The current government plans for Egyptian industry are much more about renovation than modernisation, writes Salah El-Amrousi Addressing a roundtable seminar earlier this year on the state of industrial development, former Minister of Industry Ibrahim Fawzi cautioned that modernising Egyptian industry did not mean that Egypt would be shortly joining the ranks of industrialised nations. "We must be realistic," he said. "We must deal with what is available. The true challenge resides in upgrading and enhancing the performance of what currently exists in Egyptian industry." Does this still represent the view of the government and the ruling party? Have we abandoned the ambition of "catching up" with industrialised nations, an aspiration epitomised in the mammoth modernisation programmes initiated in the developing world, and which enabled some countries in Latin America and East Asia to emerge as newly industrialised nations? If we have settled for something less, will our more "realistic" approach actually ensure that Egyptian industry progresses and becomes more competitive? It would appear that we are caught in the contradictions between the rhetorics of idealism and pragmatism. To find out where we stand at present, we must first attempt to penetrate the ambiguities of propaganda and double talk. For example, Prime Minister Atef Ebeid in a speech to the Shura Council has said that modernisation means elevating Egyptian industry, both productive and service industries, "to a level similar to that achieved by the nations categorised as advanced". A Shura Council report on "The Modernisation of Egypt" spoke of the need to "keep pace with the information boom and the scientific, technological and communications revolutions". And, to realise this, the report stressed, Egyptian industry must become "both a hardware and a software producer". Yet such a modernisation project, which aims to catch up with the most recent phases of industrial development, is being deferred to the very distant future -- a hundred or so years from now -- by which time the progress Egypt will have attained will still be cut off from the present. Atef Ebeid propounds a very peculiar theory, or perhaps more accurately a justification, for slower progress. If the modernisation process of Western Europe took 250 years (from between 1700 and 1750 to the present), Egypt would have to "undergo the same voyage over a longer period of time". However, for this theory to be true, Egypt would, in effect, have to reinvent the steam engine, rather than begin from the point where others left off, as did the newly industrialised nations which almost completely bridged the gap with the industrialised world within the space of a generation. What we have here is some fast rhetorical footwork aimed at deferring any ambitious attempt to significantly expand or upgrade our industrial base in the near future. The essence of the practical modernisation project as presented by the prime minister thus involves no more than to equip our current industrial structures with up-to-date tools and machinery. Ebeid has said on numerous occasions that this "renovation" will affect between 10 and 12 thousand industries, which would be selected on the basis of a comprehensive assessment of their potential output, available resources and investment needs. In the context of promoting this plan, Minister of Public Enterprise Mukhtar Khattab has said that the notion of rising to the ranks of industrialised nations within 16 to 20 years was "complete and utter fancy." Therefore, he continued, the current modernisation programme would focus on remedying "some of our shortcomings, deficiencies and sources of backwardness so as to enable us to develop a relationship with the group of industrialised nations that is not harmful; indeed, so as to enable us to interact with those economies and achieve growth". Citing the example of the spinning and weaving companies in the public works sector, Khattab noted that some of the machinery and equipment in these factories is more than 20 years old, and that the modernisation programme for his sector would entail bringing in the new machinery and equipment that would prepare these factories for privatisation. As he put it, "We will upgrade these obsolescent factories so as to transfer them to the private sector, which can modernise them with greater efficiency and on a vaster scale." We note the same perspective in the Shura Council's The Modernisation of Egypt, a report that reflects the prevalent view of the ruling National Party and the government. This report contains the findings of the Shura Council's Economic Committee, which perceives modernising industry as involving two processes. The first is to give special priority to certain existing industries which "can offer Egypt a comparative advantage", examples of which include the crystal, carpet and furniture industries. The second component is a focus on small enterprises, whose development is enthusiastically described by the report as "the revolution that has begun to shape the manufacturing sector". Throughout the Shura Council report, we find no framework for developing the Egyptian industrial structure, either in the short or long term. This weakness is inconsistent with this committee's