conceived and well-designed tech-nical assistance scheme, and the Bank's early involvement can have considerableimpact on the development of the SSI sector in these activities.

1/ It is noteworthy that replacement of obsolete equipment helps preserveexisting jobs, which otherwise might have been eliminated.

2/ In certain instances, enterprises employing less than 10 workers maydisplay a very high capital intensity. The mission visited a 3-manknit-weaving establishment employing ultra-modern equipment where thefixed assets (only machinery) per worker amounted to $75,000.

3/ With the exception in the initial stage of the leather industry, forwhich the mounting of an in-depth study is recommended (para. 10.16).

- 46 -

XIII. THE PROPOSED TECHNICAL ASSISTANCE PROGRAM 1/

Overview of the Program

13.01 Technical assistance delivery agencies catering to SSIs are virtually

non-existent. To help the small-scale manufacturing sector eliminate the

factors currently inhibiting its full development, and in conjunction with

the suggested financial support to SSIs, a two stage program of technical

assistance is proposed aiming to reach primarily the target group. 2/ Each

stage would have a duration of 18 months. In both stages efforts would be

directed to:

(a) raise the productivity of enterprises, by improving manu-

facturing processes and extension of assistance to solve

problems in areas of production engineering and management;

(b) increase the quantum of skills available to SSIs by acceleratedtraining and skill upgrading; and

(c) remedy deficiencies in the commercial aspects of managementand facilitate project preparation (technico-economic aspects).

13.02 An evaluation of the progress made in the first stage would take

place near its completion, based on a set of quantitative and qualitative

criteria. 3/ Provided the results are satisfactory, a second stage is con-

templated, leading to an expansion of the coverage of the services offered.

This trial period enhances flexibility, enabling the Government and the Bank

to test the capabilities of the delivery institutions, profit from the

experience to be gained and, conceivably, redirect efforts as appropriate.

1/ The proposed program has already been endorsed by the Government and

is to be tacked onto the upcoming loan to DIB.

2/ Given that time and effort is required to make known the existenceof such facilities; contact potential recipients, impress on them the

need for technical assistance and arouse interest in their utilization;

recruit suitably qualified personnel to strengthen and staff theseinstitutions; orientate courses to meet the particular needs of the SSI

sector and expand existing facilities, the first stage perforce would

be more of a pilot nature.

3/ The proposed evaluation criteria for the extension service are shown

in Annex 30.

- 47 -

13.03 Specifically, it is proposed to deliver the technical assistanceprogram through existing institutions, thereby making full use of alreadyavailable facilities, including personnel. Delivery institutions are chosenprimarily for their organizational and, in general, their managerial capabilityto discharge effectively the functions assigned. This is an especially weightyfactor in the case of the proposed extension service.

13.04 The institution most qualified to organize and deliver the pro-posed extension service, provide skill upgrading in fields such as precisionengineering, and help in project preparation appears to be the Engineering andIndustrial Design Development Center, which operates as an autonomous agencyunder the Ministry of Industry. The Productivity and Vocational TrainingDepartment (PVT) in the Ministry of Industry could be entrusted with the pro-vision of accelerated training. The Bank is re-equipping 10 of the 55 centersfor vocational training under PVT 1/ and the latter's involvement in the pro-posed accelerated training scheme offers an opportunity to already employedpersons who lack the formal educational qualifications required under the Bank-supported program to acquire technical training, leads to a better utilizationof facilities and personnel and complements the Bank's effort to increase theoutput of skilled workers. The, proposed skill upgrading (limited in extentbut properly focused on specific trades) to be undertaken by the Center wouldalso be complementary to the Bank's effort. Finally, the provision by theFederation of Egyptian Industries (FEI) of a series of lectures on such sub-jects of management as cost accounting, financial control, marketing, andrelated subjects should prove quite useful to small entrepreneurs. To ensuresuccessful implementation of the technical assistance program and coordinationof the respective functions, a steering committee will be set up, consistingof representatives of the three implementing agencies, DIB and the Ministry ofIndustry. 2/

1/ "Appraisal of an Education Project in the Arab Republic of Egypt",Report No. 1285-EGT, January 28, 1977.

2/ The activities of the Center, PVT, and FEI are described in Annexes 31,32 and 33.

- 48 -

13.05 The type of programs to be delivered by each institution duringthe first stage is summarized and briefly discussed below. For details seeAnnexes 27 and 28.

Delivery Institution and Proposed TechnicalAssistance Programs /a

Program Duratory 18 months

Productivity improvement Center. Diagnosticsurveys and extensionservice. Engineering,chemicals, furnituretrades. Cairo

Project preparation Center. Cairo - Alexandria

Skill upgrading Center. Engineering,chemicals and furniture(limited) trades. Cairo

Accelerated training P.V.T. 3 training centers.Engineering trades only.Cairo 2; Alexandria 1.

Management training P.V.T. Short courses,lectures, 1-day seminars.Cairo.

Implementation Schedule 6 months from approvalof funds.

/a The exact configuration and span of activities of theproposed program in stage II would have to be determinedafter the performance evaluation of stage I.

The Extension Service

13.06 The Center currently provides, for a nominal fee, extension serviceson a limited scale in the fields of product design, prototype construction,layout, work flow, engineering technology and capital equipment design. Itsclientele includes public sector enterprises and some larger private ones. Toreach the SSIs, it is proposed that the Center offer a free diagnostic serviceto enterprises employing less than 100 workers in the engineering, chemicalsand furniture making industries, reorienting its approach as appropriate. Inpractice, a survey of the operations in the establishment would be made. Theowner would be advised on areas where improvements could be effected and on

- 49 -

the appropriate remedial action to be taken. Any assistance the survey teammay require in framing recommendations would be provided by additional sup-porting specialists within the Center. The owner would be under no obligationto carry out the Center's recommendations and he would have the option to im-plement himself or to request the Center's assistance, in which case a nominalfee would be charged. During the first stage, the service would be limitedto the detection and elimination of inhibiting conditions in the productionprocess; diagnosis of management deficiencies would be a service reserved forthe second stage. It is estimated that some 100 enterprises out of a muchlarger number expected to be contacted would require some form of assistancein the first stage. In the second stage, it is anticipated that a much largernumber of establishments would be contacted and assisted. By the time ofimplementation of the second stage, hopefully the extension service will beappreciated by entrepreneurs and a fee could be charged for the diagnosticservices rendered. The scope and organization of the proposed extensionservice are briefly described in Annex 34.

Project Preparation Service for SSIs

13.07 It is proposed that the Center strengthen its capability in projectanalysis and project preparation. The availability of such service wouldresult in better prepared projects for DIB funding and would supplement DIB'sappraisal capability. Since many projects presented to DIB are poorly prepared,DIB could refer the applicant to the Center to obtain this service, eithercharging a fee or including the fee into the loan. 1/ By hiring a foreign ex-pert (or a local if available) to advise for 6 months and adding an economistto the existing staff of the Center, a nucleus can be formed for extendingsuch a service to SSIs starting with stage one.

Skill Upgrading

13.08 It is proposed that skill upgrading be carried out by appropriateinstruction, demonstration and practice at the Center, and be limited (inboth stages) to the precision branches of the engineering trades, chemicalsand woodworking trades. 2/ Among the various institutions providing voca-tional training, only the Center has the machine tools and measuring instru-ments necessary to upgrade engineering skills, and it is proposed to increaseits facilities in the furniture making field. The Center currently providesa series of courses, supplemented by practical instruction, to cover the needs

1/ In many instances, DIB hires consultants for the technical appraisal ofprojects. In such cases, DIB's policy is to charge the applicant a fee.

2/ The need to upgrade the skills in certain crafts stems from the intro-duction of new processes and materials (making dies to close tolerancesfor the chemicals industry, press tools for metal forming; heat-treatmentof automobile replacement parts; introduction of new machine tools inwoodworking; necessity to work to closer tolerences in both the engineer-ing and furniture trades).

- 50 -

of the engineering trades. Few of the trainees, however, come from small-scale establishments. The reason is that employers are reluctant to paythe wages of the trainees while they are undergoing instruction, while thetrainee cannot afford to forego his wages. It is estimated that 108 appli-cants from small-scale establishments (employing 100 workers or less) willparticipate in the program during the first stage. The courses will beconducted by the staff of the Center. Additional staff is not proposed.

Accelerated Training

13.09 Accelerated training 1/ during the first stage is proposed to belimited to three training centers (two in Cairo and one in Alexandria) andto the provision of instruction in the engineering, auto mechanic/electricianand electronics trades. The through-put is estimated at 720 per annum. Thecenters will be chosen with due regard to then accessibility to trainees andsuitability of facilities.

Management Training

13.10 To inculcate commercial management techniques, it is proposed thata program of short courses, lectures and seminars held at times convenient tosmall entrepreneurs be arranged on such subjects as cost accounting, qualitycontrol, market analysis and marketing techniques, pricing and the like. Itis not possible to estimate the number of businessmen who might be attracted,but it is likely that a good part of those who would be prepared to cooperatein the extension service diagnostic scheme would attend. This program will beorganized and executed by the Federation of Egyptian Industries and will befree of charge. The Federation has a standing interest in management trainingfor its members. The program will cover all subsectors, including firms whichare not members of the Federation. The program will consist of part-timecourses, varying from one to three weeks, lectures and seminars. Courseswill be practical and oriented toward the requirements of small manufacturingindustries. A management consulting service will be organized under the pro-gram which will undertake consulting assignments for interested firms.Initially, the primary objective would be to gather material for case studieson typical management problems of local small industries as an input to thetraining program. During the first stage, it is estimated that approximately24 courses involving 360 trainees will be held.

Conditions for Effective Delivery of Technical Assistance

13.11 For the proposed extension service to be effective it would benecessary for the delivery agency to initiate skillful promotional work toreach the small entrepreneurs. This would involve creation of two or three

1/ Intended to prepare unskilled workers mostly employed in industrialestablishments for semi-skilled jobs. The courses, which would havea duration of between 4 and 12 months, would be held in the afternoonsand evenings.

- 51 -

mobile units to effect direct contacts with the entrepreneurs; close coopera-

tion between DIB and the Center, the former making known to its customers the

availability of the latter's extension services, including project preparation,

and actively referring to the Center customers in need of assistance detected

in the process of project appraisals and follow-ups; engaging GOFI and the

Federation of Industries in a publicity and referral campaign; 1/ and advertis-

ing through the media. In addition, the delivery agency must gain the confi-

dence of the recipient that the service rendered does not involve interference

in his affairs; the assistance should be tailored to the needs of the recipient;

any recommendation made or advice given be practicable and take into account

the particular circumstances of the recipient; the delivery agency must be

prepared to implement its recommendations. On the part of -the recipient, he

must be willing to provide the information needed and be prepared to implement

the recommendations.

13.12 Conditions for attracting workers from the industry to make use of

training facilities for skill upgrading and accelerated training are first,

payment of a stipend to the trainee commensurate with, and preferably higher

than, his foregone earnings as an incentive. In the social group from which

trainees are likely to be drawn, earning a living now takes precedence to the

acquisition of training which would ensure higher earnings in the more distant

future. Secondly, there is need for a promotional effort to impress on un-

skilled or semi-skilled workers the possibility of higher earnings and better

prospects of advancement within the industry, while unemployed persons would

have to realize the much greater chance of finding employment. At the same

time, skeptical employers would have to be persuaded of the benefits they would

derive from employing more skilled workers.

Financing Requirements and Funding

13.13 During stage I, the outlay to support the proposed extension service,

skill upgrading and accelerated training and management training by the Center,PVT and the FEI is estimated at US$200,000 in foreign and LE 200,000 in local

currency (about US$280,000), or a total of US$480,000. The OPEC Special Fund

will finance the local currency costs out of interest to accrue from a loan to

DIB, while the Bank will finance the foreign exchange requirements of the

program 2/.

1/ GOFI's screening process of investment projects is perfunctory and littleattention is paid to techno-economic aspects of projects. GOFI could

conveniently refer applicants to the Center for project preparation,

thereby enhancing its own selection capability. The Federation ofIndustries, on the other hand, is (or should be) aware of the technical

and managerial needs of its members and could readily make known to them

the services available and actively refer them to the Center.

2/ A more detailed analysis of the proposed program and the kind of outlays

envisaged for each type of technical assistance can be found in the

Appraisal Report for a loan to DIB (in progress).

- 52 -

G. RECOMMENDATIONS

XIV. RECOMMENDED ACTION

Policy Aims

14.01 In the context of the dialogue on industrial policies, the Bankshould impress on the Government the need to begin addressing problems con-straining the growth of SSIs, to delineate the prospective role of the SSIsector, including the supportive policy framework, and to devise a strategyfor the gradual integration of the SSI sector with the rest of the industry,along the lines suggested above (paras. 11.01-11.04). Such thinking andformulation of policies eventually ought to be incorporated in a PolicyStatement and/or the Plan.

14.02 Specific recommendations include the following:

(a) Devise a meaningful definition of SSI (para. 7.01).

(b) Develop a workable and reliable flow of statistical informa-tion system on SSI and the private sector more generally (para.7.01). 1/

(c) Undertake a census (or sample survey) of the private manufac-turing to establish the present status of the sector (para. 1.03).

(d) Work out a system whereby GOFI would follow up on the implementa-tion of the investment projects it approves (paras. 6.07-6.10).

(e) Assign responsibility for all SSI activities, probably excludingthe traditional handicraft segment, to the Ministry of Industry,ensuring proper coordination with other ministries and agencies(para. 7.01).

(f) Streamline and improve on the efficiency of administrativeprocedures (para. 7.01). 2/

(g) Eliminate existing biases against SSI with respect to incentives,procurement, taxation (paras. 8.02, 8.03 and 8.06).

1/ Among other data, the compilation, for instance, of information onmortality rates (by industry, size, years of operation, cause of demise,etc.) as well as on new entrants could provide useful patterns of SSIbehavior.

2/ MIT is now undertaking a study with emphasis on the links between govern-ment policies and expansion of small scale industrial activity in foursubsectors: shoemaking, metalworking, woodworking and garments. Thisstudy may shed some light on the appropriate course of action that needsto be taken.

- 53 -

(h) Review the existing incentives scheme to ascertain its effective-ness to redirect exports (para. 8.09).

(i) Eliminate controls on prices and profit margins (paras. 8.04and 10.13).

(j) Devise a sensible industrial relocation policy, including anincentives scheme (paras. 8.05 and 10.11).

(k) Direct and properly strengthen GOFI to advise on appropriatetechnology and to promote regional dispersion (paras. 6.09,6.12 and 11.02).

(1) Encourage sub-contracting arrangements (para. 8.06).

(m) Consider the progressive reduction of tariffs and quantitativerestrictions (para. 8.07).

Technical Financial Assistance

14.03 It is recommended that the proposed technical assistance componentin section XIII be tacked on to the upcoming DIB loan. The Bank loan willalso provide for financial assistance to SSI. Among all financial institu-tions, DIB is the only one which is catering to the medium and long term needsof SSIs on a project appraisal basis (see para. 9.02). In the form proposed,the technical assistance component requires minimal further preparatory workand refinement. Failure to incorporate this element into the up-coming loanto DIB would unnecessarily delay the provision of an important service to SSIs,which is not available at present. Indeed, the proposed technical assistanceprogram should contribute positively toward promoting the efficiency of SSIs,making possible their adaptation to new circumstances and facilitating theirgrowth. 1/

14.04 Extension service and management training need to be complementedby an industrial research service. The practical problems raised by smallentrepreneurs and the experience gained in the course of delivery of theextension service provide a feedback and the right focus for applied researchactivities. To meet the evolving needs of small manufacturers, such researchshould encompass: (a) economic research, to assess market prospects, costsand location factors 2/; (b) engineering studies to screen known technologyfor adaptation to local resources, factor prices, scale factors, etc.; and

1/ The proposed program has already been endorsed by the government and itwill be a component to the upcoming loan to DIB.

