News & Updates

On October 26, 2023, the Egyptian government issued Decree No. 77 of 2023 ("Decree 77/2023"), introducing a comprehensive package of incentives and benefits for industrial investment projects in Egypt. This landmark decree represents a significant step in Egypt's efforts to revitalize its industrial sector, attract domestic and foreign investment, and enhance the country's competitiveness in global manufacturing markets.

Background and Objectives

Decree 77/2023 was issued pursuant to the authority granted under Investment Law No. 72 of 2017 and aims to address key challenges facing industrial investors in Egypt, including high energy costs, complex regulatory procedures, and limited access to financing. The decree establishes a unified framework for industrial investment incentives, replacing fragmented incentive schemes previously administered by multiple government entities.

The primary objectives of Decree 77/2023 include:

1. Stimulating industrial investment across strategic sectors
2. Enhancing Egypt's position as a regional manufacturing hub
3. Creating sustainable employment opportunities
4. Promoting technology transfer and industrial modernization
5. Supporting Egypt's industrial development strategy and Vision 2030

Scope of Application

Decree 77/2023 applies to new industrial investment projects and expansion projects of existing industrial facilities that meet the following criteria:

• Minimum investment value of EGP 50 million (approximately USD 1.6 million) for projects located in Greater Cairo, Alexandria, and the North Coast
• Minimum investment value of EGP 30 million (approximately USD 1 million) for projects located in other governorates
• Minimum investment value of EGP 15 million (approximately USD 500,000) for projects located in Upper Egypt governorates and development corridors
• Projects must be registered with the Egyptian Industrial Development Authority (IDA)
• Projects must comply with environmental standards and obtain necessary environmental permits
• Projects must be implemented within three years from the date of approval

Key Incentives and Benefits

Decree 77/2023 introduces a multi-tiered incentive structure based on project location, sector strategic importance, and employment generation. The key incentives include:

1. Investment Cost Subsidy

Eligible projects may receive a direct subsidy ranging from 15% to 30% of total investment costs (excluding land acquisition costs), calculated as follows:

• 30% subsidy for projects in Upper Egypt governorates (Assiut, Beni Suef, Minya, Sohag, Qena, Luxor, Aswan, Red Sea) and development corridors
• 25% subsidy for projects in governorates outside Greater Cairo and Alexandria
• 20% subsidy for projects in Greater Cairo, Alexandria, and North Coast governorates

Additional bonuses may be granted:

• 5% bonus for projects creating more than 500 direct jobs
• 5% bonus for projects achieving export ratios exceeding 50% of production
• 5% bonus for projects utilizing advanced technologies or achieving international quality certifications

The maximum total subsidy cannot exceed 40% of investment costs, with a cap of EGP 100 million per project (except for strategic sectors where higher caps may apply).

2. Energy Cost Support

To address one of the most significant challenges for industrial investors, Decree 77/2023 provides energy cost subsidies:

• Natural gas price subsidy of up to EGP 2.5 per million BTU for energy-intensive industries (cement, ceramics, glass, chemicals, fertilizers)
• Electricity price subsidy of up to EGP 0.30 per kWh for manufacturing facilities
• Subsidies granted for a period of seven years from the commencement of production
• Subsidy amounts gradually decrease by 20% annually starting from year four

3. Land Allocation Benefits

Industrial projects may benefit from preferential land allocation terms:

• Land prices discounted by up to 50% compared to market value
• Payment terms extended up to 10 years with 25% down payment
• Waiver of annual land rental fees for the first five years of operation
• Priority allocation in industrial zones with integrated infrastructure

4. Tax and Customs Incentives

Projects benefit from enhanced tax and customs treatment:

• Corporate income tax reduction of 50% for 7 years from commencement of production (in addition to standard investment law incentives)
• Exemption from customs duties on imported machinery, equipment, and raw materials not locally available
• Exemption from sales tax on capital goods and production inputs
• Accelerated depreciation rates of up to 50% for machinery and equipment in strategic sectors

5. Financing Support

Decree 77/2023 establishes a dedicated financing framework:

