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the bold & the bountiful
civil war, trade sanctions and political isolation
have long kept many of egypt’s regional neighbors off the investment
map. but the climate is changing. new markets are opening up and
– lacking basic infrastructure and economic institutions –
actively seeking investors. so far, only a
handful of intrepid egyptian companies have made the move, weighing
the risks against the opportunities. others may soon follow.
libya
from green book to greenbacks
by eman wahby
after 35 years of socialist-style policies and isolation,
libya is finally leaning towards an open-market economy – and
investors are watching with interest. the country’s rapprochement
with the west began in late 2003, when tripoli accepted responsibility
for the 1988 bombing of a pan am passenger plane over lockerbie,
scotland, and agreed to a $2.7 billion compensation settlement for
the families of the 270 victims. it also earned kudos for announcing
that it would voluntarily abandon its nuclear weapons program and
accept international weapons inspectors.
in response, the us lifted its 18-year trade embargo and travel
restrictions in september 2004. it opened a liaison office in tripoli
last june, marking the resumption of direct diplomatic relations
between the two countries after a 24-year suspension. the un and
eu have also lifted trade sanctions – removing barriers that
libyan officials estimated cost the country $30 billion.
with foreign relations on the mend, investors from various western
countries, libya’s former foes, have been flocking to the oil-rich
north african nation. the us auto manufacturer ford motor company
recently opened a dealer and distribution network, while dutch oil
giant shell has signed a multi-million dollar deal to upgrade the
country’s liquefied natural gas (lng) terminal at marsa al-brega
and explore and develop five blocks in the oil and gas rich sirte
basin.
egyptian investors, however, have been slow to enter the market,
though this could soon change. khaled abdel azim, deputy general
director of the egyptian federation of industries (fei), says the
small but wealthy population (libya’s gdp per capita is $6,400,
one of the highest in africa) has huge potential for growth. “the
libyans have huge purchasing power as the market has been closed
for so long and they are hungry for products,” he said. “and
since it’s just next door that means less logistics costs.”
where is all this wealth coming from? oil and gas. libya’s
petroleum sector, which produces 1.4 million barrels of oil per
day, accounts for 95 percent of all exports and over half of gdp.
and there’s still plenty of room to expand. with 39 billion
barrels of proven oil reserves and record-high world oil prices,
libya is hoping to attract $30 billion in foreign investment over
the coming six years. in the first public tender since oil was discovered
in libya in 1959, us oil firms occidental, chevron and amareda hess
won 11 of the 15 permits auctioned last january.
egyptian oil firms have also been looking for a slice of the pie.
state-owned petrojet was among seven international contractors invited
to submit revised bids to build a gas pipeline from the sirte basin
to the brega coastal plain, where the gas will be exported or used
to fuel power stations. the contract, which entails the construction
of a 215-kilometer steel pipeline with a capacity of 1,500 million
cubic feet per day, will be carried out on behalf of libya’s
zueitina oil company at a price expected to top $80 million.
the colonel’s secret recipe
given libya’s years of isolation, it’s not surprising
that the construction sector is booming. the libyan government earmarked
$2.4 billion for the construction of 70,000 residential units in
2005, part of a long-term housing plan to build 250,000 units by
2015. libyan president colonel muamar al-qaddafi also wants to see
more tourism infrastructure, and envisions the country’s 2,000-kilometer
coastline dotted with trendy tourist resorts. british construction
firm ws atkins, the company behind the burj al-arab hotel and jumeirah
beach in dubai, was contracted last year to design a massive luxury
tourist resort at sidi benure on the libyan coast. in another major
contract, dutch leisure firm el dorado will build 10 tourism complexes
in the coastal city of al-boutmane at a cost of d1 billion. and
a libyan businessman is leading a consortium of arab and foreign
companies preparing to build a $120 million resort that will include
the largest marina on the mediterranean.
one of the oldest players in the libyan market is egyptian construction
giant arab contractors, which has been operating in the north african
country for the past 40 years. arab contractors previously constructed
several hospitals, airports and infrastructure projects and is currently
involved in the construction of roads. “the construction sector
in libya is very promising and is luring lots of new investments,”
the company’s ceo and chairman ibrahim mahlab told business
monthly. “however, the volume of our business in libya is quite
modestly valued around £e 50 million. this goes back to the
difficulty of winning mega-projects in libya as the system and the
government’s procedures are still unclear.”