2/ Specifically, economic research should focus on competitive conditionsand anticipated market growth in important small plant products, costfactors and cost-reducing methods, minimum economical size of plant,break-even projections, and assessment of the industrial potential inparticular industries, regions and locations.

- 54 -

(c) management studies, to integrate technical and economic factors and toadapt accounting, marketing and distribution as well as other related manage-ment techniques to the needs of the SSI. Within the applied research program,establishment of a technical information service is of paramount importance.The availability of an SSI industrial research service would serve not onlythe small entrepreneurs but also policy-makers. In view of the importance ofdeveloping such a facility, the Government should consider the possibility ofcreating an industrial research institute or, preferably, assign such a re-sponsibility to the Engineering and Industrial Design Development Center.The important point to stress is that such studies should have an aura of con-tinuity and follow up on developments in a range of important manufacturingsubsectors; they should not be just one-shot operations.

Surveys

14.05 The following surveys are suggested:

(a) Undertake a study of the leather industry in view of itsimportance in terms of employment and export potential(para. 10.16).

(b) Mount a survey of the artisanal sector and of HIPCO'sactivities to determine the need for reorganization,strengthening and funding to enable it offer a high qualityextension service to the artisanal sector. The investi-gation should also look closer into the performance andpotential of the cooperatives, the equity and credit needsof the artisanal sector, the advisability of establishing aguarantee fund, and the most suitable type of institutionalfinancial intermediation (paras. 4.08, 4.09).

The thrust of the surveys should be to devise the appropriate kind of tech-nical assistance these industry segments need in order to improve productivityand quality of output, and to suggest the proper institution (existing or new)needed to deliver such assistance. In this regard, extension service seems tobe the best way to administer a technical assistance program (see para. 11.01).

A N N E X E S

REGIONAL DISTRIBUTION AND OCCUPATIONAL STRUCTURE OF INDUSTRIAL LABOR FORCE BY SIZE OF ESTABLISHMENT

1966/67Number Of Workers

Size Of Number Of

3overnorate Establishment Establishments Owners Managerial Workers Total

Public Private Private Public Private Public Private Public Private

(1) (2) (3) (4) (5) (6) (7) (8) (9)

"airo 10 - 24 8 1,166 1,658 24 948 122 15,078 146 17,684

25 - 49 79 381 557 457 836 2,442 11,433 2,899 12,826

50 - 99 28 110 168 350 701 1,541 6,611 1,891 7,480

100 - 499 59 74 127 2,332 1,494 11,927 12,305 14,259 13,926

500+ 43 8 3 11,310 1,818 58,720 5,539 70,030 7,360

Total 217 1,739 2,513 14,473 5,797 74,752 50,966 89,225 59,276

klexandria 10 - 24 1 373 535 3 287 18 4,399 21 5,221

25 - 49 11 120 152 69 343 342 3,616 411 4,111

50 - 99 17 52 70 220 278 907 3,268 1,127 3,616

100 - 499 48 13 16 2,017 243 10,007 2,039 12,024 2,298

500+ 43 1 - 12,485 67 80,056 441 92,541 508

Total 120 559 773 14,794 1,218 91,330 13,763 106,124 15,754

Port Said 10 - 24 - 31 52 - 22 - 366 - 440

25 - 49 2 3 1 10 3 68 106 78 110

50 - 99 3 1 3 33 5 145 64 178 72100 - 499 7 - - 196 - 1,240 - 1,436 -

500+ 3 - - 308 - 2,386 - 2,694 -

Total 15 35 56 547 30 3,839 536 4,386 622

Suez 10 - 24 2 40 38 4 23 21 472 25 533

25 - 49 1 2 1 8 9 32 64 40 74

50 - 99 1 - - 4 - 70 - 74 -

100 - 499 3 - - 169 - 772 - 941

500+ 4 - - 2,500 - 9,945 - 12,445 -

Total 11 42 39 2,685 32 10,840 536 13,525 607

>X zoq Z

Xm

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Damietta 10 - 24 - 37 67 - 17 - 427 - 51125 - 49 4 9 18 59 17 91 248 150 28350 - 99 1 - - 1 - 53 - 54 -

100 - 499 2 1 - 87 10 229 140 316 150500+ 2 - - 737 - 2,993 - 3,730

Total 9 47 85 884 44 3,366 815 4,250 944

Dakahlia 10 - 24 1 71 102 4 44 13 903 17 1,04925 - 49 6 27 45 92 38 160 812 252 89550 - 99 21 4 59 369 18 1,056 138 1,425 215

100 - 499 16 4 5 591 38 2,612 880 3,203 823500+ 2 - - 545 - 2,492 - 3,037 -

Total 46 106 211 1,601 138 6,333 2,733 7,934 2,982

Sharkia 10 - 24 1 56 92 1 32 9 721 10 84525 - 49 9 16 26 53 28 269 450 322 50450 - 99 7 4 6 101 39 467 225 568 270

100 - 499 7 - - 187 - 1,487 - 1,674 -500+ 2 - - 211 - 2,868 - 3,079

Total 26 76 124 553 99 5,100 1,396 5,653 1,619

Calubia 10 - 24 5 84 104 26 51 51 1,180 77 1,33525 - 49 8 75 69 55 117 200 2,575 255 2,76150 - 99 7 23 26 56 75 498 1,603 554 1,704

100 - 499 25 20 32 854 205 5,345 3,444 6,199 3,681500+ 37 - - 6,896 - 41,450 - 48,346 -

Total 82 202 231 7,887 448 47,544 8,802 55,431 9,481

Kafr-El-Sheikh 10 - 24 - 29 40 - 10 - 388 - 43825 - 49 4 5 7 20 3 151 122 171 13250'- 99 13 1 2 180 2 739 66 919 70

100 - 499 3 - - 51 - 309 - 360 -500+ - - - - - - - - - m m

Total 20 35 49 251 15 1,199 576 1,450 640 M

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Gharbia 10 - 24 1 188 278 2 79 20 2,517 22 2,87425 - 49 4 78 132 32 66 127 2,292 159 2,49050 - 99 10 15 26 162 22 610 953 772 1,001

100 - 499 20 8 18 629 101 3,289 1,683 3,918 1,797500+ 8 1 - 7,103 125 26,510 1,254 33,613 1,379

Total 43 290 454 7,928 393 30,556 8,699 38,484 9,541

Menoufia 10 - 24 1 52 74 6 32 12 641 18 74725 - 49 8 14 19 69 10 237 437 306 46650 - 99 5 4 7 66 13 272 246 338 266

100 - 499 4 1 1 24 56 936 160 960 217500+ 1 1 1 971 8 4,350 497 5,321 506

Total 19 72 102 1,136 119 5,807 1,981 6,943 2,202

Beheira 10 - 24 1 66 118 3 19 20 840 23 97725 - 49 10 27 62 68 22 297 808 365 89250 - 99 15 3 3 226 3 812 164 1,038 170

100 - 499 7 2 2 148 65 1,079 354 1,223 421500+ 2 - - 3,534 - 18,802 - 22,336

Total 35 98 185 3,979 109 21,010 2,166 24,985 2,460

Ismailia 10 - 24 - 41 64 - 23 - 446 - 53325 - 49 1 1 3 12 - 21 25 33 2850 - 99 3 - - 27 - 194 - 221 -

100 - 499 9 - - 496 - 1,752 - 2,068500+ - _- - - - - -

Total 13 42 67 535 23 1,967 471 2,322 561

Giza 10 - 24 - 123 203 - 125 - 1,704 - 3,03225 - 49 2 64 108 13 91 84 1,972 97 2,17150 - 99 8 20 25 60 61 532 1,317 592 1,403

100 - 499 16 8 12 476 80 3,134 1,015 3,610 1,107500+ 19 - - 6,801 - 30,354 - 37,155 - m m

Total 45 215 348 7,350 357 34,104 6,008 41,454 7,713 x

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Beni Suef 10 - 24 1 38 48 3 50 7 481 10 57925 - 49 2 - - 5 - 66 - 71 -50 - 99 7 3 - 59 27 409 207 468 234

100 - 499 6 1 - 91 11 664 126 755 137500+ - - - - - - - - _

Total 16 42 48 158 88 1,146 814 1,304 950

Fayoum 10 - 24 1 43 50 1 57 16 533 17 64025 - 49 3 5 7 30 10 88 144 118 16250 - 99 6 3 - 79 19 369 203 448 222

100 - 499 1 2 2 54 12 89 239 143 253500+ - - - - - - - - _

Total 11 53 59 164 98 562 1,119 726 1,277

Mina 10 - 24 1 111 169 5 68 19 1,234 24 1,47125 - 49 4 4 3 17 10 136 105 153 11850 - 99 10 - - 100 - 607 - 707 -

100 - 499 7 - - 213 - 874 - 1,087500+ 2 - - 255 - 1,870 - 2,125 -

Total 24 115 172 590 78 3,506 1,339 4,096 1,589

Assiut 10 - 24 3 69 127 5 39 48 771 53 93725 - 49 6 1 1 26 1 139 27 165 2950 - 99 1 1 1 7 5 51 69 58 75

100 - 499 7 1 2 193 2 1,404 164 1,504 168500+ 1 - - 50 - 476 - 526 -

Total 18 72 131 281 47 2,118 1,031 2,306 1,209

Suohag 10 - 24 4 22 88 8 10 58 168 66 26625 - 49 7 3 2 39 5 214 106 253 11350 - 99 3 - - 30 - 205 - 235 -

100 - 499 6 - - 272 - 671 - 943 -

500+ 2 - - ±10 - 1,439 - 1,549 -

Total 22 25 90 459 15 2,587 274 3,046 379 .

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Kena 10 - 24 - 98 313 - 2 - 708 - 1,02325 - 49 2 1 1 11 2 47 33 58 3650 - 99 1 - - 9 - 43 - 52 -

100 - 499 1 - - 17 - 102 - 119500+ 3 - - 516 - 6,179 - 6,695 -

Total 7 99 314 553 4 6,371 741 6,924 1,059

Aswan 10 - 24 1 6 11 1 5 9 70 10 8625 - 49 1 - - 3 - 35 - 38 -50 - 99 3 - - 36 - 247 - 283 -

100 - 499 1 - - 16 - 141 - 157 -500+ 6 - - 875 - 11,023 - 11,898 -

Total 12 6 11 931 5 11,455 70 12,386 86

Fronties 10 - 24 - - - - - - - - _Governorate 25 - 49 - - - - - - - - -

50 - 99 1 - - 5 - 52 - 57 -100 - 499 4 - - 96 - 878 - 974 -500+ 5 - - 1,348 - - - 11,069 -

Total 10 - - 1,449 - 930 - 12,100 -

Grand Total 821 3,970 6,062 69,188 9,157 366,422 104,836 445,054 120,951

Source: Central Authority for Mobilization and Statistics

PRODUCTION, VALUE ADDED, RAW MATERIALS, WAGES IN PRIVATE

SECTOR ESTABLISHMENTS BY PROVINCE AND NUMBER OF WORKERS 1970-71(LE 000)

Gover- Size of No. of No. of Raw Net value

norate establ. establ. employees 1/ Wages materials Production added

10-24 1,046 16,281 2,176 18,154 22,002 3,148

Cairo 25-49 416 13,789 2,266 18,218 21,822 3,674

50-99 98 6,538 1,566 8,978 11,572 2,594

100-499 72 17,615 3,548 18,013 24,665 6,652

500+ 7 8,612 2,665 5,632 12,182 6,550

Total 1,639 58,835 12,222 68,995 92,313 23,318

10-24 416 6,250 881 7,796 9,409 1,613

Alexandria 25-49 98 3,402 587 5,256 6,297 1,041

50-99 52 3,579 629 5,241 6,307 1,062

100-499 17 3,075 501 2,689 3,517 828

500+ -- __ __ __ __ __

Total 583 16,266 2,598 20,982 25,526 4,544

10-24 33 454 50 345 440 95

Damietta 25-49 13 390 55 563 646 83

50-99 3 234 50 191 285 94

100-499 __ __ __ __ __ __

500+ -- __ __

Total 49 1,078 155 1,099 1,371 272

1/ Including employers FQI-J



10-24 91 1,386 133 177 2,076 306

Daqahliya 25-49 22 719 94 902 1,076 174

50-99 6 372 85 220 141 79

100-499 4 824 99 587 732 145

500+ -- -- -- -- -- --

Total 123 3,301 411 3,479 4,025 546

Less 10 3 24 2 3 10 7

10-24 69 1,115 113 1,128 1,482 354

Sharkiya 25-49 37 1,192 121 97S 1,213 238

50-99 2 145 36 672 769 97

100-499 2 229 38 221 296 75

500+ -- -- -- -- -- --

Total 110 2,681 308 2,996 3,760 7b4

Less 10 8 54 4 17 22 5

10-24 134 2,090 237 2,124 2,522 398

Qalyubiya 25-49 86 3,028 426 1,947 2,719 772

50-99 25 1,713 223 1,003 1,311 308

100-499 26 4,679 770 3,234 4,428 1,194

500+ -- -- -- -- --

Total 271 11,511 1,656 8,308 10,980 2,672

1/ Including employers

ID mw :I

t. )

Gover- Size of No. of No. of Raw Net valuenorate establ. establ. employees 1/ Wages materials Production added

10-24 47 682 60 440 557 117Kafr El 25-49 3 81 8 56 66 10Sheikh 50-99 1 56 6 5 15 10

100-499 -- -- -- -- _- -

500+ -- -- __ __ __ __

Total 51 819 75 501 678 137

10-24 190 2,784 273 2,978 3,758 780Gharbiya 25-49 57 1,909 173 1,953 2,334 381

50-99 14 1,007 68 1,083 1,220 137100-499 8 2,057 226 2,313 2,705 392500+ 1 1,531 88 237 394 157