• Access to low-interest loans through the Industrial Development Bank of Egypt at rates 3-5% below market rates
• Government guarantee covering up to 80% of loan value for SMEs and 60% for large enterprises
• Partial interest subsidy covering up to 50% of interest costs for the first five years
• Support for export credit insurance premiums

6. Streamlined Licensing and Approvals

To reduce bureaucratic hurdles, the decree mandates:

• Single-window approval process through the IDA within 30 working days
• Automatic approval for projects meeting predetermined criteria
• Waiver of certain permits and licenses for low-impact industries
• Digital submission and tracking of all applications

Strategic Sectors

Decree 77/2023 identifies priority sectors eligible for enhanced incentives (additional 5-10% investment cost subsidy):

• Pharmaceuticals and medical devices manufacturing
• Automotive and automotive components
• Electronics and electrical appliances
• Renewable energy equipment and components
• Food processing and packaging
• Textiles and ready-made garments
• Advanced chemicals and petrochemicals downstream industries
• Building materials and construction inputs
• Plastics and packaging materials
• Engineering and metal industries

Implementation Framework

The decree establishes a clear implementation mechanism:

1. Eligibility Assessment: Investors submit applications to the IDA with project feasibility studies, financial projections, and technical specifications.
2. Committee Review: A specialized committee comprising representatives from the Ministry of Trade and Industry, Ministry of Finance, Ministry of Investment, and IDA reviews applications within 30 days.
3. Incentive Agreement: Approved projects enter into a binding incentive agreement with the IDA specifying entitlements, conditions, and monitoring mechanisms.
4. Disbursement Mechanism: Subsidies disbursed in tranches linked to project milestones (25% upon land acquisition/completion of foundation works, 35% upon completion of construction, 40% upon commencement of production).
5. Compliance Monitoring: IDA conducts periodic audits to ensure compliance with employment, export, and operational commitments. Non-compliance may result in partial or full clawback of incentives.

Clawback Provisions

To protect public resources, Decree 77/2023 includes strict clawback provisions:

• Projects failing to commence production within the three-year implementation period forfeit all incentives
• Projects reducing workforce below committed levels within five years of operation must repay proportional subsidy amounts
• Projects relocating outside Egypt within ten years of receiving incentives must repay 100% of subsidies received plus interest
• Projects failing to maintain minimum export ratios (if committed) face partial clawback proportional to shortfall

Comparison with Previous Incentive Schemes

Decree 77/2023 represents a significant improvement over previous incentive frameworks:

Challenges and Considerations

While Decree 77/2023 represents a significant advancement, several challenges remain:

1. Fiscal Sustainability: The substantial subsidy commitments require careful fiscal planning to ensure long-term sustainability without compromising other public priorities.
2. Implementation Capacity: The IDA and related entities must enhance their capacity to process applications efficiently and monitor compliance effectively.
3. Coordination Requirements: Successful implementation requires seamless coordination among multiple ministries and agencies, which has historically been challenging in Egypt's bureaucratic environment.
4. Private Sector Awareness: Many potential investors remain unaware of the decree's provisions, necessitating proactive outreach and awareness campaigns.
5. Infrastructure Constraints: Incentives alone cannot overcome infrastructure limitations in some targeted regions, requiring parallel investments in utilities, transportation, and logistics.

Conclusion

Decree No. 77 of 2023 represents a bold and comprehensive effort to revitalize Egypt's industrial sector through targeted, transparent, and performance-based incentives. By addressing key investor concerns—particularly energy costs, bureaucratic hurdles, and access to financing—the decree has the potential to significantly boost industrial investment and position Egypt as a competitive manufacturing destination.

The success of Decree 77/2023 will ultimately depend on consistent implementation, transparent administration, and sustained government commitment to industrial development. If effectively executed, the decree could catalyze a new era of industrial growth, job creation, and export expansion, contributing substantially to Egypt's economic transformation and development objectives.

Investors considering industrial projects in Egypt should carefully assess their eligibility under Decree 77/2023 and engage early with the IDA to maximize available incentives while ensuring full compliance with all requirements and conditions.

Malack El Masry
Partner
(+971) 503977689
[email protected]

Charlotte Jackson
Senior Associate
(+971) 50 9910 387
[email protected]

Source: IN'P Ibrahim & Partners (inp.legal)