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Globalization Challenges to Egypt’s Production SectorsAchieving highersustainable growthmust be through adynamic exportsector founded on arobust manufacturingbase.Industry ModernizationSince 1992, the real growth rate in Egypthas been rising, reaching more than 5 percent per annum in the last three years of thedecade. It is targeted to reach 7 per cent inthe coming few years. In recent years,export promotion policies have beenstrongly advocated as a superior developmentstrategy for semi-industrialized countries.Moreover, evidence shows thatmanufactured goods are at the core of anysuccessful export-led growth strategy.Hence achieving higher sustainable growthmust be through a dynamic export sectorfounded on a robust manufacturing base.However, the multilateral trade liberalizationafter the Uruguay Round and the newregional initiatives in other parts of theworld are likely to erode the preferentialaccess of Egyptian resource-intensiveexports to European markets. Egypt willhave to face a sharp increase in competitionin labor-intensive exports from manyMENA and Asian countries. Competing inthese low-technology products dependsmostly on cost reduction, which requireshigh productivity growth to reduce the unitlabor cost while maintaining growth in realwages. Alternatively, but more difficult anddemanding, competition in low-technologyproducts can depend on product differentiation,which requires a high degree of masteringof the production process (in terms of newdesign, components, materials etc.)Otherwise, competition in these productswill be at the expense of suppressing realwages and welfare in the economy.A set of questions is addressed in thissection: How does the structure of theEgyptian manufacturing sector affect thepattern of trade and competitiveness? Whatare the likely prospects for globalization ofthe Egyptian manufacturing sector? CouldEgypt compete against high technologyfirms in industrialized countries or evenagainst medium technology firms in thenewly industrialized countries? What is thepattern of industrial modernization neededin order to maximize the benefits ofglobalization and minimize its threats?The Egyptian ManufacturingSector in a Global SettingThe Industrial BaseAt the macro level, the economic variablesof Egypt's manufacturing sector hadexperienced some improvement by the endof the 1990s. The growth rate of the sectorwas the highest among all economicsectors; it rose to 7 per cent on average inthe years 1996-98 (Table 3.9), which led tomore than doubling the industrial basebetween 1990 and 1998 (see Table 3.10).Also, the contribution of Egypt'smanufacturing sector to value added at thenational level had reached its highest levelover the 1990s amounting to 19 per cent in1998/99.Table (3.9)Sectoral Average Annual Growth Ratesin Egypt (%)GDP growthAgriculture, value addedManufacturing, value addedServices, etc., value added1992-953.982.803.813.211996-985.363.417.835.55This level of performance is close to thoseof most of the countries in the MENAregion. Yet, it is lower than the average forthe developing countries (with an onaverage contribution of 26.7 per cent by themanufacturing sector to GDP, during theperiod 1991-98). It is also much lower thanthat of the newly industrialized countries inSouth East Asia. The manufacturing sectoramounted to around 30 per cent of GDP inKorea, Malaysia and Thailand during theperiod 1991-1998. The industrial base ofEgypt is almost half that of Thailand orIndonesia, and two-thirds that of Malaysiaor Turkey. China and Korea are beyondcomparison. However, manufacturingoutput in Egypt is more than double that ofMorocco or Tunisia (Table 3.10).50 -Egypt Human Development Report 2000/2001