Total 270 9,288 828 8,564 10,411 1,847

10-24 49 727 71 670 827 157Minupiya 25-49 14 454 51 441 540 99

50-99 1 91 11 4 18 14100-499 1 288 39 1,559 1,648 89500+ 1 512 96 230 344 114

Total 66 2,072 268 2,904 3,777 473




10-24 70 986 84 676 834 198

Beheira 25-49 11 368 37 151 202 51

50-99 3 163 14 54 75 21

100-499 1 329 80 1,570 1,703 133

500+

Total 85 1,846 215 1,911 2,314 403

10-24 149 2,402 288 2,601 3,361 760

Giza 25-49 144 4,317 569 4,079 5,443 1,364

50-99 4 268 6 315 429 114

100-499 5 766 198 683 997 314

500+

Total 302 7,753 1,110 7,678 10,230 2,552

10-24 39 571 66 560 686 126

Beni Suef 25-49 8 243 35 232 292 60

50-99 2 118 18 88 114 26

100-499 2 275 38 149 201 52

500+ -

Total 51 1,207 157 1,029 1,293 264



10-24 55 857 99 768 933 165Fayyum 25-49 9 303 42 297 366 69

50-99 1 71 12 12 43 31100-499 3 496 47 1,051 1,173 122500+ -

Total 68 1,727 200 2,128 2,515 387

10-24 66 958 96 969 1,136 167Minia 25-49 1 27 2 100 107 7

50-99 -- -- _- -_ __ __

100-499--500+ -- -- -- -- __ __

Total 67 985 98 1,069 1,243 173

10-24 84 1,159 84 720 870 150Assiut 25-49 -- -- -- -- -- --

50-99 2 153 26 56 89 33100-499 -- - _ __ __ __

500+ -- -- __ __ __ __

Total 86 1,312 110 776 159 1R3


Qx


10-24 20 293 17 378 416 38Sohag 25-49 3 94 10 162 178 16

50-99 -- -- -- __ __ __100-499 -- -- -- -- -- --

500+ -- -- -- __ __ __

Total 23 387 27 595 594 54

10-24 9 139 13 190 228 38Kena 25-49 1 27 3 65 72 7

50-99 -- -- -_ __ __ __100-499 __ __ __ __ __ __500+ -- -- __ __ __ __

Total 10 166 16 255 300 45

10-24 4 54 6 48 62 14Aswan 25-49 -- -- -- -- -- --

50-99 -- _- __ __ __ __100-499 -- -- -- -- -- --

500+ -- -- __ __ __ __

Total 4 54 6 48 62 14

1e n1/ Including employers x


10-24 __Red Sea 25-49 -- --

50-99 -- __100-499 __ __500+ 1 529 833 11,786 44,070 32,284

Total 1 529 833 11,786 44,070 32,284

10-24 1 24 66 1,400 12 1,388Mersa 25-49 -- __ __ __ _ Matruh 50-99 -- -- -- -- -- --

100-499 1 269 299 3,435 6,003 2,568500+ -- __ __ __ _-

Total 2 293 365 4,835 6,015 1,180

10-24 2,572 39,213 4,814 43,675 51,611 7,97625-49 923 30,343 4,479 35,397 43,443 8,04650-99 214 14,468 2,804 17,922 22,384 4,462100-499 142 26,902 5,883 35,004 47,568 12,564500+ 10 11,184 3,682 17,885 56,990 39,105

Grand Total 3,861 122,110 21,662 149,883 221,996 72,113


Source: Central Authority for General Mobilization and Statistics (December 1975) wOQ 2(m 1

ANNEX 3

LICENSES FOR NEW MANUFACTURING ESTABLISHMENTSISSUED BY GOVERNORATE OF ALEXANDRIA 1974-1976

Industry 1974 1975 1976

Leather Industries 26 26 39Metal and Welding 45 57 39Marble - 2 -Wood 30 20 10Textile and Trico 9 13 24Printing 3 2 7Rubber Tires and Plastic 6 5 7Cold Storage 1 2 2Optical Glass - 1 -Glass - 1 -Carton Boxes 5 4 2Sweets and Jam 5 3 2Paints - 2 -Waste Cotton Manufacturing 2 1 4Cheese - - 2Soap 1 - -

Cosmetics 2 - -

Keena Drinks - - 1Smelting 7 2 3Tobacco - - IFlagstone 10 5 15Artificial Butter - - 1Poultry Incubation - - 1

Total 152 146 160

Source: Governorate of Alexandria.

ANNEX 4

SECTORAL DISTRIBUTION OF ESTABLISHMENTS,

EMPLOYMENT & VALUE ADDED IN PRIVATE SECTOR.1' - 1970/71

(LE 000)

No. of No. of Net

Industry Establishments Employees Value Added

Petrol, natural gas 4 872 27,301

Mining 12 1,388 111

Food 1,373 29,621 7,306

Beverages 15 653 179

Tobacco 40 2,057 774

Textiles 781 29,179 5,950

Ready-made garments 117 2,870 720

Leather products 81 1,850 558

Footwear (leather) 140 4,298 8,112

Wood 83 1,724 362

Furniture 86 5,101 765

Paper 59 2,221 614

Printing & publishing 146 10,969 8,446

Chemicals 112 4,668 3,536

Rubber 11 639 255

Non-metallic products 398 8,347 2,281

Basic metals 54 1,699 673

Metallic products 334 10,002 2,413

Non-electrical machinery 62 1,275 706

Electrical machinery 24 905 298

Transport Equipment 15 417 145

Miscellaneous 45 958 371

TOTAL 3,992 121,713 71,876

1/ Establishments employing 10 or more workers.

Source: Central Authority for General Mobilization and Statistics

ANNEX 5

REGIONAL DISTRIBUTION OF GROSS VALUE ADDED BY INDUSTRY - 1966/67 2/(Percentages)

Greater Canal Rest of

Code Industry Cairo Alexandria Zone Egypt

20 Food 28.2 32.3 3.8 35.7

21 Beverages 77.2 17.4 1.3 4.1

22 Tobacco 75.1 12.9 - 12.0

23 Textiles 22.4 22.2 0.5 54.9

24 Wearing apparel 29.1 66.3 0.3 4.3

25 Wood 55.7 30.2 4.7 9.4

26 Furniture 84.9 5.1 0.6 9.4

27 Paper 13.9 82.4 4.6 -0.9

28 Printing 93.9 5.2 0.3 0.6

29 Leather 59.2 39.3 0.1 1.4

30 Rubber 27.7 72.3 - -

31 Chemicals 37.0 13.1 10.9 39.0

32 Petroleum 4.8 12.4 82.8 -

33 Non-metallic products 77.0 14.7 0.7 7.6

34 Basic metals 71.2 28.6 - 0.2

35 Metallic products 85.8 11.2 0.2 2.8

36 Non-electrical machinery 71.6 19.3 0.3 8.8

37 Electrical machinery 80.0 16.9 3.0 0.1

38 Transport equipment 49.5 23.8 24.4 2.3

39 Miscellaneous 88.6 11.0 0.2 0.2

1/ Public and private sectors; establishments employing 10 or more workers.

Source: Mabro, Industrialization in Egypt, p.95,based on CIP 1966/67

1/REGIONAL DISTRIBUTION OF PRIVATE MANUFACTURING ESTABLISHMENTS BY SIZE - 1966/7 & 1970/1

SizeDistribution 10-24 25-49 50-99 100-499 500 + T o t a 1

Governorate 1966/7 1970/1 1966/7 1970/1 1966/7 1970/1 1966/7 1970/1 1966/7 1970/1 1966/7 % 1970/1 %

Cairo 1,166 1,046 381 416 110 98 74 72 8 7 1,739 43.8 1,639 42.5Alexandria 373 416 120 98 52 52 13 17 1 - 559 14.1 583 15.0Damietta 37 33 9 13 - 3 1 - - - 47 1.2 49 1.3Dakahlia 71 91 27 22 4 6 4 4 - - 106 2.7 123 3.2Sharkia 56 69 16 37 4 2 - 2 - - 76 1.9 110 2.8Kalyubia 84 134 75 86 23 25 20 26 - - 202 5.1 271 7.0Kafr El Sheikh 29 47 5 3 1 1 - - - - 35 0.8 51 1.3Gharbia 188 190 78 57 15 14 8 8 1 1 290 7.3 270 7.0Menoufia 52 49 14 14 4 1 1 1 1 1 72 1.8 66 1.7Behera 66 70 27 11 3 3 2 1 - - 98 2.5 85 2.3Giza 123 149 64 144 20 4 8 5 - - 215 5.4 302 7.8Beni Souef 38 39 - 8 3 2 1 2 - - 42 1.1 51 1.3Fayoum 43 55 5 9 3 1 2 3 - - 53 1.3 68 1.7Minya 111 66 4 1 - - - - - - 115 2.9 67 1.7Assiut 69 84 1 - 1 2 1 - - - 72 1.8 86 2.3Sohag 22 20 3 3 - - - - - - 25 0.6 23 0.6Kena 98 9 1 1 - - - - - - 99 2.5 10 0.2Aswan 6 4 - - - - - - - - 6 0.1 4 0.1Red Sea - - - - - - - - - 1 - - 1 0.1Matrouh - 1 - - - - _ 1 - - - - 2 0.1Port Said 31 - 3 - 1 - - - - - 35 0.9 - -Suez 40 - 2 - - - - - - - 42 1.1 -Ismailia 41 - 1 - - - - - - - 42 1.1 -

Total 2,734 2,572 836 923 254 214 135 142 11 10 3,970 100.0% 3,861 100.0%

Percent 68.9% 66.6% 21.0% 23.9% 6.4% 5.5% 3.4% 3.7% 0.3% 0.3% 100.0% - 100.0% -

1/ Size defined in terms of workers employed.


ON

1/REGIONAL DISTRIBUTION AND STRUCTURE OF PRIVATE MANUFACTURING EMPLOYMENT BY SIZE OF ESTABLISUMENT - 1966/7 & 1970/1

SizeDistribution 10-24 25-49 50-99 100-499 500 + T o t a 1

Governorate 1966/7 1970/1 1966/7 1970/1 1966/7 1970/1 1966/7 1970/1 1966/7 1970/1 1966/7 % 1970/1 %

Cairo 17,684 16,281 12,826 13,789 7,480 6,538 13,926 17,615 7,360 8,612 59,276 49.0 58,835 48.2Alexandria 5,221 6,250 4,111 3,402 3,616 3,579 2,298 3,075 508 - 15,754 13.0 16,266 13.3Damietta 511 454 283 390 - 234 150 - - _ 944 0-8 1,078 0.9Dakahlia 1,049 1,386 895 719 215 372 823 824 - - 2,982 2.5 3,301 2.7Siharkia 845 1,115 504 1,192 270 145 - 229 - - 1,619 1.3 2,681 2.2Wplyubia 1,335 2,090 2,761 3,028 1,704 1,713 3,681 4,679 - - 9,481 7.9 11,511 9.4Kafr El Sheikh 438 682 132 81 70 56 - - - 640 0.5 819 0.7Charbia 2,874 2,784 2,490 1,909 1,001 1,007 1,797 2,057 1,379 1,531 9,541 7.9 9,288 7.6Menoufia 747 727 466 454. 266 91 217 288 506 512 2,202 1.8 2,072 1.7Behera 977 986 892 368 170 163 421 329 - - 2,460 2 0 1,846 1.5Giza 3,032 2,402 2,171 4,317 1,403 268 1,107 766 - - 7.713 6.4 7,753 6.3Beni Souef 579 571 - 243 234 118 137 275 - - 950 0.8 1,207 1.0Fayoum 640 857 162 303 222 71 253 496 - - 1,277 1.0 1,727 1.4Minya 15471 958 118 27 - - - - - 1,589 1.3 985 0.8Assiut 937 1,159 29 - 75 153 168 - - 1,209 1.0 1,312 1.1Sohag -266 293 113 94 - - - - - - 379 0.3 387 0.3Kena 1,023 139 36 27 - - - - 1,059 0.9 166 0.1Aswan 86 54 - - - - - - - 86 0.1 54 0.1Rrd Sea - - - - - - 529 - - 529 0.4Matrouh - 24 - - - - - 269 - - - - 293 0.3Port Said 440 - 110 - 72 - - - - - 622 0.5 - -Suez 533 - 74 - - - - 607 0.5 -Ismailia 533 - 28 - - - - - - - 561 0.5 - -

Total 41,221 39,213 28,201 30,343 16,798 14,468 24,978 26,902 9,753 11,184 120,951 10.O 122,110 100.0

Percent 34.1% 32.1% 23.3% 24.8% 13.9% 11.9% 20.6% 22.0% 8.1% 9.2% 100.0% - 100.0% -

1/ Size defined in terms of workers employed.


ANNEX 8

SHARES OF THE ARTISANAL SECTOR IN TOTAL MANUFACTURING,GROSS VALUE ADDED AND EMPLOYMENT BY BRANCH OF ACTIVITY - 1966/67

Gross Value Added EmploymentShare in Total Share in Total

Code Industry LE(OOOs) Manufacturing Numbers Manufacturing

20 Food 11,287 25.7 38,385 37.821 Beverages 108 2.8 257 4.322 Tobacco 251 1.8 216 1.723 Textiles 4,180 3.5 31,659 11.324 Wearing

Apparel 1,366 78.4 90,709 90.125 Wood 2,733 71.1 16,148 81.926 Furniture 6,668 72.1 27,849 75.827 Paper 429 4.7 1,067 7.328 Printing 989 13.8 3,312 19.629 Leather 1,385 56.4 3,366 53.430 Rubber 76 2.6 293 6.631 Chemicals 433 1.1 921 1.932 Petroleum 1 0.0 10 0.133 Non-metallic

Products 2,735 17.5 8,846 21.334 Basic metals 358 2.9 1,186 4.935 Metallic

Products 5,493 35.4 27,706 52.136 Non-electric

Machinery 538 13.7 2,441 21.437 Electric

Machinery 943 8.7 3,825 25.438 Transport

Equipment 3,284 33.6 18,790 49.639 Miscellaneous 1,595 31.3 6,914 50.8

Total small-scale 57,152 15.7 283,900 32.7

Source: Mabro, Industrialization in Egypt, p. 121, based on CIP.

ANNEX 9

ESTABLISHMENTS, EMPLOYMENT AND PRODUCTION IN THE ARTISANAL SECTOR-/- 1974

Number of Total Trainees and TotalActivity Establishments number Apprentices Production

of workers (LE)

-Group I: Leather and Shoe Manufacture including:

Hat manufacture and blocks- belts -briefcases - ladies' handbags - purses and 11,906 17,586 3,501 20,637,720wallets - shoes and slippers - uppers - sandals

-Group II: Woodwork and Furniture including:

Wood carving and working - Arabesque - woodenkegs - wooden boxes - furniture - wood 20,467 30,446 10,024 38,364,327engraving - pulpits for mosques - shoe lasts -gilding and lacquer work

-Group III: Engineering and Metallurgy, including:

Metal working - metal furniture, plates andtubes - domestic ware - kerosene stoves -chandeliers and ornaments - metal tooling - 12,001 20,557 6,427 20,486,755sheet-working (excluding automobiles) -welding - boxing and containers - plumbing

-Group IV: Jewelry and Khan El Khalili production:

Goldsmiths - silversmiths - precious metals -gilding - medallions - shell-inlayina - 703 1,302 341 4,229,232ivory-inlaying - Khan el Khalili (bazaar)-roduot.

-Group V: Hand Looming, including:

Hand-loomed textiles - natural silk - nylonand polyesters - woolen yarn - vegetablefibres - textile dyeing and printing - 10,669 17,005 4,775 1,326,516embroidery - carpets and homespun matting -runners and mats

-Group VI. Ready-to-wear Garments, including:

Cutting and sewing - men and boys' wear-women's wear - shirts and pajamas - native dresses 35,701 44,392 7,974 7,335,924

-Group VII: Printing, including:

Printing and publishing - cards and envelopes -stationery - zincography - file covers - book-binding - 885 2,378 754 4,400,010photography - simple printing

-Group VIII: Photography, including:

Studios and other photographic work - developing andenlarging - commercial photography 1,619 2,377 415 1,446,887

-Group IX: Fine Crafts, including:

Radio repairs - TV repairs - refrigerators -washing-machines - clocks and watches - 4,086 5,024 543 1,133,707electrical appliances - lenses

-Group X: Repairs and operations:

General mechanical works - automobilemechanics - automobile bodywork - 5,494 8,705 4,342 1,917,135motor-cycles - bicycles

-Group XI: Services, including:

Prosthetics - hair-dressers - beauty parlors -re-weaving, etc. 949 1,489 lS0 513,025

-rOunDXTT' Food Prnd,'ron,, Including:

Flour grinding - native and otherbakery - cosmetics - straw and reed-matting - 8.912 22,203 7,402 6,243.996cane-work - cleaning materials - sieves, etc.

