Russia gets the go ahead: New industrial zone to bring investment, jobs and technology to Egypt

After two years of deliberations, an agreement to establish a Russian industrial zone in Egypt was finally signed last week.

Established on an area of 5.25 million square metres in East Port Said in the Suez Canal Economic Zone, the new zone is expected to attract some $7 billion in investment.

The agreement was signed by Minister of Trade and Industry Tarek Kabil and his Russian counterpart Denis Manturov during a meeting of the Joint Russian-Egyptian Commission for Trade, Economic, Scientific and Technical Cooperation. Extending for 50 years, the agreement represents a qualitative shift in strategic relations between Egypt and Russia, according to Kabil. It aims to increase bilateral industrial cooperation, enhance investment opportunities and provide favourable conditions for industrial, scientific and technical cooperation between the two countries, he said.

It provides for the creation of a special territory with a simplified tax regime and special conditions for the exports of Russian enterprises, Igor Ishchenko, director of Technopolis Moscow, was quoted as saying on the company’s website.

Technopolis Moscow is an affiliate of the Russian Department of Science, Industrial Policy and Entrepreneurship.

According to Ishchenko, the Technopolis team took part in conceptualising the site, as well as in the analysis of markets in Africa, the Middle East and Southern Europe.

It also negotiated with more than 300 Russian companies about setting up shop in the new zone.

The importance of the new Russian industrial zone lies in the fact that it is the first outside Russian territory, according to Mustapha Khalil, a member of the Egyptian-Russian Business Council.

“It goes to show how far Russia values the location and facilities offered by Egypt,” he said.

It is expected that the new zone will serve as a gateway for Russian industries. Its central location, midway between East and West, would mean cheaper logistics costs for Russian exporters, Khalil explained.

Russian manufacturers that establish themselves within the zone will also be able to benefit from agreements between Egypt and the African countries, the EU, Mercosur, a Latin American trade bloc, and with the other Arab countries, he added, all of which give preferential treatment to products manufactured in Egypt.

While Russian companies will benefit, Egypt will also do so because they will create jobs and allow for the transfer of technology.

The zone is thus part of Egypt’s drive to attract foreign investment to help create jobs and boost growth.

According to a statement from the Suez Canal Economic Zone, the new zone will be built over three phases.

Development work for the first phase, which will cover one million square metres, will start in 2018 and will also work on attracting Russian investors and companies throughout 2018 and 2019.

This phase will create 7,300 jobs in construction and will cost some $190 million, according to Kabil.

The second phase will develop 1.6 million square metres and will be finished by 2022, creating 10,000 jobs.

The third phase will develop 2.65 million square metres and generate 17,000 jobs. The three phases are expected to be finished by 2031, when Russian companies will start operations in the zone, providing some 35,000 direct and indirect jobs, the statement said. Land granted in the zone is on a usufruct basis, Kabil stated.

The Egyptian and Russian sides have agreed to establish a company, the Moscow Economic Zone, responsible for the zone’s operations and construction work.

They have further agreed that the Egyptian and Russian governments will supervise the project, funded by the Russian Direct Investment Fund (RDIF) and several Egyptian banks.

The volume of trade between Egypt and Russia increased by 62 per cent year-on-year in 2017, registering $6.7 billion, Russian trade representative in Cairo Nikolai Aslanov told the Middle East News Agency earlier this year.

Around $500 million of this represented Egyptian exports, while the rest were Russian exports to Egypt.

Wheat and metal are among the main Russian exports, and fruit and vegetables are Egypt’s main exports.

The Egyptian trade minister put the trade figures at around $4 billion in statements made in May this year.

Russian investments in Egypt stood at around $4.5 billion in 2017, according to Aslanov, of which 60 per cent were in the petroleum and gas sectors.

Egypt and Russia have seen increased cooperation over recent years.

In December 2017, President Abdel-Fattah Al-Sisi and Russian President Vladimir Putin signed an agreement in Cairo for the establishment of a nuclear power plant to be built in Al-Dabaa on Egypt’s northwest coast by the Russian state-owned company Rosatom.