own diagnosis of the pathetic state of Egyptian industry. It is important to point out that the replacement of old machinery and equipment is hardly a brilliant new spark of genius. This has always taken place periodically from necessity, and the modernisation programme proposes no more than to render this process more routine and in shorter intervals. The problem originates with the expansion of the industrial consumption structure, which has come to depend heavily on the importing of capital goods and spare parts. The balance of payments deficit this has generated has caused Egyptian industries to fall increasingly behind developments taking place elsewhere. Because of the chronic hard currency shortage manufactures find themselves compelled to continue operating with obsolete machinery, and are only able to afford importing used machinery instead of the most state-of- the-art technology. The present modernisation project arose over two years ago in response to Egypt's partnership agreement with the EU, which some ministers feared would threaten the future of Egyptian industry as it stood. Suddenly, it became imperative to equip Egyptian industry to face the forthcoming competition from EU nations with the abolishment of customs tariffs after a transitional period, a step which is not obligatory under GATT. The recent modernisation drive thus emerged as a knee-jerk reaction rather than as a manifestation of a genuinely insightful strategy for sustainable development. Against this background we can understand the absence of grandiose vision and the resolve to focus on an extremely modest aim: survival in the face of impending foreign competition. Does this modernisation project serve the needs of Egyptian industry, and how do we identify these needs? While no one would disagree that to answer this one must assess the current state of Egyptian industry, there could be considerable divergence of opinion over method. Dr Atef Ebeid has opted for a simplified descriptive approach. As he put it, "It will be as though we brought in a video camera and filmed the reality as it is on the ground. This is what we did in the public works sector. Before submitting a factory to modernisation and development, we film it from top to bottom, from the entrance way to the light fixtures on the ceiling." Naturally, while such an approach may have worked for the process of selling off individual units in the public sector on a case by case basis, it cannot serve as a method for diagnosing the overall state of our national industry or economy, which are more than the sum of their individual parts. Rather, an analytic structural approach is needed in order to assess the diverse domestic and foreign dimensions of our industrial edifice and to determine the weak points that need to be remedied. Fortunately, the section of the Shura Council report drafted by the committee on industry offers a structural diagnosis that is at least suitable to our purpose here. The report observes that Egyptian industry and economy are excessively driven by light consumer products and that heavy and capital goods production is severely constrained. It states: "There is no industrial depth and most activities are technologically weak and excessively dependent on importation. The lack of depth is one of the reasons for the protracted industrial stagnation in Egypt. Technological renovation in industry and in the overall economy is entirely dependent upon the importation of technology in the form of machinery, equipment and production processes, and these are primarily channelled into the manufacture of the final product rather than into enhancing the autonomous capacity of Egyptian industry by, for example, furnishing the production sector with its machinery and equipment needs." Unfortunately, the writer of this report fails to draw the necessary logical conclusion. If the primary cause for the stagnation of Egyptian industry and the associated trade and balance of payments deficits is the consumerist nature of Egyptian industry and the paltry presence of intermediate industries (especially the manufacturing of tools and machinery), this structural flaw must be remedied. Therefore, contrary to the current modernisation project, promoted by even the industrial committee that drew up this report, any serious modernisation project must first and foremost create a number of intermediary and capital goods industries. It is in precisely this task that we are lagging far behind. Most emerging industrialised nations had embarked on this phase very early on: India and China in the beginning of the 1950s, South Korea and Taiwan in the 1970s, Brazil in the late 1950s and again in the 1970s, and Mexico in two bursts in the 1970s and early 1980s. Most of these countries had rejected the theory of gradual development of their industrial structure in favour of the theory of using certain heavy and manufacturing industries as the engine for driving industrial growth in general. On the other hand, the consumer industries in Egypt have expanded to the degree that they should be able to absorb a high proportion of the products produced by intermediary and capital goods industries. Thus, if we are to equip between 10 and 12 thousand factories with modern machinery, as Ebeid