unclear, but not impossible. libya is working hard to prove to the
us that it is committed to economic reform and the transition to
a free market economy, and authorities appear eager to facilitate
the access of american companies to its markets. “with libya’s
recent rapprochement with the united states, it would be very effective
to set up egyptian-american joint ventures and start penetrating
the libyan market together,” advises mahlab. “egyptian
companies would share in providing the expertise and high caliber
[cadres] of our construction industry.”
the construction and building materials sectors stand to benefit,
particularly after the libyan government’s decision last may
to cut import tariffs on cement, ceramics, paint, piping and other
raw materials. cement is in particularly high demand as the shortfall
has now topped 4 million tons. where to put it is another matter.
one local construction expert who declined to be named, said libya’s
decisionmakers are constantly implementing misguided and often contradictory
policies. “libya has very poor infrastructure yet they’re
not upgrading these utilities. what the country really needs is
a construction master plan for the priorities... an extensive road
and bridge building program as well as a waste management and drainage
system.”
he also wondered why no plans have been revealed to upgrade the
country’s railway system, which has sat idle since 1965. “infrastructure
such as bridges, roads, railways, power stations and hospitals should
have been upgraded first,” he said. “what’s the use
of deluxe tourist and residential complexes without a good infrastructure
network?”
the economy is equally awkward. still clinging to al-qaddafi’s
“green book” policies, the state continues to direct prices,
finance and trade – often moving in contradictory directions.
last august, the libyan government canceled duties on all imported
goods except cigarettes. the customs tariff cancellation, which
comprises 3,500 goods, was hailed as a way to make smuggling unprofitable,
encourage foreign trade and remove the administrative burden of
complex customs procedures. but traders that read the small print
discovered the government had simultaneously imposed a 4-percent
“service charge” on all imports, as well as subjecting
81 imported goods to a 2-percent production tax and a consumption
tax ranging from 25 to 50 percent, much higher than previous rates.
egyptian business groups have protested the consumption tax, which
they say is simply a hidden tariff, and a hefty one at that. they
have argued that the taxes contravene the pan-arab free trade agreement
(pafta), of which libya is a signatory. “the new libyan tariffs
mean arab products will be treated like foreign products with no
privileges,” said abdel moneim seoudi, president of the egyptian
automobile manufacturers association. “the consumption duties
will be added to the price of our exports to libya, thus affecting
our competitiveness.”
equally frustrated is galal ghorab, former president of the holding
company for pharmaceuticals. egypt’s $1 billion pharmaceutical
sector – the largest in the middle east – has so far failed
to crack the libyan market. “there are some difficulties in
dealing with the libyan authorities as the country is still in the
transition to a free market economy. there are fears [emanating]
from an unstable trade system and contradicting decisions coming
out every day,” he said. “but with the recent opening
of the libyan market, we hope egyptian drugs will soon gain access
to the libyan market, since [it is] a large consumer market and
the country has no pharmaceutical industry.”
green is the color of reform
despite some difficulties in shedding its old-style thinking,
libya appears genuinely interested in improving its business environment.
leading the charge is prime minister shoukri ghanem, a harvard-educated
economist and proponent of free market economies, who has set the
course for economic liberalization since taking office in june 2003.
under his guidance, tripoli has embarked on a sweeping economic
reform program, revising investment laws and easing commercial regulations.
in a bid to lure foreign investors, it has offered customs duty
and five-year income tax exemptions for new projects, as well as
repatriation of profits and ownership or leasing of the project’s
real estate. libyan authorities have also scrapped the country’s
restrictive import licensing rules, which often led to shortages
of basic goods and foodstuffs. merchants are allowed to import freely,
while foreign companies are only required to obtain licenses to
export to libya through their local agents.
the recently established libyan association for investors, a tripoli-based
ngo that aims to promote investment opportunities for local and
foreign investors, says times are changing. “libya is opening
up to the world now and the investment atmosphere has completely
changed and improved,” its secretary-general, moftah al-amary,
told business monthly. “with the new restructuring and reforms,
the country is poised for a breakthrough.”
he cites the country’s privatization program as an example.
launched in 2004, the ambitious program aims to sell off 300 state-owned
companies by the end of 2008. in early september, the government
approved the sale of an 80-percent stake in the country’s second
largest public company, general national flour mills & fodder
company, to a private anchor investor. it has also put its largest
cement company and several commercial banks on the block.
according to the international monetary fund (imf), libya’s
growth has been strong since sanctions were lifted. while the real
gdp growth rate ranged from 1 to 4.5 percent from 2000 to 2002,
it climbed to 4.9 percent in 2003 and likely exceeded 9.1 percent
in 2004. the un estimates that foreign investors poured in more
than $4 billion in investments in 2004, up from just $700 million
the previous year.
