Understanding Barriers to Realizing Full Potential of Egyptian Exports

CAIRO - 26 January 2023: Being an export-oriented economy is essential to make the quality of local products on a par with international standards, bring in foreign currency, and create jobs highly needed in an overpopulated country like Egypt. Boosting exports is bound to multiple factors that involve the nature of components, manufacturing process, pricing, and import markets. In the following, Business Today Egypt delves deep into opportunities and hindrances.

Size of Egyptian Exports

Egypt aims for attaining $100-billion exports, so as a first step, it eyes $60 billion by 2025. The value of exports recorded $45.2 billion in 2021, and is projected for $50 billion in 2022. The top importer of Egyptian goods in 2021 was the European Union (EU), as the country's exports to the bloc almost doubled to become $14.5 billion by 2021 up from $7.7 billion in 2017. The other major groups are the G7 ($9.9 billion), ESCWA ($8.9 billion), African Union (AU) member states ($5.5 billion), and BRICS ($4.6 billion).

On the bright side, non-petroleum exports represented 71.5 percent ($32.34 billion), while petroleum ones were just 28.5 percent ($12.9 billion), as stated by Prime Minister Mostafa Madbouli in February. The top non-petroleum exports are chemicals, construction material, food, engineering products, agricultural crops, and ready-made garments.

Markets

Head of the Industrial Development Department at the Egyptian Industries Federation Basel Shoirah tells Business Today Egypt that Egyptian producers should target all markets, and not just specific ones, as they all have good potential. And, because Egypt enjoys a distinguished location, and free trade agreements with many countries and blocs.

Shoirah asserted that to achieve such end, producers have to enhance the quality and price. Yet, the businessman explained that the issue with offering competitive prices is the high costs of energy, and inputs, which are often imported.

Head of the Egyptian Forum for Economic Studies Rashad Abdo agreed on the same point of striking a balance between price and quality. He tells Business Today Egypt that to enter new markets and increase Egypt's sales to existing ones, the products have to be characterized by good quality, and offered in reasonable prices. "Price and quality are the main determinants of importers' decision to buy from us," Abdo said.

Products

Head of the Industrial Development Department at the Egyptian Industries Federation Basel Shoirah says that Egyptian producers are doing well in various sectors, and can export. Nevertheless, he points out that the size of Egypt's exports of products involving technology is still little.

As for importers' comments on Egyptian goods, Shoirah says that the negative ones are on the quality of certain processed merchandise, while the positive ones are on speed given the location. "For instance, the flow of agricultural products to Europe is good, as they arrive very fresh," the businessman clarifies.

On that front, Head of the Egyptian Forum for Economic Studies Rashad Abdo suggests attracting investors who can produce goods of high value, and who can bring in advanced technology. "We also should leverage our location by luring investments into SCzone, and particularly, sectors known for high demand worldwide. That would give us an advantage," especially in times of crises that disrupt global supply chains, Abdo adds.

Obstructions

The head of the Egyptian Forum for Economic Studies explains that the factors that reduce exports are bureaucracy, transport costs, ban on exports of certain goods, and high costs of inputs. With regard to transport costs, it can be mitigated by selecting locations that are near ports when building plants. As for inputs, expanding reliance on local components should reduce costs; however, those components have to be in decent quality, as that should be the main factor when making the choice, Abdo stresses.

Answering whether Egyptian producers are export-oriented or not, the economics professor says it depends on profitability, as investors would go with whichever achieves more profits.

Head of the Industrial Development Department at the Egyptian Industries Federation Basel Shoirah explains that Egyptian producers are interested in export, but the Egyptian market is huge and plants are not large enough to supply locally and abroad. That is why they have to set export as a target that they must focus on and work towards, the businessman suggests.

"We should target multi-nationals that can use Egypt as a regional center to build plants that would supply to other countries as well…I myself talked to investors, and the most thing they like about Egypt is the huge market," Shoirah says.

What To Do

Member of the Home Appliance Department at the Engineering Industries Chamber Bahgat Al Dahesh tells Business Today Egypt that increasing exports is a goal that both the government and producers must work towards. Speaking of the role of the government, Al Dahesh says there are three areas where the government is doing well, while there are three others where efforts need to be maximized.

Starting with areas that are working well already, the first is the free trade deals Egypt has, as the absence of tariffs can counterbalance the higher price, if the quality is good enough. The second is that the government covers 70-80 percent of the costs of fairs held abroad to promote Egyptian goods. "It would be great to increase such fairs," Al Dahesh suggests. The third is export subsidies whose value ranges between 15 and 18 percent depending on the percentage of local component. "For instance, if the local component is at least 70 percent, the exporter is paid the maximum percentage, which is 18 percent of the value of the deal," Al Dahesh explains.

As for the aspects that could be done better, one is improving the role of commercial attaches, as they have to carry out market research of needs and demands that Egyptian exporters can fulfill. "I receive calls from foreign embassies offering intermediate products, and arranging business-to-business meetings," Al Dahesh says, pointing out that local companies, regardless of size, cannot do high-cost market research abroad.

Another area is encouraging feeding industries. Al Dahesh clarifies that the lack of those industries in Egypt ensues from the fact that tariffs on raw materials are higher than those on finished intermediate products. The range of the former is 5-10 percent, while that of the latter is 0-2 percent. That makes local components more expensive. Hence, the raw materials have to be exempted from tariff, Al Dahesh stresses.

Finally, there has to be a database of Egyptian producers and what they produce, so as potential importers can search by product. Al Dahesh underlines that digitalization must also be on the side of Egyptian manufacturers who have to better promote themselves online.

R&D

Al Dahesh says that manufacturers have to work on three aspects to be able to export, and that those would not materialize without R&D. One is that they have to make products that suit the requests of importers. "Most manufacturers assemble so they are not able to adjust the products, and tailor them to the preference of importers," the expert explains.

Another aspect is that the exporter has to meet quality standards in terms of good finishing, reliability, and certification pertaining to safety, energy efficiency, and environment-friendliness.

And, last, R&D can help increase the local component, cut the cost of materials needed to produce the components, maintain the quality, and reduce the price of the final product by altering the design and cancelling unnecessary features that are not prioritized in the target market.