The idea of an initiative to promote supply chain opportunities in Egypt has been credited to Jeffrey Immelt, chairman and CEO of General Electric Co., who with US Senator John McCain led a high-powered delegation to Egypt and Tunisia last June. "GE has been partnering with customers in the Middle East and North Africa for more than 80 years," Immelt said at the time. "Recent events here present a critical opportunity to re-energize economic growth and development."
That vision took a step toward becoming a reality last month, as US corporations and potential Egyptian suppliers came together at a Cairo hotel.
Supply chain partners in demand at conference
Instability. Uncertainty. Risk. Such words seem to come up whenever corporations discuss the possibility of investing in post-revolution Egypt. In times of transition and economic duress, it is indeed tempting to stay on the sidelines. But more than 650 people turned out on February 20 to hear from a stellar lineup of executives and public officials about why it might be time to get in the game.
"Last year the Egyptian people inspired their neighbors and they inspired the world," US Senator John McCain said during his keynote address. "This is a decisive moment in the Middle East, and the key, everyone knows, is Egypt. Egypt is the heart of the Arab world."
McCain said that the private sector will play a leading role in the transition to a Democratic society, which "depends on the revitalization and growth of Egypt's economy. You are at the forefront of this transformation."
The former Republican presidential candidate did not refer directly to the detention and charges against Americans who worked with democracy-building NGOs, saying only that the US and Egypt "must remain the best of friends, politically, militarily and economically."
McCain said the people of Egypt have "a chance - not a certainty - a chance" to live their lives in freedom, respect, justice and prosperity. "The future is in your hands."
While acknowledging that the Egyptian economy is in bad shape, US Ambassador Anne Patterson said, "A great deal lies ahead. Investment in democracy will pay off for decades to come." Like McCain, the ambassador emphasized the importance of the US-Egypt relationship and pointed out that the United States is the second largest investor in Egypt. "Our governments are committed to a strategic economic partnership," she said.
The daylong conference at the Conrad Cairo hotel, titled "Supply Chain Opportunities: A Partnership for Egypt & the US" was organized to bring together major American corporations and Egyptian businesses interested in doing business with them. It was sponsored by the American Chamber of Commerce in Egypt and the US-Egypt Business Council, in collaboration with the Federation of Egyptian Industries, General Authority for Investment and Free Zones, and the Industrial Modernization Center. Private sector sponsors were General Electric, Apache Corporation, Dow, Bechtel, The Coca-Cola Company, PepsiCo, AEDCO and CIB.
In his welcoming remarks, AmCham President M. Gamal Moharam stressed the crucial role of the private sector to the future of Egypt. Nabil Habayeb, GE president and CEO for the Middle East, North Africa and Turkey, set the tone for the day when he asked: "What is it we can do?" One answer came from Sofiane Ben Tounes, GE president and CEO for Northeast Africa, saying his company's long involvement in Egypt has provided good jobs and enhanced the standard of living. "GE is proud of this," he said.
Lionel Johnson, vice president for Middle East and North Africa affairs at the US Chamber of Commerce, described Egypt as the "gravitational point for the Arab world," and urged the easing of restraints to trade. In particular, he implored the leaders of the US and Egypt to lay the foundation for the start of negotiations toward a free trade agreement. That view was echoed by Steve Farris, chairman of the US-Egypt Business Council and chairman and CEO of Apache Corp., the largest American investor in Egypt. "We need to remove trade barriers," Farris said. "A free trade agreement should be an increasing part of our economic dialogue."
At the first panel session concerning infrastructure and large scale projects, representatives of Bechtel, Dow and GE Energy offered snapshots of their companies and discussed areas where Egyptian businesses might be a part of their supply chains. Brian Shearman, procurement and contracts manager for Bechtel, said the company has been involved in airports, ports, bridges and rail systems; communications; mining and metals; and power generation and renewables. "We are interested in maximizing the use of local contractors and suppliers," he said.
GE's mission is to be global, according to Mark Digby, general manager for global project operations in the Middle East for GE Energy. "Globalization means to be local everywhere," Digby said. "Our customers demand that we're local." Suppliers are selected through an extensive screening and evaluation process that considers such factors as financial viability, transparency and quality. Quality is the primary factor when seeking local suppliers, he said. "Ultimately, the GE name goes on it," he said.
