Open for business

Egypt’s investment tsar Ziad Bahaa El Din tells Richard Agnew about the country’s life or death struggle to attract business from abroad.

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By  Richard Agnew Published  March 26, 2006

|~|42-Cairo-200.jpg|~|BEAUTIFUL: The sun sets over floating restaurants on the Nile river in Cairo. Cairo is the largest city in Africa and the fifth largest in the world.|~|Egypt’s investment tsar Ziad Bahaa El Din tells Richard Agnew about the country’s life or death struggle to attract business from abroad. Selling, if you’ve ever been to the Pyramids, clearly runs deep in the Egyptian blood. But promoting the country’s economy to outside investors would still be a big ask, even for the most determined of street vendors. The Arab World’s most populous nation represents a huge market, but mounds of red tape, high tax and constantly changing government policies have long hindered businesses. With unemployment rates rising and the country’s fiscal deficit running at about 7% of GDP, the price of failure would also be too high to consider. So what possessed Ziad Bahaa El Din to accept his role as boss of Egypt’s General Authority for Free Zones and Investment (GAFI) — where this is his main task? “I’m still daunted by the job,” El Din jokes. “It’s a massive challenge. But when I was offered it I was a corporate lawyer, and I was dealing with GAFI a lot. I knew what was wrong with it, and was very excited at the prospect of changing an institution that has so much impact on Egypt’s economic policy. I actually find it very rewarding. Really.” Egyptian president Hosni Mubarak has described investment and export creation as “life or death” issues for the Egyptian economy — but at the same time, the government hasn’t exactly made it easy for businesses to set up there over the years. Analysts have long bemoaned the country’s top-heavy administration, and the effect this has on firms. In a survey within the 2005 Arab World Competitiveness Report, for example, 27% of Egyptian companies said the most problematic factor around doing business was regulation, while 10% blamed its inefficient bureaucracy. Before El Din joined GAFI, it was reckoned that the average time it took to merely establish a company was a month and a half. “It was difficult,” he says. “That’s something I’m very conscious of. It wasn’t clear whom you could talk to, and it’s very difficult to deal with an institution when you don’t know what is required of you. It was also often impossible for organisations to have access to institutions like GAFI without speaking to the top guy. What we’ve done is to give GAFI many faces to the outside world, so people can talk to us easily.” Coupled with economic reforms being pushed through at a national level by the business-friendly cabinet of prime minister Ahmed Nazif, things are changing at GAFI, however. In March 2004, amendments were made to the country’s investment law to help ease the entry process for international companies. A firm looking to create a presence in Egypt must still obtain several clearances to do so, but GAFI was set up to provide an interface to as many as 36 of the country’s various ministries and authorities. In early 2005, the organisation opened its first ‘Investor Service Centre’ in Cairo’s Nasr City — a ‘one-stop-shop’ for firms to go through the registration process with different departments. According to El Din, it now takes “three to four days max” for Egyptian companies to gain clearance, while foreign investors can do so in ten days. He adds that offering the opportunity for firms to cut down their dealings with other government ministries hasn’t created political problems. “We’re not quite sidestepping other ministries, we’re cooperating with them,” he says. “It’s working very smoothly. There isn’t a sense of a turf war — on the contrary, some of the ministries are asking us to give them advice and asking us to participate with them more. GAFI is one of the most valuable assets we have in Egypt today.” El Din has not just succeeded in bonding with other government departments. Much of GAFI’s focus, for example, is on promoting and administering Egypt’s various free zones — a mix of public zones set up by the government, and private ones, which can be created exclusively for a specific project or company. Over 200 private free zones have now been established, allowing companies to exploit lower tax rates, as well as fewer restrictions on employment, imports and the repatriation of profits. “The public free zones that have been established are in Alexandria, Suez, Port Said and Greater Cairo,” explains El Din. “All are quite successful, because of their proximity to Cairo or Alexandria, or having a port or airport nearby. The Cairo free zone is now entirely full,” he adds. Another success has been the country’s qualified industrial zone (QIZ) initiative — a scheme that gives Egyptian companies duty free access to the US if their products contain at least 12% Israeli content. Concerns had been raised that the plan would cause political problems in Egypt, but instead, workers at companies upset at being left out of the programme organised protests to be included in late 2004. According to government figures, the programme helped boost Egyptian exports to the US by over 50% in the year to July 2005, and El Din says it hasn’t caused political issues. “Anyone that benefits from that trade agreement is happy to join in, because it offers an especially good opportunity to enter the US,” he says. All this, alongside national reforms, has helped contribute to an upturn