has indicated, it would seem more productive and less costly to build factories to produce this machinery domestically rather than importing everything from abroad, especially considering that upgrading a factory's machinery is not a one-step operation, but a process that must take place routinely in regular intervals if it is to keep pace with technological developments and if the modernisation project is to actually be achieved. Neither the prime minister nor the Shura Council report seriously addressed the problem of funding the modernisation of the consumer- driven industrial structure in Egypt. Instead, they offered such ambiguous remarks as, "We must calculate the costs and also the available resources," and "We must start from now to save money for the modernisation process." More ominously, Mukhtar Khattab spoke of privatisation as "a modernisation tool", as though the private sector had unlimited resources or was modernisation in and of itself. The question of funding modernisation, in other words of realising and sustaining the current modernisation process, must be posed in terms of the capacity of the economy (at present and in terms of the potential offered by modernisation) to furnish the hard currency necessary to supply the consumerist industrial structure with modern machinery. This ability, in turn, is contingent upon the present and potential export capacity of our industry and economy at large. Put in this manner, we must consider certain contradictory influences. Above all, as we have pointed out, if the current dependency on imported machinery and intermediate products and process has generated a chronic trade and balance of payments deficits, increasing such importations will only aggravate this crisis. On the other hand, the modernisation process, which should enhance the competitiveness of our industry and hence its export capacity should push in the opposite direction, which is to say towards alleviating our trade and balance of payments deficits. The success of the modernisation process is thus contingent upon whether the anticipated increased export capacity can offset the original deficit plus the deficit accrued from the importation of the necessities for the modernisation project. Unfortunately, it is difficult to conceive that we could realise an export capacity on the desired scale. The current manufacturing structure is extremely narrow, producing only a small range of goods, which reduces the opportunities for increasing exports. Even then, our dominant manufacturing industry, textiles, has encountered competitivity problems. In order to cater to a domestic market, our high grade, long staple cotton is being used to manufacture the fibres for coarse popular fabrics. At the same time, the conversion to the spinning of finer threads for luxury fabrics that would compete advantageously in the international market would require a huge capital investment. Further impeding our export capacities is that Egyptian textiles and agricultural products must contend with a number of prohibitive protectionist barriers, which are still the subject of heated controversy in the WTO, impeding access for Egypt and other developing countries to the markets of advanced capitalist economies. In other words, we are hoping to increase exports of a handful of products into a global market that is already overflowing with such products. In all events, Egyptian industry has long been on the defensive, trying to keep its lion's share of the domestic market in the face of encroaching foreign competition. In addition to this, we must take into consideration the enormous rise in imports accruing from the modernisation of the service sector, the government's electronics project, and the spread of mobile telephones and personal computers. Such imports are, as of yet, far from being offset by exports from the software programming sector, the only sector that constitutes a new addition to the current industrial structure. Although the government has pinned great hopes on the development of this sector, its current management does not offer the promise of splendid results. We can anticipate that the current modernisation project will not only fail to solve the chronic deficit crisis, but will actually aggravate the situation, impeding industry's capacity to sustain the process of technological upgrade. In other words, the very "realism" that proponents of this modernisation project are lauding renders it unachievable. The consumerist nature of the Egyptian industrial structure is inherently geared to reproducing the same problems and predicaments for which the modernisation project has been offered as the solution. Should this structure remain unchanged, Egyptian industry will have to contend with an insurmountable dilemma. The further the Egyptian economy proceeds along the path of deregulation the harder it will become for industry to set into motion a sustainable process of modernisation that will enable it to survive the war of competition in the open global marketplace. One can only conclude that either Egyptian industry resolves to take a great leap forward towards catching up with industrialised nations or it gets left in the backwash. There is no place in today's world for modest "realistic" ambitions.
