Russia, Egypt Agree to Set up Industrial Zone in East Port Said

Russia and Egypt have agreed to establish a 5.25 million square meters Russian Industrial Zone in East Port Said in the Suez Canal Economic Zone. The new zone is expected to attract some US$7 billion in investment.

Extending for 50 years, the agreement represents a shift in strategic relations between Egypt and Russia, and gives Russia access to north African markets and the Mediterranean. It aims to increase bilateral industrial cooperation, enhance investment opportunities, and provide favorable conditions for industrial, scientific, and technical cooperation between the two countries, according to the agreement. It provides for the creation of a special territory with a simplified tax regime and special conditions for the exports of Russian manufacturing enterprises.

The site was established with the assistance of Technopolis Moscow, an affiliate of the Russian Department of Science, Industrial Policy and Entrepreneurship. The Technopolis team took part in conceptualizing 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 meters, 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 meters and will be finished by 2022, creating 10,000 jobs.
The third phase will develop 2.65 million square meters 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 percent year-on-year in 2017, registering US$6.7 billion. About US$500 million of this are 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.

“It is interesting that Russia is using the Singapore government model of having state-owned export driven investment institutions actively involving in bilateral developments, researching the potential then selling the benefits back onto local companies to consider,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “What is most interesting about this new facility is the extent of geographic spread by Russia elsewhere, similar to China’s reach overseas. This new model of encouraging Russian businesses to invest overseas is a positive initiative and will help both Russian businesses export to North Africa and to some extent other Mediterranean countries, while Russian businesses basing themselves in East Port Said will also regain access to the EU and South American blocs via Egypt’s trade agreements with them. “Made in Egypt” is still made in Egypt regardless of the production ownership. Additionally, Egypt has applied for a Free Trade Agreement with the Eurasian Economic Union, which when signed, will really enhance bilateral trade. The future for this new zone looks most promising.”

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