TOTAL 113.392 173,464 46,687 108,035,234

1/ Defined as establishments employing 1 - 9 workers, excluding unskilled or seasonal.

Source: Survey by Handicraft Industries and Productive Cooperatives Organization

ANNEX 10

STRUCTURE OF FIXED ASSETS AND EMPLOYMENT IN THE ARTISANAL SECTOR - 1974

I. STRUCTURE OF FIXED ASSETS

Number ofFixed Asset Size Establishments Percent

Less than 100 84,320 74.3100 - 250 17,439 15.4250 - 500 5,097 4.5500 - 1,000 3,070 2.7

1,000 - 1,500 1,083 0.91,500 - 2,000 539 0.52,000 - 3,000 638 0.63,000 - 4,000 366 0.34,000 - 5,000 214 0.25,000+ 626 0.6

Total 113,392 100.0

II. STRUCTURE OF EMPLOYMENT

No. of Workers Number ofPer Establishment Establishments Percent

1 82,094 72.42 18,266 16.23 6,422 5.74 2,793 2.45 1,416 1.26 904 0.87 563 0.58 458 0.49 476 0.4

113,392 100.0

Source: HIPCO, 1974 Survey

ANNEX 11Page 1

THE COOPERATIVE SOCIETIES

Organization and Purpose

1. Prior to 1952, the cooperative movement in the industrial fieldreceived little attention from the Government. Rising unemployment anddisguised employment in the agricultural sector with consequent rural-urbanemigration highlighted the need to create alternative job opportunities. Itwas realized that to achieve this objective it would be necessary to providetechnical and financial assistance to existing and prospective entrepreneurs.In 1960, the Government created the "General Egyptian Organization for Pro-ductive Cooperatives and Small Industries" (CPO) for this purpose. 1/ Theformation of cooperative societies was envisaged as a way to reach artisanalentrepreneurs, providing assistance in procuring raw materials and in mar-keting their finished products. The cooperative societies are organized in athree-tier level pyramid: at the base, there are the cooperative societies;at the Governorate level, the primary cooperative societies in a sub-sector,e.g. leather, are organized in a Union; at the national level, there is theFederation of Cooperative Societies.

2. In 1973, the "Handicraft Industries and Productive CooperativesOrganization" (HIPCO) was established, 2/ superseding CPO. HIPCO is a publicsector organization under the supervision of the Ministry of Local Governmentand has two major functions: (a) planning and research relating to artisanal 3/and allied small industries, which includes formulation of general plans andpolicies regarding the development of these industries, studying the marketingneeds of products of this sector in both the domestic and export markets, anddetermination of the foreign exchange requirements for procuring raw materialsfor the sector; and (b) supervision of the cooperative societies, which in-volves undertaking surveys of cooperatives and formulating general plans andpolicies for the development of the cooperative sector, establishing trainingprograms for craftsmen, supervising production cooperatives and auditing theiraccounts, and ensuring complianc,e to social security regulations by smallenterprises. HIPCO is managed by a High Committee which is composed of theMinister of Local Government (Chairman), the Vice-Minister who is Chairman ofHIPCO, nine Under-Secretaries of State from various Ministries, the Chairmanof the Central Agency for Public Mobilization and Statistics, the Chairman ofthe Federation of Industries, the Chairman of the Bank of Alexandria, and fivecraftsmen elected by the Arab Socialist Union. This High Committee is respon-sible for formulating and implementing the programs of HIPCO. In addition,there are 11 standing committees representing various sub-sectors such asshoemaking, hand loom weaving, etc., which meet once a month to discuss

1/ Law 267.

2/ Law 890.

3/ For this purpose the artisanal sector is defined as establishmentsemploying less than ten workers and with less than LE 5,000 in assets.

ANNEX 11Page 2

current problems and ways to resolve them in such areas as raw materialprocurement, technical issues, financing needs, manpower needs, etc. Thesecommittees comprise 10 representatives of various cooperative societies andone qualified engineer co-opted from the Ministry of Industry. HIPCO has agreen engineering staff who, also participate in these standing committees.HIPCO has branches in 21 Governorates which are known as the "Directorates ofCooperation". The staff of the Directorates include accountants, cooperativeorganizers, engineers and technicians. The principal activities of theDirectorates are to promote industrial cooperatives, provide training serviceand supervise the functioning of individual cooperative societies.

3. The most important administrative function of HIPCO is that itapproves the foreign exchange requirements for raw material needs of cooper-ative societies as well as the unorganized artisanal establishments. 1/Requests for funds for procuring raw materials from the parallel market haveto be approved by HIPCO prior to their being routed to the Industrial ControlBoard. Foreign exchange requirements for importing capital goods, however,must be approved by GOFI before they can be allocated from the parallelmarket. Foreign exchange for transactions financed through the parallelmarket is allocated on a quarterly basis. Enterprises that are not membersof cooperatives must follow the same procedure. As long as there is ration-ing, there is an obvious advantage if one belongs to a cooperative society.

Activity

4. Cooperative societies have been formed in various industrial branches.Their number and membership by activity group for the year 1976 is shown inthe Table below. In 1974, there were 283 cooperative societies with a totalmembership of 77,087 (see Appendix 2). By 1976 the number of societies hadrisen to 332 but the membership had dropped to 65,155 (see Appendix 3). Inthe last two years there was a decline in the number of cooperatives primarilyin the hand loom weaving and shoemaking, while the reverse was true in themetalworking and woodworking branches. About one-half of the decline inmembership occurred in the Greater Cairo-Alexandria area, as can be seen bycomparing Appendices 2 and 3. The drop in membership is most likely relatedto the liberalization of the foreign exchange regulations and the introduc-tion of the "own exchange scheme", which render cooperative membership notparticularly valuable. According to HIPCO, 57% of the artisanal undertakingsare members of cooperative societies. The actual percentage is probably less.

5. The geographical distribution of productive cooperatives is quitewide (see Appendix 3) and points to their potential in providing a usefulrange of services to the artisanal sector. Some cooperative societies inthe ready-made garments, shoemaking and furniture making trades purchase andmarket all or part of the output of their members. They maintain domesticsales outlets and, in some instances, arrange export contracts. In addition,there are two cooperative factories, one in woodworking (Cairo) and the otherin ready-made garments, carpets, etc. (Alexandria) which are involved both incooperative production and marketing.

I/ HIPCO has a staff of 85. An organization chart is presented in Appendix 1.

ANNEX 11Page 3

Sectoral Distribution of Productive Cooperatives - 1976

Activity No. of Coops. Membership

Shoemaking and leather products 34 6,202Woodworking and furniture 47 13,050

makingHand-loom weaving 40 8,483Manufacture of carpets and 14 1,596

rugsMetallic products and 19 2,110

engineeringProfessional photographers 14 1,505Ready-made clothes 19 2,030Printing and bookbinding 5 130Traditional handicrafts 3 1,176Vegetable fibers, ceramics 31 3,330

and miscellaneousConstruction and housing 21 4,474Transportation 23 6,470

Passenger transportation 20 4,135Crop weighing /a 19 3,538Production services 23 6,926

Total 332 65,155

/a Production services includes Service Centers.

Source: HIPCO.

6. A cooperative society is able to make bulk purchases of materialseither by using its own funds or by obtaining a short-term loan from a bank.

The resale of materials acquired in this way to its members is strictly on acash basis. Occasionally, on behalf of a member, a society is able to obtaina medium-term loan for the purchase of equipment. In such a case the society

accepts repayment by installments. In the past, the recovery of loans made tocooperatives has been difficult. Banks are reluctant to handle this class of

lending without personal guarantees from members of the cooperative societycommittee. 1/

7. Artisans in need of working capital seldom are able to obtain itfrom or through a cooperative society. The facilities a society offers toacquire equipment are available through any bank operating a hire-purchase

1/ Cooperatives charge their members 3% on the value of the transactioninvolved for their services. Information on the volume of business

(purchases of raw materials and/or sales of products) carried out by thecooperatives on behalf of their members as well as on their financialposition is not available.

ANNEX 11Page 4

scheme. The only real financial assistance is given by those cooperatives

that purchase and distribute the production of its members. This is not to

say that all cooperative societies could not be effective in providing finan-

cial accommodation to their members if their maragements were improved.

Sectoral Problems

8. The main needs of the cooperatively organized establishments, and

of the artisanal sector more generally, are instruction in keeping accounts

and costing/pricing, advice on making new products, new designs (furniture,

shoe making, textiles), material selection, quality control, modern work

methods, preventive maintenance, all of which could be provided by an effi-

ciently run extension service. There is need for mechanization and moderni-

zation in particular branches (e.g. shoe making, furniture) in order to

improve quality and produce standard products. There is also need to retrain

workers on new techniques and on the handling of new materials e.g. particle

board, fiberboard. Shortage of space remains a vexing problem. Limited own

funds in many instances raises the question of equity and credit supply.

Technical Assistance

9. The average membership of the cooperatives in the various sectors

ranges from 26 to 392, with a national average of 196. At these levels

societies could not arrange by themselves to provide technical assistance

to their members, although there is, doubtless, some transfer of technology

between large and small units through sub-contracting. It has been laid down,

however, by the High Committee that it shall be among the functions of HIPCO

to "supply them (craftsmen) with technical and managerial assistance" and to

produce "sound plans for information services and for training and extension".

The responsibility of HIPCO is not only for cooperative units, some of which

are in the 10 plus workers category, but for the entire artisanal sector which

contains some 140,000 establishments. This is a formidable task.

10. HIPCO administers 18 vocational training centers throughout the

country, of which only 10 are in operation. Instruction is provided in

woodworking, car repairs, fitting, turning, welding, sheet metal work, casting,

blacksmithing, printing, shoe making, weaving, the making up of ready-made

garments, carpets, and artistic handicrafts. The centers are stated to have

an annual capacity of 2,180 trainees (see Appendix 4). Only two centers were

visited in Cairo: one which provides training for leather workers (for im-

pressions see paras. 10.14, 10.15) and one in making up garments, weaving of

carpets, shoe making, woodworking (furniture making), straw work and artistic

handicrafts. In all but the making up of garments section there were very few

trainees; in some the trainees outnumbered the trainers, and in the artistic

handicrafts section there were none. The impression is that the situation

is not much differernt in the other centers. The quality of the training

programs offered is also questionable. Lack of sophisticated machinery and

funding to attract trainees by compensating them for foregone earnings are

primary reasons for the severe under-utilization of the centers' capacity.

ANNEX 11Page 5

11. Ten graduate, but inexperienced, engineers and six part-time con-sultants are employed by HIPCO to provide a consultancy extension serviceto artisanal enterprises. It was not possible to ascertain the exact dutiesof the ten engineers but the impression was obtained that they were not ina position to provide significant assistance to the sector. The part-timeconsultants are either technical officers of the Ministry of Industry, or,in one case, a Manager of a Chamber of the Federation of Industry. They arequalified men, but it is not known how much use is made of their abilities.The overall impression gained over several visits to HIPCO in Cairo and to itsbranch organization in Alexandria was that it was more concerned with assuringthat cooperatives functioned within the regulations relating to them than withassisting in the development of the artisanal sector.

12. It is thought that HIPCO is neither organized nor properly staffedto provide extension services. Doubt has also been expressed on the efficacyof its training program. To be effective, the centers would probably have tobe re-equipped, technical programs for each craft developed and funds be madeavailable to operate the facilities and compensate the trainees. Whetheror not such training should continue to be undertaken by HIPCO or should betransferred to the Ministry of Industry, is another matter that needs to beresolved. It is recommended, therefore, that consideration be given to mount-ing a survey on the activities of HIPCO in the artisanal sector to determineif it requires to be reorganized and strengthened to support effectively thesector and, if so, what changes in organization, fields of action, and addi-tional staff are needed. The survey should also assess the performance andpotential of the cooperatives and suggest ways to strengthen them.

HANSDICRAFT INDUsfRIES AND PPODUCTIVE COOPERATIVES ORGANIZATION HIPCO) ANNEX 11ORGANIZATION CHART Aendix

Chair--in Executive Board

CPbic Relations|_.__

Secretariat

(4)

Director Ceneral

Foreign Relations [Security Office Technical

(l) ciSecretariat 2

Training and ? roductive Financing & [ HandicraftInfomation Collector Cooperacives Marketing . dustries

udgit &Sainancin & egistratio Marke Financingee dlanAd 30) TriigSaistics Nana erTpe & LegalRearhnng(30) (7) (5 (7) (3)5 (3) (2) (3) (9)

ANNEX 11Appendix 2

GEOGRAPHICAL DISTRIBUTION OF PRODUCTIVE CO-OPERATIVES - 1974

No. OfGovernorate Co-ops. Membership Share Capital

(LE)

Cairo 27 13,757 73,764

Alexandria 23 12,145 58,636

Port Said 15 1,804 3,277

Ismailia 5 660 1,229

Suez 4 512 10,352

Damietta 10 2,575 22,457

Behera 14 2,816 4,759

Kafr El-Sheekh 13 2,627 5,508

Garbeya 23 9,278 62,631

Dakhelya 27 4,936 33,478

Sharkeya 12 2,499 5,098

Menoupheya 11 3,328 5,920

Kalubeya 15 2,303 14,176

Giza 17 3,797 15,323

Fayoom 12 2,805 10,556

Benesweef 10 1,132 2,501

Minya 12 2,394 3,919

Asyut 13 4,416 62,894

Souhag 8 1,709 10,426

Kena 10 1,551 8,657

Aswan 2 43 367

Total 283 77,087 415,928

Source: HIPCO

ANNEX 11Appendix 3

GEOGRAPHICAL DISTRIBUTION OF PRODUCTIVE CO-OPERATIVES - 1976

No. OfGovernorate Co-ops. Membership Share Capital

(LE)

Cairo 35 12,885 87,056Alexandria 24 7,200 73,006Port Said 14 1,619 11,682Ismailia 7 721 13,222Suez 9 1,276 70,404Damietta 11 3,283 47,805Behera 13 2,148 13,525Kafr El-Sheekh 14 2,490 17,169Garbya 27 6,045 39,768Dakhleya 22 3,458 7,570Sharkeya 17 2,844 40,497Menoupheya 18 3,891 24,881Kalubya 16 2,608 35,172Giza 22 3,479 34,161Favyom 14 2,017 13,539Benesweef 6 813 10,089Minya 11 2,068 2,553Asyut 14 2,329 5,856Souhag 9 2,255 9,741Kena 12 799 41,107Aswan 5 302 15,381Red-Sea 3 167 4,923New-valley 4 172 2,570Mattruch 5 250 1,532

Total 332 65,119 623,209

Source: HIPCO

ANNEX 11Appendix 4

TRAINING CENTERS OPERATED BY HIPCO AND THEIR CAPACITY

WoodWork & Car- Sheet Press Kan

Training Furni- Work Turn- Fil- Weld- Metal Cast- E'lec- Print- Car- El Kha- Tex- Forg-Governments Units ture Shop ing ing ing Work ing trical ing pet lili tiles Shoes ing

Behera TrainingCenter 20 20 15 15 20 10 30 30 30 20Mainten-ace Unit 20 20 15 15 15 10 30 30 15

Gharbia TrainingCenter 20 30 30Mainten-ace Unit 20 20 15 15 15 10 30 20 20 15

Munufia 20 15 15 15 10 20 15Kafr El Sheikh " 20 20 15 15 20 20 30 20 20 20Sharkia 20 20 15 15 20 20 30 30 20Kalyubia 20 20 15 15 20 20 30 30 20

Coopera-tive Society 20

Beni Souef Mainten-ace Unit 15 15 20 20 20

Fayoum " 20 20 15 15 20 20 30 20Menia " 20 20 15 15 20 30 20Asyut " 20 20 15 20 30 20Kena " 20 20 20Aswan " 20 20 15 20 20 20 20Cairo Training

Center 40 15 20 30Co-oper-ative Soc. 20

Dakahlia " 30

TOTAL 340 180 180 150 205 220 300 180 60 15 20 90 240 2180

Source: HIPCO

ANNEX 11Appendix 5Page 1

SURVEY OF THE ARTISANAL SECTOR - DRAFT TERMS OF REFERENCE

(i) Improve the existing data base on structure and performanceof the artisanal sector.