A second session dealt with supply chain opportunities in the consumer goods sector, and featured representatives from Kraft Foods, PepsiCo, The Coca-Cola Co. and Procter & Gamble. All were bullish on the potential of their companies in Egypt. "We believe the Egyptian market will bring huge opportunities," said Yasser Abdelmalek, Northeast Africa procurement director for PepsiCo, adding that the country's location would make it possible to efficiently supply other markets.
And all of the companies saw significant advantages to localization. Working with suppliers at the local level allows multinationals to maintain smaller inventories, and reduces the costs of tariffs and duties, freight and manufacturing said Nihad Makary, regional supply management leader for Procter & Gamble.
In the final session of the day, Egyptian officials discussed domestic programs that are supporting Egyptian industries. Neveen El Shafei, vice chairman of the General Authority for Investment and Free Zones (GAFI) quantified the troubling state of the national economy and identified some strengths. She noted that while tourism has been hit the hardest, the information and communications technology and oil and gas sectors have been strong, and Suez Canal revenues have consistently improved. Nonetheless, El Shafei said the economy is expected to contract by 1.4 percent in the current fiscal year, and rising unemployment and inflation, as well as the widening fiscal deficit are worrisome. Nevertheless, the outlook is positive due to Egypt's inherent economic strengths, particularly its vast labor force and advantageous location.
El Shafei emphasized the need to support small and medium enterprises - which account for up to 85 percent of the country's economic units and 75 percent of the workforce - by improving access to financing and business development services. She pointed to improvements in recent years, such as the establishment of one-stop shops and the amendment in January of Investment Law No. 8 to allow for amicable settlement of disputes.
Hesham Wagdy, executive director of the Industrial Modernization Center, discussed a 2006 initiative to develop a supply program, saying that today there are 400 Egyptian suppliers for 30 companies, 17 of them multinationals. Sectors where domestic suppliers are active include automotive, white goods, fast moving consumer goods, retail, food and textiles.
The importance of the industrial sector was accentuated by Ahmed Abdel Wahab, vice chairman of the Federation of Egyptian Industries. The sector accounts for 20 percent of Egypt's GDP, 30,000 registered businesses, 4.8 million employees and LE 120 billion in exports annually.
At the conclusion of the program, five companies - GE, Procter & Gamble, Dow, Coca-Cola and PepsiCo - held sessions to get better acquainted with prospective suppliers. GE representatives presented a PowerPoint program that detailed the company's supply needs, which included a wide array of made-to-specification parts. A representative from GE's transportation division distributed an eight-page list of sought-after parts and services.
At the Procter & Gamble session, representatives from the company's packaging, raw materials, technology and supply network committees met individually with potential vendors who hoped to interest them in transportation solutions, safety supplies, office furnishings and more. "Our intention today is just to get your business cards, get your details," company representatives explained.
The lack of signed-on-the-dotted-line deals did not seem to deter the enthusiasm of participants. Hala Darwish, a local representative from Huntsman Advanced Materials, took the opportunity to pitch to Procter & Gamble during the breakout sessions, hoping to interest them in her company's flooring systems for maintenance and work sites. "It was a great networking opportunity," she said.
Zazy Hafez from Dimensione, a Mohandiseen-based furniture and design company, seized the opportunity to network, meeting with both Procter & Gamble and PepsiCo in hopes of securing contracts in the future. She thought the conference as a whole was useful, saying, "We got exposed to different cultures of different companies, to see what their hopes are, how they see Egypt."
Nevine Rashed, a local entrepreneur, came to learn about opportunities for her new company, ProSeed, which produces stationery from recycled and sustainable materials. "I came to the conference first of all for networking, and to see how I would benefit as a growing company." Optimistic after hearing about multinational corporations' efforts to hire more locals and source projects locally, she looked to the one-on-one sessions at the end of the day as an opportunity to make contacts with potential clients. "It's encouraging," she said of the conference. "The Egyptian economy right now is at a freeze. But the wave will go up again. And you have to be there, you have to be well positioned."
Noha Bakr, an assistant to the minister in charge of economic cooperation with the US in the Ministry of International Cooperation, also was pleased with the event. "It's a very important conference at the right moment," she said. "It was good to hear positive words from Senator McCain."
While acknowledging concerns about the state and direction of Egyptian politics and the economy, El Shafei, of GAFI, pointed out one certainty: the importance of the private sector. In response to a question about the new government's likely impact on economic policy, El Shafei said she assumed the questioner was referring to the Freedom and Justice Party that dominates the People's Assembly. "From what I have seen, the program is in line with an open economy," she said. "They understand the importance of investment. Budget deficit figures would not allow for otherwise."
© Business Monthly 2012
