After years in the doldrums, Egypt's exports are finally growing in categories as diverse as textiles, processed food and white goods. World Trading Company Chairman Mohamed Kassem, who was once in charge of Egypt's commercial representation offices abroad, attributes this to Cabinet policies that have liberalized trade and the rising cost of labor in traditional manufacturing countries, which he says has caused 'south-south' trade migration. He spoke with bt about this and more last month. Excerpts:
Egyptian economic diplomacy has been very successful in the past few years in getting market access for Egyptian products, duty-free, to the major markets around us. The Euro-Med agreement [granting a decade-long schedule towards free trade with the European Union] went into effect about three years ago, we can export items with a minimum of Israeli content duty-free to the US through the QIZ agreement, and then there's the Greater Arab Free Trade Area, or GAFTA.
If you look around, the region and the world are open to Egyptian products. New investment has driven industries such as textile and apparel. Other industries can also take advantage of the new environment, including engineering, food processing, leather; you name it. The whole world is open if you have the quality standards.
Egyptian exports jumped almost 25% in 2005. We are not happy with that level of growth because it started with a low base, but companies cannot grow their exports without investment and expansion.
We're seeing a lot of interest from neighboring countries, including Turkey, and then from Far East countries, like India, Taiwan and even China. They see Egypt as a springboard. They move production here and then move those products on a duty-free basis. As far as investment from Western countries, I have not seen it yet in textiles because the industry left their countries years ago.
New facilities are coming to fruition. It takes time for an establishment to start and then go into exporting.
Currently, most of our products are going to the EU, about 60%. The second largest [destination] is the United States. If you are talking about perishable goods, the proximity is important. Fresh flowers or produce you might want to consider the EU. Talking about textiles, you [can] go after both.
The US made a mistake by putting an FTA with Egypt on the back burner. The US is going to lose because their products are at a disadvantage against the EU. You will find a lot of Egyptians preferring to import equipment from the EU.
The high tariff rates were creating a safe environment inland that didn't allow competition. Now, with reduced tariffs, they are subject to competition. They have been pushed to do better to compete in the world market.
Prices are going up from major suppliers like Turkey, Tunisia and Morocco. Obviously, duty-free access created demand on the American side as well. We've never seen that ever before. But the cost is not low if it is not efficient. The efficiency level is between 60 and 70% at best, and there are programs to address these issues. We have to work on improving the supply chain. Our upstream spinning and weaving factories are not efficient and the majority are controlled by the government, which didn't invest in this arena.
There is bureaucratic red tape, but we have seen improvements. The General Authority for Investment [and Free Zones] has made the one-stop shop possible, to allow prompt corporate registration. The Cabinet members are absolutely reformers and free market advocates.
Unfortunately, this new Cabinet has faced natural and other disasters, including avian flu and the ferry sinking. In that sense, the Cabinet has faced one crisis after another and it is affecting the performance of ministers like agriculture, health and transportation. We are expecting Minister [of Transport Mohamed] Mansour to do a lot in the area of transportation by upgrading highways, ports and railways, but the ferry disaster is definitely an obstacle. We expected an overhaul of health insurance, but the avian flu has taken a lot of time and resources from the ministry, which would have otherwise been allocated in other places.
What's holding us back is investment. You cannot export without creating new capacity and expanding current ones. We need to see some reform in industrial land allocation. Tenth of Ramadan and Sixth of October are already saturated. That's why Nazif created the new industrial development organization, which will ease the land situation. People were waiting to see more reforms, many of which just took place.
© Business Today Egypt 2006