(ii) Assess the potential of the artisanal sector and the more

promising trades.

(iii) Assess the performance and potential of the cooperativesand recommend measures for improvement.

(iv) Ascertain to what extent the artisanal sector is reached

by HIPCO.

(v) Determine the trades most in need of technical assistance

and their specific requirements, 1/ and ascertain HIPCO'spotential role in delivering such assistance.

(vi) Assess how far HIPCO is meeting these needs as well as the

extent and competence of HIPCO's staff, including part-timeconsultants, to meet these needs.

(vii) Examine the organization of HIPCO to determine whether these

needs, if not already met, could be supplied by an augmented

and experienced staff; recommend such re-organization and/orincrease of staff as is considered necessary; suggest alter-

natives, including the establishment of a new institution.

(viii) Evaluate the performance of the training program of HIPCO

and make recommendations as necessary; consider the advis-

ability of transferring responsibility for training to theMinistry of Industry.

(ix) Indicate the external assistance required (a) to re-organizeHIPCO and (b) to train existing and augmented staff to provide

the requisite service to the small-scale sector; similarlyfor the creation of new or strengthening of another institu-

tion, if necessary.

(x) Devise a plan for organizing and implementing such technical

assistance.

(xi) Ascertain the financial needs of the artisanal sector and

the appropriate type of financial intermediation, and devisea link between financial and technical assistance.

E.g. product standardization, product design, modern work methods,quality control, maintenance, marketing, assistance to export, book-

keeping, etc.


(xii) Indicate whether HIPCO's jurisdiction should be confinedonly over the handicraft segment, while that over the"modern" segment (enterprises employing less than 10workers) be transferred to the Ministry of Industry.

ANNEX 12

SPECIALIZATION OF MANAGEMENT FUNCTIONSIN PRIVATE SECTOR ESTABLISHMENTS

NumberSize Average Of Owners AndGroup Size Number Owners Number ManagersIn In Of And Of Per

Workers Workers Establishments Managers Workers Establishment

10- 24 13.1 1,539 3,428 19,477 2.225- 49 29.9 501 1,888 15,049 3.350- 99 61.0 162 1,217 9,879 7.5

100-499 164.8 87 1,880 14,344 21.6500+ 874.4 9 1,889 5,980 208.9

Source: Mission calculations based on 1966/67 census data. CoversCairo/Alexandria establishments, accounting for 61% of total.

ANNEX 13

1/GROSS VALUE AND STRUCTURE OF MANUFACTURING OUTPUT IN PRIVATE SECTOR - 1972-76

(LE million; Current Prices)

Industry 1972 % 197 % 1974 % 1975 % 1976 %

Textiles 130 33 136 31 145 31 186 31 193 26Foodstuffs 109 28 116 26 127 27 150 25 168 23Chemicals 33 9 38 9 42 9 60 10 67 9Leather 39 10 58 13 60 12 86 14 162 22Engineering/

Metallurgical 34 9 40 9 47 10 58 10 65 9Woodworking 2/ 36 9 38 9 41 9 42 7 60 8Building materials 9 2 12 3 13 3 17 3 20 3

Total 390 100 438 100 478 100 599 100 735 100

1/ Establishments employing 10 or more workers.2/ Including straw and bamboo products.

Source: Ministry of Industry/Federation of IndustriesExcludes output of cotton ginning, flour mills, tea packing.printing, pharmaceutical and rural industries including handicrafts.

ANNEX 14

1/Gross Value of Manufacturing Output - 1972-76

(LE million at current prices)

Share Share Share Share ShareIndustry 1972 % 1973 % 1974 % 1975 % 1976 %

Food 519 588 610 700 760Public 410 79.0 442 79.3 483 79.2 550 78.6 592 77.9Private 109 21.0 116 19.7 127 20.8 150 21.4 168 22.1

Textiles 525 544 598 688 756Public 396 75.2 408 75.0 453 75.8 502 73.0 563 74.6Private 130 24.8 136 25.0 145 24.2 186 27.0 193 25.4

Chemicals 135 138 200 272 247Public 102 75.6 100 72.5 158 79.0 212 78.0 180 73.0Private 33 24.4 38 27.5 42 21.0 60 22.0 67 27.0

BuildingMaterials N.A. 62 72 94 N.A.Public N.A. 51 79.7 59 82.0 77 81.9 -Private 9 12 19.3 13 18.0 17 18.1 20

Metallurgical 105 109 133 159 447Public 99 93.7 99 91.8 120 91.2 141 88.7 382 84.4Private 7 6.7 10 9.2 13 9.8 18 11.3 65 14.6

Engineering/Elec. 145 137 175 222Public 119 81.4 107 78.1 139 74.1 180 81.1 ))Private 27 18.6 30 21.9 36 25.9 42 18.9 ))

Aluminum Complex(public) - - - 26 _

Woodworking(private) 36 38 39 40 60

Leather(private) 39 58 60 87 162

TOTAL 1,570 1,645 1,890 2,262 2,697

Public 1,180 1,207 1,412 1,663 1,962Private 390 438 478 599 735Share of PrivateSector in TotalOutput 24.7% 26.6% 25.2% 26.5% 27.2%

.11 Private sector is limited firms employing 10 workers or more.Public sector coverage limited to those industries attached to the Ministry of Industry.Output of military factories, cotton ginning, flour mills, bakeries, tea packing,printing, pharmaceuticals and rural industries and handicrafts, is not included.

Source: Ministry of Industry and Mineral Resources

SECTORAL DISTRIBUTION AND DIRECTION OF MANUFACTURED EXPORTS: 1973 - 76-/(Current prices; LE 000)

1973 1974 19~5 1Q76Free ClaringFree Clearing Total Free Clearing Total Pree Clearing Tota

Currency Account Currency Account Currency Account Currency Account

Te:xtile - public 23,557 49,704 73,261 24,410 80,116 104,526 17,528 78,673 96,201 34,900 62,000 96,900puiblic & private n.a. n.a. n.a. 25,138 91 965 117,103 18,531 89,924 108,455 39,600 65,900 105,500

Food - public 9,875 11,572 21,447 18,474 12,864 31,338 23,611 14,493 38,105 .18,600 3,900 22,500public & private n.a. n.a. n.a. 18,583 12,874 31,457 639 1495 38±135 1980 ,00 23280

Chemicals - public 975 2,208 3,183 2,140 4,072 6,212 2,057 3,650 5,707 1,500 1,400 2,900public & private n.a. n.a. n.a. 4,483 12,638 17,121 2,945 22,650 25,595 4,200 12,600 16,800

3/E:ngineering - 4,590 4,293 8,883 8,127 4,972 13,099 13,787 5 037 18,824 37,900 39,100-

Mineral.s - public 597 4,615 5,212 3,704 9,799 2,176 8,107 10,283

MetallurRica - private n.a. n.a. n.a. 396 71 467 359 22 381 n.m. n.a. n.a.

Building - public 4,703 1,384 6,087 2,865 643 3,508 1,609 1,101 2,710 _Matlerials public & private _.a. n.a. n.a. 19'i 643 3,840 1,786 1,101 2887 lOO - 100

Leather Goods - private n.a. n.a. n.a. 55 21,166 21,661 97 17 166 17 263 1,100 9,900 11,000

Woodworking - private n.a. n.a. n.a. 467 4 L94 2 . k4 9 499 - 184 5683 1,100 3,800 4,900

Handicrafts - private n.a. n.a. n.a. 4 36 2 L_ 6 1l 29 7 516 255_ 3,2/1 _ 700 2,400 3,100

Total public sector 44,297 73,776 118,073 59,720 108,767 168,482 60,769 111,061 171,830 40 2 0

Total private sector 2,585 27,617 30,202 4,866 49,445 54,311 3,567 _5,380 58,947 12.900 31,400 44,300

Total Tndustrial Sector _ 49,882 101,393 148,275 64,586 158,207 22,i93 64,33 166 077 I03.400 103,700 207,100

Share of private sector intotal exports 5.1% 27.2% 20.3% 7.5% 31.2% 24.4% 5.5g 33.3% 25-5% 12.5% 30.2% 21.4%

1/ Free currency converted at the official exchange rate

2/ Includes mineral products for public sector

3/ Includes public and private

4/ Includes LE 2.6 million of mining products

Source: Ministry of Industry and Mineral Resources

SECTORAL DISTRIBUTION AND STRUCTURAL FEATURES OF GOFI'S INVESTMENT APPROVALS 1/1974

(Current prices; LE 000)

Labor Production CostsProduction Operating Net 2/

Sector No. of No. Wages Value Cost w/out Depreciation Total Value Capital -Projects Labour Added

Food 79 826 162 2,803 2,290 40 2,330 473 1,200Textiles 41 1,259 261 7,163 5,992 235 6,227 936 5,100Chemicals 21 804 166 3,256 2,692 102 2,794 462 2,300Engineering 184 3,048 569 6,713 5,462 182 5,644 1,069 4,800Electrical 5 1,416 223 3,757 3,130 125 3,255 502 2,700Metallurgy 3 261 70 1,603 1,311 47 1,358 245 1,100Leather 20 795 221 2,604 2,090 52 2,142 462 1,400Mining 5 180 60 801 626 24 650 151 500

TOTAL 358 8,589 1,732 28,700 23,593 807 24,400 4,300 19,100

1/ Investment projects exceeding LE 8,000.

2/ Includes working capital.

Source: GOFI

,SECTORAL DISTRIBUTION AND STRUCTURAL FEATURES OF GOFI'S INVESTMENT APPROVALS 1/1975


Labor Production Costs

Production Operating Net 2/Sector No. of No. Wages Value Cost w/out Depreciation Total Value Capital -

Projects Labour Added

Food 127 2,018 429 33,253 21,477 326 21,803 11,450 10,180Textiles 181 4,468 1,051 28,717 19,404 590 19,994 8,723 12,240Chemicals 143 3,363 926 25,065 18,340 790 19,130 5,935 17,530Engineering 197 3,246 946 20,127 14,456 400 14,856 5,271 10,800Electrical 29 1,603 894 11,178 7,340 305 7,645 3,533 7,160Metallurgy 20 530 111 1,982 1,396 66 1,462 520 1,390Leather 31 1,729 646 10,515 6,253 240 6,493 4,022 6,100Mining 12 274 97 1,663 1,045 72 1,117 546 1,700

TOTAL 740 17,231 5,100 132,500 89,711 2,789 92,500 40,000 67,100



Source: GOFI

SECTORAL DISTRIBUTION AND STRUCTURAL FEATURES OF GOFI'S INVESTMENT APPROVALS 1/1976


_Labor Production CostsProduction Operating Net 2/

Sector No. of No. Wages Value Cost w/out Depreciation Total Value CapitalProjects Labour Added

Food 175 3,422 1,137 78,164 49,555 831 50,386 27,778 23,384Textiles 250 8,358 2,676 50,975 36,896 1,349 38,245 12,730 26,854Chemicals 118 3,449 1,164 39,571 31,788 1,066 32,854 6,717 23,048Engineering 100 4,057 1,287 31,706 26,677 584 27,261 4,445 15,362Metallurgy 13 290 95 1,705 1,393 51 1,444 261 1,029Electrical 9 117 40 307 224 8 232 75 155Leather 24 818 362 9,425 8,006 163 8,169 1,256 4,380Mining 4 144 44 1,444 860 35 895 549 561

TOTAL 693 20,655 6,805 213,297 155,399 4,087 159,486 53,811 94,773



tSISource: GOFI

1/SECTORAL DISTRIBUTION & EMPLOYMENT STRUCTURE OF PRIVATE SECTOR INVESTMENT & PRODUCTION

1976(Current prices; LE 000)

Less than 20 Workers 21 - 50 Workers 51 - 100 Workers 100+ WorkersNo. Pro- Work- Value Pro- Work- Value Pro- Work- Value Pro- Work- Value

Type of of ject ers Capi- of ject ers Capi- of ject ers Capi- of ject ers Capi- ofIndustry Proj. No._ No. Wages tal Prod. No. No. Wages tal Prod. No. No. Wages tal Prod. No. No,. Wages tal Prod.

Food 175 136 1,643 509 8,622 23,218 33 1,086 394 8,479 28,316 4 293 94 1,869 3,880 2 400 14o 4,414 z2,750Textiles 250 149 1,167 364 3,744 7,552 48 1,436 517 6,415 12,325 35 2,511 839 8,816 15,233 18 3,244 956 7,879 15,865Chemicals 118 71 771 255 4,124 5,951 32 1,183 395 8,315 12,525 9 673 221 4,187 9,805 6 822 293 6 ,422 11,290Engineering 100 47 492 164 3,274 8,083 33 1,056 368 3,190 6,318 14 886 258 3,529 4,175 6 1,623 497 5,369 13,130Metallurgy 13 9 112 35 331 642 2 61 18 198 618 2 117 42 500 445 - - - -Electrical 9 7 67 25 109 209 2 50 15 46 98 - - - - - - - - - _Leather 24 11 129 44 445 922 9 352 187 2,556 5,374 3 225 86 1,058 2,659 1 112 45 321 470Mining 4 1 8 2 20 22 2 62 23 161 222 1 74 19 380 1,200 - - - - -

Total 693 431 4,389 1,398 20,669 46,599 161 5,286 1,917 29,360 65,796 68 4,779 1,559 20,339 37,397 33 6,201 1,931 24,405 63,505

1/ GOFI's approvals; investment projects exceeding LE 8,000.

Source: GOFI

1-ISECTORAL DISTRIBUTION AND STRUCTURE OF PRIVATE SECTOR FIXED CAPITAL

1976


Fixed CapitalNo. Less than 25,000 From 25-100,000 From 50-100,000 From 10o-200,uou ZU0,uuu or Moreof Fixed Prod. Fixed Prod. Fixed Prod. Fixed Prod. Fixed Prod.

