Ever since the Egyptian government signed an agreement with the International Monetary Fund for a loan of $12 billion on Nov. 11, 2016, it began implementing economic reforms. Under the loan, Egypt applied a 13% value-added tax at the end of 2016, which has risen now to 14%. Since the beginning of 2017, the government has floated the exchange rate and raised the interest rate and fuel prices.

The Egyptian government created a financial fund in May 2017 called Egypt Risk Capital to help the faltering factories, but it was unsuccessful given the accumulated debt of these factories with the Egyptian banks. However, observers believe the new initiative could be more effective, especially since it writes off the debts owed by those troubled factories, which may allow them to operate again after they had suspended their work due to the political and economic tensions that followed the January 25 Revolution.

He said that he had presented the initiative to President Abdel Fattah al-Sisi, who approved it. Amer noted that it also includes exempting individuals in debt with banks by delaying penalties and writing off loan interest, as well as dropping 67,000 court cases against borrowers, including investors and farmers.

Al-Monitor attended the event organized by Al-Ahram Foundation during which Amer explained that the initiative will include large exemptions for more than 5,000 factories with bank debts and write off the delay penalties and loan interest.

CAIRO — The governor of the Central Bank of Egypt, Tarek Amer, announced May 10 an initiative to help troubled factories , in cooperation with Egyptian banks, by keeping more than 5,000 faltering factories afloat and lowering the interest of their debts. The initiative received broad acclaim among economic circles, but it has, at the same time, raised questions about its ability to save those factories.

The decision to liberalize the exchange rate has led to the accumulation of debts by many Egyptian companies, which prompted Amer in February 2017 to agree to pay banks the dollar indebtedness resulting from the currency differences of about 570 companies, to be paid by these companies within two years in Egyptian pounds at a 12% interest rate.

Ahmed Taha, the head of the Industrial Modernization Center (IMC) of the Egyptian Ministry of Trade and Industry, said that the Central Bank’s initiative is yet to be presented to him. However, he noted, “We welcome any initiative aiming to resolve the situation of these factories. If the mechanism that the Central Bank spoke about is real and enforceable, we will certainly cooperate.”

Taha told Al-Monitor that the factories that shut down after the January 25 Revolution mostly faced issues of chaos and instability because of the security situation, which resulted from the unrest and looting incidents that followed the revolution. “The latest census conducted by the IMC two years ago found that 871 faltering factories resorted to the IMC looking for help to solve their problems. We could only offer 135 factories financial support and mediated with other parties and we solved their crises,” he noted.

The IMC was established in virtue of a presidential decree in 2000 with the aim of giving impetus to a modern Egyptian industry by supporting industrial establishments in coordination with the Ministry of Trade and Industry, by mediating with other government agencies and banks and facilitating the work of these industrial establishments.

“Following President Sisi’s instructions, we created a fund [Egypt Risk Capital] financed by the government and started our work in January 2018. We chose 26 out of 126 establishments that requested support from the fund, and it takes us two months to put each factory back to work. We have been able to help only one factory so far and still have two years to complete the process for the remaining 25,” Taha said.

Speaking about the number of factories that Amer talked about in his initiative, he noted, “I am only talking about the factories that have resorted to us; the number of faltering factories may indeed be much higher.”

In May 2017, Egyptian Minister of Trade and Industry Tarek Kabil had launched Egypt Risk Capital, a capital fund worth 150 million Egyptian pounds ($8.4 million), to which the IMC contributed 30 million pounds ($1.7 million); the National Investment Bank 30 million pounds; Ayady company 20 million pounds ($1.1 million); and Long Live Egypt, a fund established in 2014 by Sisi to support the Egyptian economy, about 70 million pounds ($3.9 million), to restart the faltering factories.

The Egyptian Central Bank initiative is a serious step toward solving the situation of faltering factories, said Hani Tawfik, the former CEO of Egypt Risk Capital. He noted that it differs from the government fund, which aims to float the troubled companies by restructuring them financially and preparing them to run again after offering financial support.

Tawfik noted that the Egypt Risk Capital works with the support of the IMC and in partnership with a charity and a private bank. He said that it started its actual work in late January 2018 by supporting only one of 26 companies that met the floatation standards. One faltering company needs about 10 million pounds ($559,000), so the fund cannot help the thousands of companies that need assistance.

Sisi vowed Jan. 8 to solve the problem of faltering factories during the launch of 13 infrastructure and housing projects (seven bridges and tunnels on the Suez Road) in Sharqiya. “The issue of troubled factories is very important to us and ending the crisis is crucial,” he said.

Yemen al-Hamaki, a professor of economics at Ain Shams University, praised the initiative, saying, “Better late than never. We are glad someone called to solve the crises of the faltering factories and liberalizing the exchange rate since it had negative repercussions on the activity of many factories and small projects.”

She told Al-Monitor that the Central Bank’s initiative seems serious as it mentions specific figures in regard to the troubled factories that will be floated and also deals with dropping cases filed against indebted investors and farmers. She added that there are no clear statistics of the factories and companies in trouble, and the government has, for years, failed to resolve this issue.

Hamaki, who works as an economic consultant for several factories, explained that the initiative could succeed if a thorough study of these factories and their ability to become productive again is conducted before writing off their loan interest.