May 2008

Positioned between Africa and Asia and regarded as a moderate in the region, Egypt has secured preferential trade agreements with the United States and Europe, as well as fellow African and Arab states. This, in combination with Egypt’s increasingly outward-looking policies, is changing the country’s domestic economy and role in international markets.

Egypt has been key in land and water trade routes for millennia and is again looking to use its strategic position — close to the markets of Europe and the Middle East — as well as comparatively low labor and operation costs, to attract industry and investment.

But Egypt is also an important market. With a population of nearly 80 million — several million of which have significant buying power — Egypt is also a place to flog consumables and even high-end goods such as electronics and automobiles, offering a very attractive incentive for trade partners.

In FY2006-07, Egypt’s global trade reached almost $60 billion (LE 330 billion), according to the Ministry of Trade and Industry (MTI). Top exports included building materials, chemicals, oil and gas, engineering and agricultural products, processed food, ready-made garments, home furnishings and textiles.

Europe and Egypt

Although Egypt does more trade with the US than any other single state, as a block the European Union (EU) has become Egypt’s primary trade partner, with $27 billion (LE 148.5 billion) in trade in 2007 based on preliminary data from Eurostat. This figure is up from an average of $16 billion (LE 88 billion) per year before the EU-Egypt Association Agreement (EEAA) came in to force in 2004. Prior to 2004, Egypt had bilateral agreements with some European states.

The agreement aims to move toward a free trade area between the EU and Egypt, with reciprocal tariff liberalization of agricultural and industrial goods. Although the tariff reduction has been to Egypt’s benefit, the balance of trade remains in the EU’s favor. The EU is a top trade partner for Egypt, while Egypt ranks thirty-fifth as a trade partner for the EU, according to the European Commission’s Delegation to Egypt.

In January of last year, Egypt signed an agreement with the European Free Trade Association (EFTA), which includes non-EU members Norway, Switzerland, Iceland and Liechtenstein. The agreement covers industrial exports and will only come in to effect once it has been approved by the EFTA states’ parliaments and the Egyptian People’s Assembly.

Play Nice: Trading to Promote Peace

In 1996, the Clinton administration initiated the Qualifying Industrial Zone (QIZ) protocol. Aiming to encourage lasting peace through economic integration, the QIZ allows duty-free, quota-free entry to US markets for goods produced by Israeli-Arab cooperation. Egypt signed onto the QIZ in December 2004.

To qualify, goods must be at least 35% produced in the QIZ and almost one-third of that (10.5% of the final product) must be Israeli input. Many of the almost 700 companies that now export under the QIZ are in textiles and garments, with major multinationals such as GAP, Walmart, Levi Strauss, Target and Calvin Klein, among the top buyers of Egyptian-made QIZ goods.

The US is Egypt’s number one trade partner with $7.7 billion (LE 42.35 billion) in trade in 2007, according to the US Census Bureau. The QIZ agreement is non-reciprocal and, according to the Egyptian government’s QIZ website, the QIZ brings in $1 billion (LE 5.5 billion) in revenues to Egypt annually. (See page 92 for more information on the QIZ protocol.)

African Common Market

Established in 1994 as the successor to a preferential trade area that had existed since 1981, the Common Market for Eastern and Southern Africa (COMESA) now has 19 member states, covering almost 13 million square kilometers and including over 400 million people. Egypt has been a member of the COMESA since 1998.

Egypt exported $467 million (LE 2.57 billion) of goods to COMESA countries in 2007, with most of that figure attributed to Sudan, Libya and Kenya in the form of pharmaceuticals, plastic pipes, aluminum products, textiles and ceramic tiles. Primary imports to Egypt under COMESA consist mostly of raw materials and agricultural products.

Last year a free trade area was established for 13 of the COMESA states, with Egypt, Kenya, Malawi, Mauritius, Sudan, Zambia, Zimbabwe, Djibouti and Madagascar exchanging complete customs exemptions. The other six states reduced tariffs by 60–90% for goods meeting COMESA rules of origin.

Pan-Arab Trade

Most Arab League members, including Egypt, have signed on to the Greater Arab Free Trade Agreement (GAFTA). With a total of 17 signatories, 2005 trade between GAFTA countries reached $6.33 billion (LE 34.8 billion), according to the MTI. Jordan, Bahrain, the United Arab Emirates, Tunisia, Saudi Arabia, Syria, Iraq, Oman, Qatar, Kuwait, Lebanon, Libya, Egypt, Morocco, Sudan, Yemen and Palestine are currently included in the agreement and talks have started on the possibility of Mauritania, Djibouti, Comoros and Somalia joining the bloc.

Trade between GAFTA countries and Egypt has risen since the agreement came into effect January of 1998. According to preliminary government figures, in 2007 Egypt exported $2.4 billion (LE 13.2 billion) to GAFTA countries while importing $4.4 billion (LE 24.2 billion), leaving a hefty balance in favor of our GAFTA partners. This been a significant change from 2003 when the trade balance was in Egypt’s favor.

Egypt ’s top Arab trade partner is Saudi Arabia. Based on the government figures, Egypt exported $384 million (LE 2.1 billion) to the country in 2007, up from 2006’s figure of $318 million (LE 1.75 billion). The main exports to Saudi Arabia were insulated wire, iron products and citrus fruit.

In February of 2004, Egypt, Morocco, Jordan and Tunisia signed the Agadir Agreement, with the goal of creating a free trade area between the states and strengthening economic ties. The agreement came into effect 2006-07. Egypt already trades about $407 million (LE 2.24 billion) annually with the member states according to the MTI. Most of that figure comes from trade with Jordan. Crude oil, petroleum products, cotton, textiles and chemicals are Egypt’s top exports to Agadir member states.

The agreement also allows for accumulation of origin among the states to meet quotas for the EEAA. This means that Egypt can use input from any of the Agadir partners to meet origin quotas for exporting products to the EU under the EEAA or to other Agadir states. Unlike other trade agreements, this agreement does allow for protection of industries that meet certain requirements.

Source: Business Today