Industry Proj. No. Capital Value No. Capital Value No. Capital Value No. Capital Value No. Capital Value

Food 175 85 941 6,977 42 1,671 10,000 26 1,869 8,774 10 1,236 11,215 12 4,994 41,198Textiles 250 141 1,211 5,655 32 1,121 5,046 25 1,888 8,883 25 3,599 8,458 27 9,141 22,933Chemicals 118 44 468 2,666 18 698 2,844 18 1,277 4,706 18 2,487 7,463 20 9,880 21,892Engineering 100 42 446 3,837 19 735 3,853 21 1,354 5,427 7 967 2,884 11 4,869 15,705Metallurgy 13 7 57 382 4 122 774 1 100 184 1 378 365Electrical 9 9 89 307Leather 24 8 83 374 6 235 1,182 3 185 2,333 2 385 759 5 1,400 4,777Mining 4 1 16 22 1 49 42 1 70 180 1 200 1,200

Total 693 337 3,311 20,220 122 4,631 23,741 95 6,743 30,487 62 8,674 30,779 77 30,862 108,070

1/ GOFI's approvals; investment projects exceeding LE 8,000

Source: GOFI

xT

I/SECTORAL DISTRIBUTION AND STRUCTURE OF PRIVATE SECTOR PRODUCTION

1976


Production LevelLess than 25,000 25,000-50,000 50,000-100,000 100,000-200,000 200,000 & Over

Proj. Proj. Prod. Proj. Prod. Proj. Prod. Proj. Prod. Proj. Prod.

Industry No. No. Value Capital No. Value Capital No. Value Capital No. Value Capital No. Value CapitJl

Food 175 31 432 599 13 434 458 22 1,518 1,298 43 5,576 2,408 66 70,204 18,621

Textiles 250 82 1,008 632 37 1,331 399 35 2,586 1,400 25 3,922 2,715 71 42,128 21,206

Chemicals 118 14 275 173 20 733 456 15 1,148 726 23 4,138 3,285 40 33,277 18,40E

Engineering 100 12 177 118 7 256 147 25 1,733 1,037 22 3,247 2,152 34 26,293 11,84£

Electrical 9 2 39 22 7 268 133

Metallurgy 13 1 6 5 3 98 53 4 326 150 2 292 174 3 983 647

Leather 24 3 62 32 4 252 112 1 60 22 6 900 445 0 8,151 3,769

Mining 4 1 22 20 1 42 55 1 180 106 1 1,200 380

Total 693 146 2,021 1,601 92 3,414 2,313 102 7,371 4,693 128 18,255 11,285 225 182,236 74,881

1/ GOFI's approvals; investment projects exceeding LE 8,000.

Source: GOFI 1977

I

1/REGIONAL DISTRIBUTION OF PRIVATE SECTOR INVESTMENT, PRODUCTION, VALUE ADDED & EMPLOYMENT

1976


Labor Production CostsOperating Net

No. of Production cost w/out Deprecia- Value 2/Provience Projects No. Wages Value Labor tion Total Added Capital

Cairo 274 9.985 3,430 89,405 63,406 1,983 65,389 24,016 43,404Alexandria 133 2,636 838 30,261 25,192 551 25,680 4,581 13,809Qalyubiya 91 3,488 1,054 36,722 29,278 677 2,955 6,767 16,410Gharbiya 50 1,133 515 12,532 8,609 262 8,871 3,661 5,581Daqahliya 14 151 42 904 654 43 697 207 680Kafr El Sheikh 8 86 26 782 662 12 674 108 337Behera 10 110 31 1,058 909 16 925 133 467Sharkiya 13 221 70 2,273 1,894 48 1,942 336 1,134Menoufia 14 183 57 2,286 1,795 21 1,816 470 727Giza 25 1,003 382 9,050 7.086 323 7,490 1,661 6,014Damietta 14 120 32 283 196 9 205 78 160Port Said 9 303 84 1,927 1,612 25 1,637 290 791Ismailia 1 8 3 106 93 2 95 11 34Souhag 11 252 76 3,328 2,200 33 2,233 1,095 1,029Fairom 3 34 11 182 153 4 157 25 63Bani Swef 3 38 11 782 685 6 691 91 260Minya 5 241 91 20,380 10,249 40 10,289 10,091 3,152Assiut 4 94 28 535 420 11 431 104 272Kena 1 32 10 165 122 4 126 39 72Aswan 1 15 3 171 149 4 153 18 82Suez 1 22 10 160 98 13 111 49 235

Total 693 20,655 6,805 213,297 155,399 4,084 159,486 53,811 94,773

1/ GOFI's approvals; investment projects exceeding LE 8,000


Source: GOFI

ANNEX 23Page 1

ADMINISTRATIVE STRUCTURE AND FUNCTIONS

The Set-up

1. The artisanal industries -- handicraft enterprises employing lessthan nine workers with fixed capital less than LE 5,000 -- fall under thejurisdiction of HIPCO. Enterprises with total assets over LE 5,000 andemploying more than ten workers are regulated by the Ministry of Industrythrough various departments. However, the Ministry of Industry does not havesole administrative responsibility for all types of non-handicraft industries.The Ministry of Civil Supplies regulates enterprises such as rice and flourmills and ice-making factories; the Ministry of Social Welfare regulateshousehold production, such as knitting and garments, in rural areas; theMinistry of Health oversees ten pharmaceutical factories; and the Ministryof Commerce is responsible for cotton ginning and onion dehydration plants.

2. The Federation of Industries is an association in which all manu-facturing firms, both private and public, employing 25 or more workers orhaving fixed assets exceeding LE 5,000 are required by law to be members. TheFederation comprises twelve chambers representing industrial branches such asengineering, woodworking, leather, etc. The Ministry of Industry is repre-sented in the Federation through appointees and all recommendations by theFederation are cleared with the Ministry. The Federation has been increasinglyacting as a prolocutor for the private sector and has influenced governmentdecisions in such matters as granting of investment licenses and increasedquotas in imported raw materials. Details in Annex 30.

Licensing Procedures

3. All projects, whether new or expansion, involving an investmentexceeding LE 8,000 must be approved by GOFI. Thus, practically all artisanalenterprises under HIPCO are exempt from this provision. GOFI apparentlychecks on the consistency of the projects with the existing capacity in thesector and on the requirements for raw materials and other inputs, given theforeign exchange constraints. However, the absence of any follow-up by GOFIon the extent of implementation of the projects it approves casts seriousdoubts on the intelligibility of the decision rules applied. GOFI appearsto literally function in vacuo as far as the private sector is concerned.

4. A private entrepreneur has to obtain approval for the proposed sitefrom the Governorate and the Ministry of Housing. The application is firstcleared by the Ministry of Housing and submitted by them directly to GOFI.Considerations surrounding approval of the site location are not entirelyclear, but several areas in Cairo have been barred to new industry. Inaddition to approving the site, the Ministry of Housing provides licensesfor obtaining construction materials for the plant.

5. All applications for imports of capital goods by the private sector,including those for the artisanal sector, are approved by GOFI. The entrepre-neur has to indicate the source of foreign exchange (e.g. DIB, parallel market

ANNEX 23Page 2

or "own exchange scheme") which it also approves. For imports through theparallel market, the procedure involves first, obtaining approval from theParallel Market Determination Committee and, secondly, an import license fromthe Decision Committee in the Ministry of Economy. For imports from EastEuropean countries, GOFI approves import license applications for both capitalgoods and raw materials; the import license is granted by a special committeein the Ministry of Finance.

6. The Industrial Control Department (ICD) in the Ministry of Industryis responsible for approving applications for imports of raw materials fromthe parallel market for private sector enterprises with capital in excess ofLE 5,000, while HIPCO for those submitted by the artisanal sector. Grants ofimport licenses by the Parallel Market Decision Committee are conditioned onthese approvals. Reportedly, ICD now grants approvals within two weeks ofapplication.

Price and Quality Controls

7. ICD is also responsible for administering price controls over manu-factured products in the private sector. Controls over the prices of smallenterprise products are rather limited and confined to basic staples, e.g.shoes, food. Decisions to impose a ceiling on the price of a product aretaken by an inter-ministerial committee in which the Ministries of Commerceand Finance and Economy are represented. Prices are determined on the basisof production costs plus a profit margin and applied to both manufacturers aswell as distributors. The implications of price controls are discussed inpara. 8.04.

8. ICD is also responsible for policing product quality for which mini-mum standards have been established by the Egyptian Organization for Standards(E.O.S.), an agency also under the Ministry of Industry. Some impressions asto how quality control is administered are given in paras. 5.24 and 10.13.

ANNEX 24Page 1

COMIODITIES WHOSE PRICES ARE CONTROLLED

A. TEXTILES

1. Blankets2. Wool, silk, cotton textiles3. Wool and cotton yarn4. Underwear5. Knitwear6. Socks and stockings7. Sacks

B. FOOD INDUSTRIES

1. Roquefort cheese2. Tobacco3. Maize oil4. Castor oil and extracted oils5. Molasses (sugar cane)6. White alcohol7. Artificial shortening8. Starch9. Sugar

10. Pasta11. Carbonated beverages12. Pasteurized milk13. Yoghurt

C. LEATHER WORK

1. Shoes2. Bags (of plastic materials)

D. ENGINEERING INDUSTRIES

1. Metallurgical2. Iron and steel - rolled iron

E. MECHANICAL INDUSTRIES

1. Automobiles and chassis2. Agricultural sprayers3. Pins4. Razor blades5. Butane and gas appliances6. Agricultural tractors7. Sewing machines8. Diesel motors9. Steel discs (for ploughs)

10. Expanded steel network

ANNEX 24Page 2

11. Pumps and vehicles12. Kerosene stoves13. Heaters14. Springs for upholstery15. Copper and aluminum scrap16. Zinc and lead scrap17. Butane regulators and drums18. Bicycles19. MIotorcycles20. Iletal wool

F. ELECTRICAL INDUSTRIES

1. Refrigerators2. Dry cells3. Wet cells4. Air conditioners5. Heaters6. Radio receivers7. Electric cables8. Washing machines9. Lamp bulbs

10. Electric transformers11. Electric cable conduits12. TV receivers

G. CHEMICAL INDUSTRIES

1. Plastics2. Car tires (tubes)3. Domestic insecticides4. Pencils5. Cosmetics6. Soap7. Carbon paper8. Oxy-nitrose gas9. Chlorine gas

10. Agricultural insecticides11. Agricultural lime12. Sodium silicates13. Fertilizers14. Regulators15. Formica16. Cigarette paper17. Paper and copy-books18. Oxygen19. Acetylene20. Mlatches21. Formaldehyde22. Tanned skins (including polishing skins)

ANNEX 24Page 3

H. CANE AND REED

1. Brushes

I. BUILDING MATERIALS AND REFRACTORIES

1. Cement2. Plate glass

J. PETROLEUM INDUSTRY

1. Petroleum2. Basalteous products3. Aerated asphaltum4. Diesel fuel

Source: Ministry of Industry, Industrial Control Department.

ANNEX 25Page 1

CUSTOMS DUTY RATES ON SELECTED IMPORTS 1/

(Percent of CIF Value)

Raw Materials and Intermediate Goods Customs Duty Rate

Sulphur 10Hides, raw 7Wool, raw 2Jute, raw 2Animal fats and oils 2Vegetable oils 10Lubricating oils 25Organic and inorganic chemicals 10Fertilizers 15Synthetic organic dyestuffs 5Chemical products and preparations 10Synthetic rubber 2Rubber tires for tractors 10Rubber tires for automobiles 30Wood 15Paper for new papers 0Pig and cast iron 2Billets, iron or steel 10Bars and rods, iron or steel 20Sheets and plates of iron and steel 10Unwrought aluminum and scrap 2Unwrought lead and scrap 2Wires, insulated 50

Capital Goods

Piston engines for automobiles 10Machines for extruding manmade fibers 2Auxiliary machinery for weaving and knitting equipment 2Machine-tools for metals, glass and wood 2Apparatus for making and breaking electrical circuits 5-20Motor vehicles for the transport of persons 25Motor vehicles for the transport of goods 20Structures of iron and steel 40Medical and surgical instruments and appliances 10

Consumer's Goods

A. Durables

Refrigerators for domestic use 200

1/ Excludes the development (10%) and statistical (2.5%) taxes.

ANNEX 25Page 2

Consumer's Goods (Durables) Customs Duty Rate

Sewing machines for domestic use 35Television apparatus 50Radio, television with gramophone 150Automobiles (4 cylinders or less) 75

(others) 150Sound recorders and reproducers 150

B. Non-Durables

Cane sugar - refined 75

Preparation of vegetables, fruits or other parts of plants 75Fabrics of wool or animal hair or horse hair 60-75Cotton fabrics 75-100Woven fabrics of jute 35

Source: Ministry of Finance, Customs Department.

ANNEX 26

IMPORT TARIFF RATES FOR SELECTED COMMODITIES I/

(Percentage)

Sugar 81 Machines for extruding man-

Vegetable oils 16 made textiles fibers 21

Petroleum (crude) 41 Weaving machines 7

Chemicals 21 Machine tools 13

Fertilizers 26 Typewriters 36

Synthetic organic dyestuffs 16 Calculating and accounting

Other coloring matter 21 machines 36

Natural rubber, raw 13 Lifts parts 15

Hides, raw 17 Generators, motors, trans- 36

Wool, raw 13 formers 21

Jute, raw 13 Electrical apparatus for

Pig iron 13 making and breaking elec-

Ingots, iron or steel 21 trical circuits 26

Other steel 31 Vehicles, railway, tramway,Structures of iron and steel 51 coaches, vans 26Woven fabrics of jute 46 Tractors 51

Sacks and bags of jute 45 Motor vehicles (private) 111

Pumps and compressors 21 Spare parts of vehicles 26Centrifuges, filtering and

purifying machinery 31Excavating, levelling, boring

and extracting machinery 31

1/ Based on import tariff realizations as percent of c.i.f. import values

in 1974. Included are the ad valorem custom duties, consolidation and

statistical taxes.

Source: Ministry of Finance, Customs Department.

ANNEX 27

DEFICIENCIES IN PRODUCTION ENGINEERING AND TECHNICAL ASSISTANCE REQUIREMENTS 1N MAJOR SUBSECTORS

Unit Size Plannedin Sector Work Layout Production Quali ty Product Project Preventive Working House- Skill

Workers Methods Planning Control Design Preparation Maintenance Conditions Keeping Upgrading

' 10 Engineering 3 0/1 0 2 0 0/1 1 3 1 010-49 Industry 3 3 2 3 1 3 3 2 2 250-99 3 3 3 3 2 2 3 1 1 2/3

/ 10 Woodworking 2 0/1 0 2 0 0/1 1 1 3 010-49 (Furniture) 2 2 2 3 3 3 3 2 3 150-99 Industry 3 3 3 3 3 2 3 2 3 3

/ 10 Leather 3 2 0 3 3 0/1 0/1 3 3 010-49 (Footwear) 3 3 2 3 3 2 3 2 2 250-99 Tndustry 3 3 3 3 3 3 3 2 2 2

/ 10 Chemicals Industry 0 1 0 0/1 0/1 3 3 0io-49 (Non-Engineering 0 2 2 2 3 2 1 1 1 00-99 Aspects) 1 2 2 2 3 2 2 1 1 0

7 12 Ready-Made 0 0/1 0 0/1 2 0/1 0/i ot 0'10-49 Garments O 0/1 0/1 0/1 1 1 1 0/1 0/1 0:50-99 Industry O 1 2 1 1 2 2 0/1 0/1. 0

Production Improvement Through Extension Service Training

LE3END: 0 Not required; 1 Requirement slight; 2 Requirement moderate; 3 Requirement great

Work Methods: Correct use of machines, tools etc.; Project Preparation: Preparation of a bankable techno-economictooling, sequence of operations. proposition.

Layout: Maximum use of space; arrangement of Planned Preventive Systematic maintenance to avoid unscheduledmachines to reduce transfer time, Maintenance: stoppages.