in Egypt’s economy — which two or three years ago, was floundering after the flotation and subsequent drop in the value of the Egyptian pound. The government has implemented several new laws since the 1970s to promote investment, but these have been accelerated since the appointment of a more pro-business cabinet under prime minister Nazif in mid-2004. Increasing confidence in the private sector helped foreign direct investment (FDI) to reach US$3.5 billion in fiscal year 2004/05, up from just over US$400 million the previous year, according to figures from the Ministry of Foreign Trade and Industry. The positive moves by the cabinet have also encouraged foreign investors, including the UAE’s Al Futtaim group and Emaar, to plan huge construction projects just outside Cairo, and the stock market has benefited as Egyptian investors’ money has flowed back into the economy. Shares in the Cairo and Alexandria Stock Exchange (CASE) jumped by almost 140% in 2005, making it the fastest growing market worldwide, and have increased six-fold in eight years. “The primary reasons the markets have been performing well over the last few years are increasing oil prices and increasing liquidity,” says Hussein El-Sherbiny, chairman and managing director of Cairo’s HC Brokerage. “A lot of money has swung back from the West, like in a lot of regional markets. In Egypt, the market has been doing really well in recent years, starting 2003. The driver at that time was very cheap valuations, increasing confidence, and growth prospects — boosted in 2004 with the new cabinet, prime minister and his economic team. “We’ve seen turnover increasing from a low of LE15 to LE20 million [US$2.6 to US$3.5 million at current rates] per day in early 2000/2001. Late last year, we broke the LE1 billion [US$170 million] level. This is a major improvement. A few days ago, we had a bad day. We had LE360 million [US$63 million]. A few years ago, that was a dream.” Mohamed Mansour, who is estimated to be Egypt’s second richest man, as well as the head of a family group which owns the McDonalds franchise in the country and the recently appointed minister of transport, is one figure considering whether to take advantage of the increased confidence. He says his company is considering an IPO on CASE, as well as an increase in its investment in the country after moving money to other nations, including Iraq. “Between 2003 and 2004, we did not invest a cent in Egypt,” he says. “But from 2004 till today, we have been investing in whatever opportunities arise. I’m extremely optimistic about the opportunities in this country. During the slowdown, we did not invest in Egypt. We had to become more efficient, so our management focus was on how to start cutting costs. We didn’t think this was the right time to grow.” “But there’s been a movement of confidence because of the people in charge. There’s confidence in their abilities — they’ve been tested and proven, and in turn the business community has backed them up. We feel that things look brighter. The first step was confidence, then came reforms. After the cabinet was formed, they went into tax reforms, customs reforms and banking reforms. They are focusing on the right issues.” He adds that tourism is still an untapped opportunity for local and foreign investors, and one he’ll be targeting this year: “There are a lot of opportunities in tourism in this country. We are at the tip of the iceberg. When you have an island in Greece getting the same amount of tourists [eight million] as Egypt gets, you can see the opportunity we have here. We just need to get our house in order.” Politically, these advances are seen as vital for the government — which is seeking an increase in FDI to drive job creation and tackle poverty. As a recent report by the Economist Intelligence Unit (EIU) explains: “The sharp deterioration in living standards in the early part of the decade... was an important factor in generating opposition to the government, and will have contributed to the success of the Muslim Brotherhood in the recent parliamentary election. “Some younger, more dynamic figures within the ruling establishment are likely to argue that an effective way to counter the Islamists would be to accelerate the programme of economic reform.” So plenty of challenges remain for Nazif and his team — not least in the area of unemployment, which remains at around 10%. To produce the 600,000 jobs it needs every year, the government has targeted 5% GDP growth per annum, but managed to generate only 4.1% in fiscal 2005,, according to the EIU. It estimates that this will rise to 4.8% in the twelve months to July 2006, although El Din is still confident that the 5% benchmark will be reached earlier. “We’re targeting [5% in] 2007, but we’re hoping to exceed that in 2006,” he says. Changes at GAFI are also set to accelerate over the coming months. One move, El Din says, will be a streamlining of the company licensing process, bringing its timeframe closer to that in which businesses can gain clearance from ministries. Another will see El Din hitting the road in a bid to drum up interest from investors in new countries. “We’ve made a breakthrough with the mental state of investors in Egypt and elsewhere in the Middle East,” he says. “We’ve concentrated so far on areas that are close to Egypt, such as the Gulf and Europe. But now we want to target China and India as well. We’ll also be much more active in the North America market, and we’ll be travelling there this year. We’re very confident about what we can achieve.”||**||

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