Bringing Back German Investments

CEO of the German-Arab Chamber of Industry and Commerce Andreas Hergenroether assesses recent reforms, trade volumes, investment plans and the economic outlook

Looking to restore macroeconomic stabil- ity and attract as much foreign direct investments (FDI) as possible to boost employment and sustainable economic
growth, the Egyptian government initiated an am- bitious economic reform program last year. The plan may have had negative impacts on the aver- age citizen’s purchasing power, but it has man- aged to increase Egyptian exports to Germany by 20% in the first seven months of 2017, Andreas Hergenroether, CEO of the German-Arab Cham- ber of Industry and Commerce (GACIC), tells Business Today.

Foreign investors are watching the situation in Egypt closely, and some have already returned to the market. Others are eyeing opportunities to pump their investments as the foreign currency shortage and repatriation issues are almost over, thanks to the Central Bank of Egypt’s (CBE) deci- sion to free-float the pound.

With over 1,000 German companies operating in Egypt, a trade exchange volume between the two countries reaching €5.56 billion in 2016 and German investments in Egypt reaching €619 mil- lion, the country has been a key economic partner.

Hergenroether discusses how the GACIC has an optimistic outlook on Egypt, and German inves- tors interest in Egypt.

How do you assess the performance of the Egyp- tian economy right now and the future outlook over the next three fiscal years?

We evaluate the situation and the reforms very positively. The foreign exchange reserves have almost doubled during the past 12 months. The challenges that foreign companies were facing regarding the transfer of their profits have almost been resolved. We have also seen prospects for GDP growth. The latest data by the World Bank and other international organizations are quite positive; We share this opinion. We see that the process of in dustrialization and mega projects is going well. We see significant growth in the petro- chemicals sector and huge potential for German companies as partners in the field of plant tech- nology machinery, mechanical engineering and chemical engineering.

Our exports to Egypt grew by about 34% in 2016, reaching around €4.5 billion, and we still have growth in the first six months of 2017 to a rate of approximately 16%. So, after the flotation of the Egyptian pound, many foreign companies were very concerned and thought it would defi- nitely have a negative impact on bilateral trade. However, for the German side, it was not the case. We have a total market share in Egypt of about 9%. Germany is the second-largest supplier to Egypt after China. In certain aspects, includ- ing plant technology, machinery, medical devices and some other industrial disciplines, Germany remains number one. This shows that for bigger projects financed by public companies or large private companies, the Egyptian industry is relying on sustainable solutions, long-term solutions, life- time cycle cost, and energy-efficiency.

Another positive step from the Egyptian govern- ment was to put in practice an energy law that obliges companies using more than 500 kilowatts to employ an energy-efficiency manager. We have spoken to many different ministries and institu- tions to know what can be offered from the Ger- man side to the partner regarding the develop- ment of sustainable technology. This is not only renewable, but we have an initiative here for many years and huge events to promote partnerships and cooperation in the field of photovoltaics. This also includes energy-efficiency methods.

The energy growth rate is also significant. We are talking about 7-8% per annum. Currently the situation is going very well. The power plants implemented by Siemens will provide electricity to 45 million people. In fact, we also have to think about the future and how the gas that has been discovered in the Zohr gas field would then be utilized, not only for energy purposes, but also for industrial development.

The master plan of the ministry of petroleum is attractive for foreign companies, especially for German companies that have been leaders when it comes to clean technology and sustainable solu- tions.

How has the trade volume improved between both countries since the flotation?

Since the flotation, Egyptian exports to Ger- many increased by 20% during the first seven

months of the current year as per German sta- tistics. This year, we expect the volume to stand at €1.8 billion, and I think the future will offer further potential as the flotation made Egyptian products more competitive. Besides, for many years we have conducted initiatives here to sup- port Egyptian companies regarding their products in the German market and international markets in general.

There is a big gap in the trade balance between trade volumes in the two countries; are there any efforts toward a more balanced bilateral trade?

The total trade volume in the first seven months of 2017 amounted to €3.611 billion, rep- resenting 13.5% growth. The volume last year was €5 billion. There is a positive trade balance of €3.3 billion in favor of Germany.

When it comes to the German economy, this is a very normal situation. As you know, the German economy is the global champion after China. We have an export volume of €1.21 trillion annually. This is really a large amount, and we have a very positive trade balance with many countries world- wide, with few exceptions.

What is the volume of German investments, and what are the prospects for attracting more inves- tors?