Production Planning: Maximum use of labour, machines and Working Conditions: Safety and health aspects of workplacematerials; work flow; machine loading;job simplification, setting of standards. Housekeeping: Cleanliness of workplace, clear passageways.

qua-ity Control: Inspection/testing materials and productsto predetermined specifications.

Product Design: Design of new products, modification of Skcill Upgrading: Raising the level of skill of tradesmen to enableexisting products to reduce cost or simplify them to operate high precision and output machines, andproduction. and supporting technical instruction.

ANNEX 28

DEFICIENCIES IN MANAGEMENT TECHNIQUES AND TECHNICAL ASSISTANCE REQUIREMENTS IN MAJOR SUBSECTORS

Unit Sizein Sector Book- Financial Management Material Marketing Training of Accelerated

Workers Ke eping Controls Functions Procurement Supervisors Training

/ 10 Ehgineering 3 1 0 0 0/1 0 110-49 Industry 0 3 2 2 2 2/3 250-99 0 3 3 3 3 3 2

/ 10 Woodworking 3 1 0 0 0 0 110-49 (Furniture) 0 3 2 2 2 2/3 250-99 Industry 0 3 3 3 3 3 3

/ 10 Leather 3 1 0 0 1/2 0 210-49 (Footwear) 0 3 2 2 3 2 250-99 Industry 0 3 3 3 3 3 2

/10 Chemicals 3 1 0 1 0 010-49 Industry 0 3 1 2 3 1 05o-99 0 2 1 2 3 2 0

Lto Ready-Mfade 0/1 1 0 0 1 0 010-49 Garment 0 3 0/1 2 3 1 050-99 Industry 0 J 2 3 3 2 0

Management skills improvement through technical assistance Training

LEIGEND: 0 Not required; 1 Requirement slight; 2 Requirement moderate; 3 Requirement great

Bookkeeping: Keeping of simple accounts to show financial position of the business

Financial Controls: Costing, pricing policy, budgeting, preparation of financial statements

Management Functions: Specialization of functions, job specifications, evaluation of performance, labor laws,social security regulations

Material Procurement: Material selection, source identification, purchasing, importation procedures, inventory control

Marketing: Acquisition of market information, evaluation of market data, methods of distribution,export procedures

Training of Supervisors: Selection of personnel, training within industry, courses available labor/management relations

Accelerated Training: Practical and general educational courses to produce sermi-skilled tradesmen from unskilledworkers in industry (mainly) vnd frora the unem,Jloyed. (Not covered in Barn educationalproject)

ANNEX 29

SURVEY OF THE LEATHER INDUSTRY - DRAFT TERMS OF REFERENCE

(i) Evaluate the quantity and quality of locally arising hidesand assess the need for a hide improvement scheme.

(ii) Investigate the methods of flaying in local abattoirs andthe pre-tanning treatment of hides and skins, and makerecommendations as necessary.

(iii) Assess the effectiveness of the methods employed by privatesector for the various grades of leather produced, and makesuch recommendations as may be required.

(iv) Survey the equipment in use in private sector tanneries todetermine its adequacy and recommend any additional appliancesthat may be needed to improve the quality of production.

(v) Examine the case for transferring existing private sectortanneries in Cairo to an already prepared site at Besatrin.

(vi) Consider whether the training of tanners could be as effectivelyprovided in the public sector tanneries as in the vocaticialtraining centers.

(vii) Investigate the training scheme for shoemakers and otherleather works in the vocational training centers controlled byHIPCO, including its role, actual and potential, in the sector.

(viii) Investigate the production facilities and procedures in thefootwear industry, and make such recommendations as are con-sidered necessary.

(ix) Ascertain possible linkages between public and private sectorin the tanning and footwear fields.

(x) Assess prospective levels of demand, including export potential.

(xi) Investigate the system of distribution and assess marketingrequirements.

(xii) Assess technical and financial assistance requirements.

(xiii) Make recommendations as to the proper institution that shouldbe charged with the task of delivering the requisite technicalassistance (existing or new).

(xiv) Devise a plan for organizing and implementing the requisitetechnical assistance.

ANNEX 30

EXTENSION SERVICE - EVALUATION CRITERIA OF FIRST STAGE PERFORMANCE

It is suggested that the following aspects be taken into consider-ation in assessing the performance of the extension service.

1. Number of firms canvassed as well as of those ultimately participatingin the free diagnostic survey compared with original estimates.

2. Number of firms implementing recommendations by themselves or withassistance from the diagnostic team.

3. Number of firms obtaining technical assistance from the Center.

4. Quantifiable results following implementation of the recommendations(e.g. increased productivity, reduced costs of production, etc.).

5. Number of firms that have approached the Center for advice or assistanceon their own.

6. Number of firms assisted in preparing techno-economic feasibility reportsfor new or expansion projects and number of such projects implemented.

7. Assistance in specific areas, e.g.:

a. new product development/use of new materials;

b. introduction of new manufacturing technology --new tooling, jib and fixture design, etc.;

c. product quality improvement/quality control;

d. introduction of improved plant/workshop layout, etc.

ANNEX 31Page 1

THE ENGINEERING AND INDUSTRIAL DESIGN DEVELOPMENT CENTER

1. The Center was established in 1968, 1/ with UNDP financial support 2/and UNIDO acting as the executing agency for an initial five-year period. In1973, the life of the Center was extended for another six years - until 1979.UNDP contributed an additional $2 million while the Government contributedanother LE 832,500. At the end of 1975, the former ILO sponsored Instituteof Small Industries, which operated from 1969 until 1973 when ILO withdrew itssupport, was attached to the Center, 3/ renamed the "Institute of the Pyramids."The Center has a three-member Board (Higher Committee) which is chaired byDeputy Minister Sarkas (head of GOFI) and includes the Center's DirectorGeneral, and a UNDP representative. The Center is an autonomous entity andis supervised by GOFI 4/.

2. The objective of the Center is to assist industry by developingproduct and industrial designs, improving engineering technology by betterplant layout and tooling, construction of prototype equipment and the dissemi-nation of technical information. Some of the activities of the Center aredescribed in Appendix 1. The Center is organized in seven divisions: (1)Product Design and Development; (2) Processing Equipment Design; (3) Engineer-ing (production technology and tool design); (4) Process Design; (5) Workshops(for prototypes); (6) Heat Treatment and Material Testing; and (7) Training,Information and Documentation. An Organization Chart is provided inAppendix 2.

3. A function of the training, information and documentation divisionis to organize training programs, which are prepared by the technical staffand delivered by the specialized technical divisions. A list of the available

1/ Decree No. 968/11.23.1968.

2/ UNIDO contributed US$179,000 and the Governmente LE 774,500.

3/ The Institute was dedicated to providing assistance to the small-scalemanufacturing sector, but it cannot be considered to have been success-ful. According to an ILO evaluation report, it failed to make a signifi-cant contribution to the development of small industries. Very littlepractical assistance was rendered to the sector, some of the programs hadlittle or no relevance to its objectives and, in spite of a large staff,it lacked experienced personnel. Aside from management problems, thedecision of the Government to abolish the "General Egyptian Organizationfor Co-operative Production and Small Industries" probably worsened thesituation, leaving the Institute in an administrative vacuum.

4/ For FY1977, the Center has an investment budget of some LE 400,000and an operating budget of LE 245,000. Budgetary expenses are coveredby the Government, own revenues and the UNDP.

ANNEX 31Page 2

courses is given in Appendix 3. These courses last for one or two weeks, andthere are about 25 participants in each. In addition, facilities are availablefor specialized "on the job" training of personnel from industry. The Centerhas provided engineering consultancy services to 80 Egyptian companies and toa few in neighboring Arab states. The delivery of these services has resultedin the formation of an embryo extension service. All work carried out by theCenter is against a nominal fee. The facilities of the Center are, with someadditions, adequate to provide skill upgrading in the engineering, chemicaland woodworking trades.

4. The Center has presently a staff of 360, including 55 graduateengineers. It also makes use of UN and ILO consultants, as required, nownumbering six. The Director General of the Center, Dr. Yusef K. Mazhar, incharge since 1973, is an able man. Energetic and dynamic, he is the movingforce behind the Center. The Center applies very high standards in selectingits staff and their performance is very good. Dr. Mazhar is prepared toorganize and provide full support to an extension service scheme, as well asa skill upgrading program, along the lines suggested by the Bank.


ACTIVITIES OF THE ENGINEERING ANDINDUSTRIAL DESIGN DEVELOPMENT CENTER

PRODUCT DESIGN AND DEVELOPMENT

1. Switches, sockets, plugs etc. for household use2. Design of various consumer goods (heaters, fans, table type

electric cooker, water heaters and irons)3. Design of various types of trailers from 4-24 tons capacity

(trailers of 4-, 6-, 8- and 10 tons and semitrailer of 10-,16- and 24 tons)

4. Design of various types of busbodies (for public transpor-tation, tourists and schools) on various imported chassis

5. Design of various components for trailers and busbodies(turntable, brake-cam, screw jacks, axles, door mechanism,seats, etc.)

6. Various industrial design activities upon request (economyhousing, furniture, seat design for transportation industry,interior design etc.)

:. PRODUCTION TECHNOLOGY AND TOOL DESIGN

1. Production processing and tool design for various products

- switches, sockets, plugs etc.- gate valves for water supply- component parts for fluorescent lamp and TV sets

manufacture- component parts for trailers manufacture- spare parts for textile machines- plastic moulds, etc.

2. Production process planning and layout for various industries

- tool room for electrocable factory- tool room for railway wagons factory- heat treatment workshop for electrocable factory- heat treatment workshop for production of spare parts of

textile machines- complete new plant for airconditioners and water coolers

production- complete new plant for trailers production- complete new plant for maintenance of diesel engines, etc.

3. Technical assistance and consultancy on specialized fields

- heat treatment process and material testing technologyin automotive industry

- heat treatment process for manufacture of componentparts for processing industry, etc.


III. PROCESSING INDUSTRIES

1. General assistance in study and revision of projects forprocessing industries (technology, specifications,preparation, etc.)

2. Assistance in revision of various projects in view of local

production facilities3. Design and unification of material handling equipment for

processing industries

IV. ENGINEERING CONSULTANCY SERVICES TO INDUSTRIAL ENTERPRISES

1. Improvement of material handling facilities (study, system

design, relayouting, specifications of new equipment) for

various equipment design2. Food processing industries (system design, engineering

services, equipment design)3. Modification of tin box production lines

4. Building material industries (study and system design)

V. WORKSHOPS AND LABORATORIES

1. Manufacture of prototypes

- complete winch unit for heavy traction- plate bush roller conveyor- components for mobile conveyors

- components for trailers- electrical utility components and component parts, etc.

2. Tool manufacture according to design made by the Center for

various factories

3. Manufacture of some complicated components or component parts

upon request from various factories (gear box, cutters,

axles, etc.)

4. Heat treatment of some component parts for various factories

(valves, punches, parts, etc.)

5. Testing of various component parts and materials for factories

(hardness testing, surface testing, material testing, etc.)

ENGINEERING AND INDUSTRIAL DESIGN DEVELOPMENT CENTER

ORGANIZATION CHART

Director General

Engineering Industrial Design Development

_ ~~~~Center

|Archives andl

||Secretarial Section

H j ~Sectionl

|Statistics and .

Follow-up Sectionl

Engineering & Produc Product Design and

Technolog Division F Development Division

Administrative and l Processing & CapitalFinancial Division Equipment Design Div. Contracts Division I

Training and Information Technical Extension

|7 l Division Services Division for S.S.I.(Proposed New Division)


TRAINING COURSES AND SEMINARS OFFERED BY THEENGINEERING AND INDUSTRIAL DESIGN DEVELOPMENT CENTER

DurationTitle Weeks Language

PRODUCT DESIGN

Seminar on"Role of Industrial Design" 1 Arabic

Training Course Arabic and"Engineering Products Design" 1 English

TECHNOLOGY AND PRODUCTION

Training Course Arabic, par-"Production Technology" 1 tially English

Training Course Arabic, par-"Press Tools: Design" 1 tially English

Training Course"Press Tools: Planning and Arabic, par-Manufacture" 1 tially English

Training Course"Press Tools: Materials Selection Arabic, par-and Related Heat Treatment" 1 tially English

Training Course"Plastic Moulds: Design andManufacture 1 English

Seminar on"Selection of Automotive Materials Arabic, par-Basic Principle and new Trends" 1 tially English

Practical Training"Heat Treatment and Related English andLaboratories" 2 Arabic

MATERIAL HANDLING

Training Course"Material Handling and Related English andEquipment" 2 Arabic


DurationTitle Weeks Language

WORKSHOP PRACTICE

Training Course"How to Read the MechanicalDrawings" 4 Arabic

Training Course"How to Estimate the WorkingTime in Mechanical Workshop" 4 Arabic

Training Course"Inspection and Quality Control" 3 Arabic

Training Course"Mechanical Workshop Management" 2 Arabic

INDUSTRIAL DEVELOPMENT

Seminar on"Small Scale Industries:Objectives and Work Procedure" 1 Arabic

Training Course"Factory Planning and Layouting" 1 English

In-Plant-Group Training Course"Engineering and Industrial Design" 12 English

ANNEX 31Appendix 4

1/ENGINEERING AND INDUSTRIAL DESIGN DEVELOPMENT CENTER

STAFF DEPLOYMENT

CO ~~~~~~W44J1-4 0) 4Jt 4-i vX) U U OL4 0 X

44 CU h coCU 5 u U Ce 4 o1-4 0)) - 0) 0

2 5 _ _ _ 1 _ 6

3 4 _ _ _ 5 _ 9

4 3 13 2 _ 7 _ 25

5 7 11 2 - 12 _ 32

6 20 3 24 4 7 1 59

7 14 1 26 13 23 - 77

8 - - 26 14 16 3 59

9 _ _ 16 - 4 21 41

10 _ _ 23 _ - 29 52

Total 53 28 119 31 75 54 360

1/ Excludes 2 top management positions.

ANNEX 32Page 1

ACTIVITY OF THE PRODUCTIVITYAND VOCATIONAL TRAINING DEPARTMENT

The Productivity Division

1. This branch of the P.V.T. has a program of fifty short courses ofabout two weeks duration for middle management and specialists in industry.The subjects covered include industrial engineering, financial aspects ofmanagement, performance evaluation, job simplification, training of supervi-sory staff, "training within industry" and the like (see Appendix 1). Thecourses are designed to meet the needs primarily of the publicly owned indus-tries. At least 95% of the participants come from that sector. In addition,the P.V.T. in collaboration with the Institute of Management Consultants hasorganized one hundred one-day seminars on various managerial aspects. TheP.V.T. also provides a management consultancy service to the public sector.Follow-up procedures are carried out to a limited extent - apparently onrequest rather than as a regular practice. It has on occasion engaged inindustrial extension work.

