Русский
The long-delayed proposals to establish a Russian Industrial Zone at Port Said near the Suez Canal in Egypt appear to be coming to a conclusion with a planned meeting of the two countries’ intergovernmental commission in May, according to Russian State Secretary and Deputy Industry and Trade Minister Roman Chekushov.
An agreement to proceed with the project was ratified in January, and this has made it possible to start talks on the future of the industrial zone. By May, assessments of the level of interest from Russian business in investing in their own production capacities at Port Said should be better understood.
Problems with Suez Canal operations will have deterred some investors, with Yemeni rebels attacking ships at the opposite end of the canal in the Red Sea region in response to Western aggression in Israel. That has pushed up the cost of insurance.
Egypt v Russia Manufacturing Production Cost Comparisons
However, a facility at Port Said can also be useful for Russian manufacturers looking to other markets such as Russia and the CIS, as well as the Eastern Mediterranean.
This then becomes a cost exercise in terms of the production overheads in Egypt versus the cost of manufacturing in Russia, and other potential export markets in Turkiye and so on. There is also the potential of using Port Said as a manufacturing base to access markets in the North African region.
Typically, production facilities at these types of zones include Bonded Areas, which means that Russian (or CIS) component parts can be imported into the zone without having to incur import duties or VAT, which in Egypt is 14%. This can impact positively upon operational cashflow. Such components are then matched with components or parts sourced from Egypt or elsewhere in Africa, and at local worker rates. In Egypt, such wages range from EGP5,000 (₽8,780) to EGP 10,000 (₽17,560) a month for skilled workers, which is considerably lower than the wage overheads in Russia.
The business then has options, either to sell onto the Egyptian and African markets (Egypt is a member of the African Continental Free Trade Agreement) or to export back to Russia, the CIS or other Eastern Mediterranean markets. The entire exercise in determining feasibility is a cost-comparison exercise matched against the available regional tax advantages.
Facilities such as Port Said also typically offer additional investor incentives, such as reductions in mandatory worker overheads such as insurance, reduced energy and other utility overheads, and profits tax breaks. Combined, these can make a significant impact of financial viability. It should also be noted that Russia has a Double Tax Treaty (DTA) with Egypt, the benefits of which we discussed here.
Russia-Egypt Industrial Zone Export Incentives
The agreement on the creation of the Russian Industrial Zone in the Suez Canal Economic Zone was originally signed by Russia and Egypt in 2018. The agreement envisages the launch of the Russian Industrial Zone on two sites, which had a total area of 525 hectares, in the Ain Sokhna area on the coast of the Red Sea and on the eastern coast of the Suez Canal in northern Egypt. Products manufactured in the Russian Industrial Zone (under the 30% Egyptian Rules of Origin regulations) can obtain the “Made in Egypt” classification, which exempts tax duties of subsequent exports to other African countries, the Middle East, Latin America and other countries that have trade agreements with Egypt. A list of these can be viewed here.
Additionally, 100% of the products produced in the Russian Industrial Zone can be sold on the Egyptian market – after the payment of any residual import duty and VAT remaining if goods entered via the Bonded Zone. Resident companies in the Russian Industrial Zone also receive concessions for the import of equipment and materials, the ability to receive profit tax deductions and exemption from property tax.
The creation of the industrial zone in Egypt was expected to give Russian companies general access to the African market, metallurgical companies and companies operating in the timber sector and mineral fertilizer manufacturers were named among those interested.
Meanwhile, Chekushov had talks with Egyptian Deputy Prime Minister for Industry and Industry and Transport Minister Kamel al-Wazir, Egyptian Investment and Foreign Trade Minister Hassan El-Khatib and Waleid Gamal El-Dein, CEO of the Suez Canal Economic Zone, during his visit to Egypt, saying that “They (Egyptian partners) are now waiting for three months to hear from us, as we agreed, or rather, it is even less than two and a half months, because in May an intergovernmental commission will be held in Moscow, Russian-Egyptian. Therefore, before these dates, we must decide [on the details] in order to finalise the step-by-step plans for the creation of the zone during the visit of the Egyptian delegation to Moscow.’”
Russian investors requiring guidance through cost analysis comparisons when considering investments overseas may contact us at info@russiaspivottoasia.com
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