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Globalization Challenges to Egypt’s Production Sectorswill endanger the domestic competitivenessof this sector. International competition willextend to the domestic market through thephasing out of tariffs. The high tariff wallthat the sector enjoyed for long decadescould collapse and open the economy tocompetition from strong advanced countries.For a suggested pattern of Egypt’s industrialdevelopment under globalization see Box(3.5).Globalization and the AppropriateExport StrategyThis critical situation raises many questionsabout how to proceed in dealing with thesechallenges. Could the Egyptian economyspecialize in producing and exportinglabor-intensive products? Many countrieswere able to compete internationally andrealize high levels of growth through thisstrategy. This in turn depends on theeconomy's capacity to reduce the unit laborcost of its labor-intensive exports to practiceprice competition. If the skills and productivityof the labor force are not growing fast,implementing the suggested export strategywill be at the expense of reducing realwages. If real wages are already very low,then poor employees in the manufacturingsector will subsidize the export strategy,which will result in a high negative impacton welfare. This is likely to be the case inEgypt.In investigating this assumption, we willfocus on the private manufacturing sector0.80.60.40.20-0.2Figure 3.3 :Effective Rates of Protection on the Textile Sector1ERP on Textilesspinninggarments3 5 7 9 11 13 15%Box (3.4)Egypt’s Industrial Development: A Suggested PatternbyDr Mamdouh Al- Sharkawi(Institute of National Planning)In a globalized world, a domestic marketbecomes an extension of foreign markets. Itis therefore necessary, when developingexisting industries and selecting new ones,to focus on those which deepen domesticindustrialization. These industries shouldmainly be characterized by the following:● Strong backward and forward linkagesthat allow the establishment of newindustries that depend on the use ofdomestic inputs.● Capability of responding to domesticmarket needs by using domestic rawmaterials and/or domestically producedsemi-finished products.● Ability to compete with similar importedproducts in terms of both price and quality.● Maximization of manufactured exportsand job opportunities.aluminum; and iron and steel. It is alsorecommended that special attention is given tosmall and medium firms, especially in thefurniture, shoe, and garment industries.Moreover, the suggested industrializationpattern requires the adoption of a number ofpolicies, among which are the following:● The existence of specialized marketingfirms that play both the role of guidingindustrial firms in deciding what to produceand in what quantity, and for marketing theproducts of these firms.● Establishment of specific industrial regionswhere industries of the same activity areconglomerated together. This would raiseproductivity through enhancingcompetitiveness, facilitating the foundationof R&D centers, encouraging trainingprograms, and by the presence of banks andfinancial institutions.If the skills andproductivity of thelabor force are notgrowing fast,implementing thesuggested exportstrategy will be at theexpense of reducingreal wages.The most important Egyptian industries thatare likely to meet these conditions arechemicals; cement; garments; shoes andleather products; toys and sports equipment;● Development of textile industries.● Effective application of duty drawback andtemporary admission systems.Egypt Human Development Report 2000/2001 - 55