For the fiscal year 2015/16, it was about €203 million, according to the CBE. According to the General Authority for Investment and Free Zones (GAFI), there are 1,048 German companies of- ficially registered as investors; 25% of those are in industry in general. There are also 328 operating in the field of services and 200 in the field of tour-ism.
Not many German companies are in Egypt’s energy sector. We have companies like Siemens, for example, and then we have a couple of smaller companies in the field of renewable energy, but they have not yet started production. We hope in the future to have more German companies that would be interested in investing in the Egyptian market.

How do you assess the size of German invest- ments in Egypt?

I think Egypt in general is quite interesting for investors because it is a large market, and it is the largest market in the Middle East and North Africa (MENA) region. Egypt also belongs to the top 10 countries signing bilateral free trade agree- ment, and this also should be an incentive to invest more, in addition to the economic reforms that have been already initiated.

It was also a good move to put in place the new investment law, and we are awaiting its executive regulations to put it into action. There was also a tax reform, which was positive. On the administra- tive level, reforms have been realized, and a one- stop-shop has been created.

However, there is an obstacle that is prevalent not only in Egypt, but in other countries as well: bureaucracy. But even in Germany, we face this issue. The legal framework of Egypt has been de- veloped very positively, and if you see the Ease of Doing Business report of the World Bank, you will notice that there are 10 categories that analyze the steps to establish new businesses. Egypt was ranked 39th worldwide and the first in the MENA region,so the technical steps to set up new companies are relatively very easy and attractive.

I think what is really important is communica- tion abroad. There is a lot of competition from other countries, especially here in the region. Everybody is saying, “I am the hub, I am offering you the best conditions.” Therefore, it is vital to be very visible in Europe in general, and Germany in particular, to recreate this positive image and to transport it in a more sustainable way. This would assure foreign companies that there is a new legal framework and that they can rely on it.

What are your suggestions to promote a positive image to bring in more foreign investors? Should we depend on the chambers of commerce?

This is what we are already doing. When Ger- man Chancellor Angela Merkel was here in Cairo, we organized the official business forum for the visit. Moreover, when President Abdel Fattah al- Sisi was in Germany we also organized with the German Ministry of Economy the business forum that took place. We can do much more for the future.

We see here a change. Regarding the Ministry of Investment and International Cooperation, I think it is doing a really good job, and it should be set as an example because the Minister of In- vestment Sahar Nasr and her deputies are very active and have become well known abroad. This is something that should be continued. Besides, the initiative the ministry has developed for the promotion of innovation and startups (Fekretak Initiative) is unique in the region, and I think it is very important today to take the decision topromote the future generation of businesses and innovation.

From the German experience, how can we pro- mote SMEs?
This is a very difficult topic to be addressed. Of course, on the one hand, you really need consul- tancy. The German Chamber of Commerce has 79 offices in Germany and several branches in the regions where the companies are consulted about how to establish financial planning and how to conduct a risk analysis. This is all on the level of the chamber of commerce, and all chambers are cooperating very closely.
The German Bank of Development is support- ing SMEs gain access to financing. This is an im- portant subject. There are several credit lines that have been established in Egypt to support SMEs, but the banks executing them are reluctant. Also, there are other foreign initiatives to support Egyp- tian SMEs, including an initiative from Germany.

Is the chamber planning to send trade delegations or door-knocking missions from Berlin to Cairo or vice versa?

We had a German delegation from October 8-12 for renewable energy, and we will have another delegation for energy efficiency. Another trip was held in October to Bavaria in the field of water- waste management, in addition to a huge partici- pation in the Anuga Food Fair annual exhibition. Also, we will have other Egyptian delegations visit- ing Germany in mid November for feeder indus- tries of the automotive and railway sectors, as well as a delegation of around 30 handicraft Egyptian companies that will be exhibiting their products in Germany during the second week of November.

We have perceived Germany as very strong in the automotive sector in the Egyptian economy, with big investors like Mercedes and BMW. Are there any new agreements or investments in this field?

We have several assembling plants here in Egypt. There is a BMW assembling plant, as well as one for Opel and Mercedes. Trucks still have an assembling plant in the Egyptian market, as does MAN Truck and Bus.

What is the most important economic reform or legislative measure that should be taken to improve the investment climate and attract more investors?

I think the most important reforms have been already done. I think now it boils down to the task of reassuring foreign companies and foreign po- tential investors that the reforms will be continued and developed. It is also imperative to give them guarantees regarding sustainability and reliability in the future on the framework that has been set up.