The Vocational Training Division

2. The set-up. This branch has 56 vocational training centers. Twentyof these have been handed over to public sector companies to run. Ten of thecenters remaining under the control of the P.V.T. are included for upgradingin the educational program of the Bank. The P.V.T. has introduced a formalapprenticeship system. Applicants who have had six years primary and threeyears preparatory schooling are selected by an aptitude test. The numberaccepted for any particular trade is based on the assessment of the manpowerneeds in industry. A formal contract is concluded under the aegis of theP.V.T. between the apprentice and the firm selected by the P.V.T. The appren-tice receives three years training. During the first year he attends a voca-tional training center six days per week. General and practical instructionis provided, usually in the time ratio of two of the latter to one of theformer, but this ratio varies according to the trade. In the second yearthe apprentice is employed in the selected establishment, but is released toattend classes in the vocational training center, reduced to one day per week.At the end of the three-year period the apprentice is required to pass a grad-uation examination. There are facilities for instruction in some 96 trades.The annual throughput is about 8,000 apprentices. All of the instructorsproviding practical training in the centers have undergone a course in peda-gogy. The directors and higher staff are university graduates. About 60%of the 'graduate' apprentices are immediately employed in the public sectorindustry. The remainder enter the labor market, while quite a few emigrate.Employees who have passed through P.V.T.'s formal apprenticeship system havemade, according to an ILO study, excellent supervisors.

3. Accelerated Training Program. The facilities of some of the voca-tional training centers are used by the P.V.T. to provide trade training tounskilled workers in industry and to prospective workers. The training coursesare held at times when workers can attend, usually the late afternoon, and

ANNEX 32Page 2

have a duration, depending on the trade, of between four (fitting and sheet

metal work) to twelve and one-half months (electric trades and power genera-tion). Workers in industry attend 4 hours per day while those unemployedattend for 6 hours per day. Applicants are accepted for these courses pro-vided they are between 17-1/2 and 30 years of age, possess at least the

certificate of primary education, have completed military service and aremedically fit. The potential output of the program is about 3,000 traineesper year. However, the intake has dropped in recent years due to the inabilityof the P.V.T. to pay reasonable compensation to workers for earnings lost whileattending the course. Now only one course is offered.

4. Skill Upgrading Training Program. The objective of this program isto raise the level of expertise of workers and foremen in industry by provid-ing courses on modern techniques directly related to their jobs. The equipmentavailable is inadequate for the really high-skilled trades. Training is givenin fitting, turning, welding, heat treatment, tool and die making and plannedmaintenance (see Appendices 1 & 2). To attend these courses, applicantsmust be literate, have had five years experience in their trade, and pass anexamination held by the P.V.T. prior to entering. Courses vary in durationfrom eleven weeks (fitting, turning, welding and heat treatment) to sixty-oneweeks (tool and die making).

The Instructor Training Institute

5. The P.V.T. also has an Instructor Training Institute capable ofpassing out one thousand instructors per year. In addition, the Instituteoffers refresher courses, supervisory and management training in the operationof centers and upgraded training in the automobile and electrical trades.

6. P.V.T. is a well-managed department and can provide the kind ofprograms needed for SSI with marginal technical assistance. P.V.T. alreadysupplies the needs of the public sector in management training; it trainsworkers for the public (mainly) and, to some extent, for the private sectorthrough its vocational training centers. All that is needed is some re-orientation. P.V.T. has a permanent staff of 50 lecturers, and is able todraw specialists from the Universities, if required. An Organization Chartis presented in Appendix 3. The staff is able and motivated. The Under-Secretary of State for Vocational Training, Dr. I. M. Hakam, is experiencedand has expressed his willingness to introduce new, or adjust current, coursesto meet the special requirements of the small-scale manufacturing sector.


TRAINING PROGRAMS OFFERED BY PRODUCTIVITY AND VOCATIONALTRAINING DEPARTMENT DURING 1977

Program in Production Improvement

Programs in Production Engineering

1 - Means for increasing production quality2 - Work study3 - Planning and follow-up production4 - Organizing precautionary maintenance5 - Quality production control (general and specialized)

Programs in Marketing

1 - Industrial costs for specialists2 - Industrial costs

3 - Non-commercial costs

4 - Marketing administration

5 - Marketing research

6 - Marketing exports

7 - Developing sales skills

8 - Purchasing and warehouses

9 - Performance evaluation

10 - Scientific methods of performance evaluation

Programs in Supervision

1 - Human relations

2 - Work communications3 - Work simplification

4 - Work safety

5 - Quality measurement6 - Training administration to training officials7 - Training techniques

8 - Intermediate administration

Programs in Industrial Safety and Accident Prevention

1 - Industrial safety for production and maintenance employees(engineers and chemists)

2 - Industrial safety and accident prevention for work inspectorsin plants

3 - Monthly meetings of supervisors and inspectors of industrialsafety in plants


Vocational Training Programs - Crash Training Programs -Program of Institute for Training Instructors

1 - Basic training programs

2 - Advanced training programs3 - Production inspector programs (mechanic)4 - Program in raising the level of supervisors' skills5 - Program in car service and workshop maintenance6 - Program for raising the skill of the supervisor of

electrical work7 - Store management program

8 - Program in raising the skill level of the mechanicalmaintenance workers

9 - Program for preparing mechanical technicians10 - Specialization program for heads of training units

at companies11 - Training programs for new engineers

Source: Productivity and Vocational Training Department of Ministry ofIndustry.


PVT -- TRAINING SPECIALITIES

I. Metal Trades

FitterFitter machinistTurnerBlacksmithMachinistWelderSheet metal worker

II. Automotive & Refrigeration

Auto mechanicAuto electricianRefrigerating & air conditioning mechanicDiesel mechanicAero mechanicAero frames fitter

III. Electrical Trades

General electricianMotor generator and transformer electrician

IV. Fine Instruments

Radio & television electricianElectronic control instrument electricianFine mechanicThermal control instrumentRepairing and maintaining thermal control instrument

V. Chemical Trades

Chemical lab assistantPumps and compressors laborFitters on control measuring instrumentsCoal preparation sectionBy products on coke products include:

- Ammonia sulphate section- Benzol section- Sulphoric acid section- Section of tar distillation- Naphtaline section- Tar section


VI. Steel & Foundry Trades

Blast furnace operatorSteel convertor operatorRolling mill operatorPhysical metallurgical laboratory operatorHeat treatment operatorTool & die makerMechanical forgerCarpentry models operatorManual foundry operator

VII. Mining Trades

Compressor installation operatorScraper winch operatorPump & fan attendantDriller for prospecting teamsDriller & dresser and sharpenerFitter for the repair and mounting miningDrillerLoader operatorExcavator driver at open castsAir powered locomotive driverTimbermanWorkmen for laying and repairing of mine track (underground)

VIII.Textile Trades

Spinning preparerSpinning, doubling, twisting and reeling framesYarn preparerWeaving preparerWeavingSpinning mechanicWeaving mechanicSpinning, doubling, twisting and reeling frames mechanicDobby and non dobby looms mechanic

IX. Glass Trades

General glass operatorGlass scientific apparatus operator

X. Leather Training Trades

Leather tanning


XI. Printing Trades

Hand compositionMechanical compositionMonotype casting machine operatorMonotype key board operatorLetter press printingPhoto process operationRetoucherLethographic plate preparerPhoto engraverPhoto-letho press manBook-binding

ANNEX 32Appendix 3

PRODUCTIVITY & VOCATIONAL TRAINING DEPARTMENT - MINISTRY OF INDUSTRY

ORGANIZATIONAL CHART

Under-Secretary forProductivity & Vocational

Trainu ng

Complaints Office

Administrato

Alexandria General Section for Department for Intitute of DepartmentfoDepartment Technical Information Vocation Management Consultants Productivity

Trainin AffairsAffairs

General Section General Section General. Section General Section General Section General Section Instructor'sfor Follow-up for for for for for Training& Records Technical Technical Employment & Psychological Theoretical Institutes

. _Affairs Follow-up_. Maintenance & Social Tests. Studies

General Section for General Section for General Section for General Section for General Section forSouth Cairo North Cairo Middle Cairo Lower Egypt Delta District

District Training District Training District Training District Training Training CentersCenters Centers Centers Centers .

ANNEX 33

THE FEDERATION OF EGYPTIAN INDUSTRIES

1. The Federation of Egyptian Industries, founded in 1922 as the"Association of Industries", represents an apex organization to which twelveChambers of Indsutry are affiliated (see Appendix 1). In 1958, under Law 21,membership in the various affiliated chambers was made compulsory for bothpublic and private sector firms employing more than 25 workers or havingfixed assets exceeding LE 5,000. According to the Law, the objectives of theFederation include safeguarding the common interests of Egyptian industries,coordinating the activities of the affiliated chambers and regional councils,seeing to the smooth functioning of such bodies, assisting the Governmentin outlining and implementing national industrial policies, and advising onlegislative and regulatory matters pertaining to industries. The Federationhas a membership of around 3,000 firms. The sectoral and regional breakdownof membership is shown in Appendix 2. Major activities of the Federationinclude influencing legislation affecting industry, establishing a dialoguebetween the Government and individual chambers of industry on major problems,organizing trade fairs and exhibitions, and publishing the Yearbook and otherjournals which provide statistics on the industrial sector in Egypt.

2. The Federation has a full-time staff of approximately 50 under theoverall supervision of the Director-General. Appendix 3 provides details ofthe administrative set-up. Policies are formulated by a 21-member Council.The Government appoints 7 members, including the Chairman; the remaining mem-bers are elected by the 12 chambers of industry. Each chamber has at leastone representative in the Council of the Federation. The chambers of indus-try are autonomous entities. Each Chamber has its own governing councilconsisting of 15 members (10 elected, 5 appointed by the Government) and anadministrative organization consisting of a full-time chairman, vice-chairman,and a director-general, who is also a full-time employee of the Federation.The Federation is supported financially from the affiliated chambers.

3. The Federation of Industry is a suitable institution for organizingmanagement training programs for managers from small scale private firms be-cause of its close ties with the private sector. The Federation has enthusi-astically agreed to set up a training department to support this activityand to assume all local costs as a part of its long term plans to promotemanagement development training in Egypt. The Federation is increasinglyrepresenting the interests of the private sector and has the confidence ofsmaller firms. The Federation's support is important to the success of theentire technical assistance program.

ANNEX 33Appendix 1

CHAMBERS OF INDUSTRY

AFFILIATED WITH THE FEDERATION OF EGYPTIAN INDUSTRIES

1. Petroleum, Mines and Quarry Industries2. Metallurgical Industries3. Engineering Industries4. Wood Working Industry5. Spinning and Weaving Industry6. Chemical Industries7. Printing, Binding and Paper Products8. Leather Industry9. Food Industries

10. Cereals Industry11. Building and Construction Industries12. Cinema Industry

ANNEX 33Appendix 2

FEDERATION OF EGYPTIAN INDUSTRIES

SECTORiL AND REGIONAL BREAXDOWN OF MEMBERSHIP - 1976

Spinning Printing, Binding Building & Petroleum MinesEngineering Metallurgical Chemical & Weaving Food & Paper Products Cinema Leather Cereals Construction & Quarrying Wood Working

Governorate Industries Industries Industry Industry Industry Industry Industry Industry Industries Industries Industries Industries TOTAL

Cairo 307 19 111 207 115 138 120 306 11 119 15 99 1,567

Alexandria 92 14 52 98 76 44 12 35 22 24 8 28 505

Gharbia 17 1 2 125 16 4 5 3 12 9 - 4 198

Dakahlia 25 - 1 12 17 - 5 1 3 9 - 2 75

Behera I - 6 9 3 2 1 2 3 2 1 30

Sharkia 1 - - 6 9 - 2 - 4 - - - 22

Damietta 3 - - 6 13 - 3 3 1 _ - 40 69

Menoufia - - - 4 3 - 4 - 2 1 - 2 16

Eafr El Sheikh 2 - - 2 4 - 3 - 4 - - 15

Giza 13 1 9 10 9 - 14 - 6 6 5 10 83

Fayoum - - - 4 2 - _ 1 3 1 - - 11

Port Said 3 - - 2 7 5 - 1 5 1 1 25

Ismsailia 1' _ - 2 _ _ _ 1 5 - 1 10

Suez 2 - -- 1 - 1 - 1 2 1 - 8

Beni Souef - - - 5 - - - - I - - - 6

Minya I - - 6 8 - I - 2 3 - - 21

Sohag I - - 4 4 - - - 5 3 - 1 Lb

Kina - - - 2 3 - - - 2 1 _ - 8

Asswan I - 1 - - - 2 - 1 2 2 - 9

Kalyubia 18 5 15 133 6 - 2 - 4 1 3 1 188

Redles - - - - - - - - I - I - 2

Sinai - - - - - - - - - - 2 - 2

Assiur I - - 3 2 _ 1 1 3 3 - _ 14

Nev Valley - _- - - - - 1 _ I

TOTAL 489 40 197 638 310 193 176 352 94 196 38 190 2,913

FEDERATION OF EGYPTIAN INDUSTRIES

ORGANIZATION CHART

Governing Council(21 members)

Chairman

|Director-General

General Directorate* General Directorate General Directorate General Directorate General DirectorateLegal Relations Technical & Economic Admin. & Financial Planning & Followup

Stu dies

Foreign Public Industrial Publishing Statist. Admin. FinanceRelations Relations Relations Division & Econ. Division DivisionDivision Division Division Studies

Division

Internal Auditing General DirectorateDivision Alexandria

Office 7

* General Directorate, managed by a Director-General; each Division is headed by a Director.

ANNEX 34

SCOPE AND ORGANIZATION OF THE PROY9 SEDEXTENSION SERVICE PROGRAM -

1. To make the task manageable, it is propcsed initially to limit thescope of technical assistance to be provided by the extension service to pro-duction aspects in enterprises employing less than 100 workers in the metalworking, plastics and furniture making trades. It. is estimated that some 400establishments in the 10+ employment brackets are located in the Greater Cairoarea in these fields, which could be contacted either directly by the Centeror referred to it by DIB or the Federation of Industries. Of these, roughly90% would be in the 10 - 50 worker group. It is Etxpected that about 150 estab-lishments could be investigated, out of which it can be reasonably assumedthat some 50 enterprises could be assisted by the proposed free diagnosticservice in the first stage. Regarding the below 10C employment group (some2,000 enterprises in Greater Cairo area), about 350 will be targeted for diag-nosis, of which some 50 might use the Center's services. This could have asignificant impact on the productivity of the respondents, but more so interms of the potential demonstration effect. As the availability and valueof the service becomes known, requests for assistance should increase. Inthe second stage it is anticipated that a much larger number of establishmentswould be contacted and assisted. 2/

2. The extension service will be under the overall control of theDirector General of the Center. The day to day operations will be directedby an Engineer-manager who will have a team of engineers and publicists inthe field and support specialists in the Center. To carry out the diagnosticservice during the first stage, three mobile teams, each consisting of anengineer and a technician, will be provided. The equivalent of two full timespecialists' services will be available from the Center to assist the diagnos-tic team. To contact persons participating in the program and liaise withother organizations, a promotion expert will be available. The program pro-vides for the services of an expert in engineering extension services for 12months who will assist in the design and operation of the service and in thetraining of counterpart staff in diagnostic procedures. In addition, theprogram provides for special consultant services for 6 man-months to assistwith special problems, such as in modern furniture manufacture. Provisionhas also been made for the equivalent of 4 fellowships and/or study toursabroad. The outlay for the extension service in stage one is estimated atLE 45,000 and US$62,000, or a total of US$125,000.

1/ A similar scheme is operated by the "Center for Medium and Small-scaleEnterprises" in Argentina. A fee is charged for the diagnostic survey.

2/ In stage two, the number of subsectors covered could be further in-creased, as appropriate.

Documents

Republic of Egypt: FILE COPY Survey of Small Scale Industry · 2016. 7. 11. · 1 Egyptian Pound (LE) = US$2.56 1 US Dollar = LE 0.39 Parallel Market Rate (from ... E. OBJECTIVES