Egyptians and the Qualified Industrial Zones

By Abby Shamray

A decade has passed since the Qualified Industrial Zones (QIZ) agreement was established between the United States and Egypt and many of the parties involved in the agreement are taking stock of the progress that has been made. The majority of the conversation has focused on how the deal has been a huge benefit to companies and factories that work in the QIZs, rather than how it affects Egyptian workers themselves. Since the QIZs have made such a drastic change to the economy, the changes to the workforce were also significant.

In December 2004, the U.S. designated certain geographical areas in Egypt to be able to export goods duty free as long as 10.5 percent of the content from those goods was sourced from Israel. Following the successful model of the establishment of a QIZ program in Jordan almost a decade before, the intention of the agreement was to both bolster Egypt’s economy and foster a relationship between Egypt and Israel.

The QIZ program would eventually prove successful in Egypt — between 2005 and 2011, Egyptian exports increased from $250 million to $1 billion. Goods from the QIZ make up a third of all of Egypt’s exports. Recent trade shows featuring both Egyptian producers and Israeli suppliers intended to entice U.S. companies to expand production in the QIZs indicate that, despite the underlying tensions, both countries are able to put aside their messy history in the name of trade.

The QIZ agreement has no doubt been a major solution to Egypt’s longstanding employment problem. The current QIZ regions support 130,000 to 150,000 jobs in the textile and apparel sectors, which make up almost 25 percent of Egypt’s non-oil exports. A diplomat who spoke to Foreign Policy magazine anonymously said that the Egyptian government wants to expand QIZs further to help unemployment: “This is one of the issues that will help jobs. […] QIZs are their [the Egyptian government’s] bread and butter.”

While the potential for the QIZ companies’ growth seems promising, in fact a lack of qualified skilled labor is currently holding them back. Egyptian’s economy has a surplus of labor with official unemployment at 9 percent. The problem that has been encountered is that the workers that are looking for jobs do not have the proper training to do the work that is available.

Egyptian law states that factories cannot have over 10 percent foreign workers, many of whom enter the country with the right work experience. Many factories employ foreign workers for upper level managerial and technical positions due to their experience. Therefore, in order to reap the full potential of the QIZ, establishing vocational training schools is necessary, as well as enhancing Egyptian university programs to turn out leaders in the textile industry.

A report by USAID on the effect of the QIZ on Egypt found that the lack of workers and abundance of jobs in the sector has changed communication between employers and employees. When asked about work stoppages and labor disputes, employers stated that, in general, unhappy employees would simply leave a company and find employment elsewhere, resulting an estimated workforce turnover of 6-25 percent. The lack of workers but abundance of jobs seems to have driven the wage upward, as it has in the region where the QIZs are — where wages are double what they are in other parts of Egypt.

Additionally, the technology and conditions in the factory are outdated. As a result, the productivity of public sector firms varies wildly. Interviews by USAID produced estimated productivity of the Egyptian factories being only 35-45 percent as efficient as the Turkish or Bangladeshi workforce, while other firms estimated themselves to be 70 percent as efficient. The lack of efficiency of the workforce presents a problem as Egypt tries to hit its goal of 10 billion exports.

Dr. Hany Elshamy, associate professor of economics at the British University in Egypt, told World Policy Journal, “The QIZ has been beneficial to the labor force in Egypt especially after the revolution as we faced in Egypt lots of problems because of the instability of the country.” Additionally, he said that there are some changes that can be made to increase productivity and trade and decrease unemployment.

“First, spend a lot of money from the American partner on research and development. Second, decrease the 10.4 percent of the components from Israel requirement to be lower, not more than 8 percent. Third, offer programs to train the Egyptian labor force,” Elshamy advises. Those three changes to the QIZ, combined with Foreign Direct Investment and help from the EU and NAFTA, would go a long way in helping the Egyptian economy long term.

In the short term, the QIZ has helped with employment, but if the Egyptian economy and workforce are to get the most out of the agreement then changes need to be made. Since the QIZ is only as strong as its workforce, the Egyptian government needs to invest in vocational schools so that more Egyptians are being hired for the managerial and technical jobs, as well as so employee turnover is lowered. Ten successful years have passed and the Egyptian government is enthusiastic at the prospect of continuing the arrangement for another decade. While the QIZ is still proving itself to be a beneficial endeavor, and for Egypt especially, substantive policy changes need to be made swiftly, and not merely to expand the QIZ.



Abby Shamray is an editorial assistant at World Policy Journal.

[Photo courtesy of Wikimedia Commons]

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