the country now accounts for 20 percent of fdi inflow in africa
– not bad for a formerly socialist economy.
despite all this action, egyptian trade with libya has been on the
decline. egyptian exports to libya – mostly agricultural produce
and electrical appliances – fell 61 percent in 2004 to reach
$17 million. one senior egyptian official attributed the drop to
classic tripoli bureaucracy. he said libyan officials have put up
obstacles that hinder the issuance of licenses to import goods from
egypt, while customs officials have rejected shipments citing various
rules-of-origin violations.
fei’s abdel azim argues that egyptian exporters have simply
failed to seize the opportunities at hand. “we’re exporting
textiles and furniture to russia and the united states; isn’t
it also important to knock on our neighbor’s door? dubai is
exporting huge quantities of gold products to libya, what about
our gold products and jewelry?”
agriculture offers huge potential for egyptian exporters. a growing
population and rising incomes have caused food consumption to rise
beyond the capacity of its mostly arid soils. despite having a sizeable
agricultural base, libya must still import 75 percent of its food
products. the egyptian public sector has been helping to fill the
gap. “this is a very important market as seven or eight of
our affiliate companies export rice to libya, five companies export
detergents, and edfina company exports canned foodstuffs, in addition
to exporting corn oil and yeast,” explains tarek shalaan, head
of the export sector at the egyptian holding company for food industries
(ehcfi).
the holding company has 10 years of experience dealing with the
libyan market, but things have never looked so good. in april, ehcfi
inked a $4 million deal to export 5,000 tons of corn oil to libya
and also agreed to export rice in a deal worth d3 million. the deals
were carried out after winning the public tenders of commodity authorities,
as basic commodities are still subsidized by the state. “winning
a public tender with a commodities authority means priority in accessing
ports and a wide distribution network throughout the entire country,”
explains shalaan. “the libyans are looking for high quality
and high standards. even the inspection [process] at ports now complies
with iso standards.”
libya is a virgin market, but that doesn’t mean it’s easy.
high-quality products from all over the world are now appearing
on supermarket shelves. “exporters should not just try to export
haphazardly,” said samy abdel maqsoud, head of the international
organizations department at the federation of egyptian chambers
of commerce. “exporters should understand that the libyan market
now has the best standards and qualities, so a low-quality product
exported to libya will only remain on the shelves.”
quality is the key word, affirms mohamed fouad, regional export
manager at olympic group. “the libyan market is not the same
market of the 80s and 90s. now there is huge competition from china,
korea and turkey. if exporters don’t have good-quality and
competitive products, they’re out.”
olympic group has been exporting electrical appliances to libya
since 1990, riding the boom of the country’s fast-growing per
capita gdp. “the challenge is how the exporter can cope with
the increase in the prices of raw materials and still offer a competitive
price given the fierce international competition. but, egyptian
exports still enjoy one advantage – low transportation costs.”
algeria
follow the leaders
by frederik richter
departure to new and unknown territories is much easier when you
go with someone you know from home. so when orascom telecom (ot)
launched its algerian mobile operations under the local brand name
djezzy, its egyptian supplier of it services, raya, followed. “it
was a very easy market entry for us,” admits medhat khalil,
chairman and ceo of raya holding. while raya entered the algerian
market solely to support ot’s operations there, it soon discovered
a vacuum in it services. “we found that there weren’t
any mature local companies that covered the it spectrum, so we decided
to start full-blown operations.”
since 2003, raya has worked with us technology giant lucent to implement
a large it infrastructure project for algeria’s ministry of
telecommunications and has done an enterprise resource planning
(erp) project for orascom construction industries (oci). last august,
it began full operations with the opening of three retail centers
for the distribution of mobile phones and pcs. it also holds a contract
for servicing nokia phones.
raya currently has 30 employees in algeria, including three egyptians.
khalil expects the number could double by the end of the year.
his optimism appears well founded. algeria is opening up after decades
of socialist protection and a civil war that claimed over 100,000
lives and left the economy in shambles. while periodic guerrilla
attacks keep risk analysts on edge, the government of president
abdelaziz bouteflika appears to be charting a course away from the
sectarian violence that afflicted the country throughout the 1990s.
certainly, the country has a long way to go. khalil compares the
country’s overtures towards market liberalization to egypt’s
transition in the mid-1970s. “they’re at the point egypt
was at with its infitah (open door) policy. they’re just now
opening the economy, taking very aggressive steps in privatization
and deregulating the market,” he says.
the country of 32 million people has seen significant changes over
the past few years. gdp per capita jumped from $1,700 in 2002 to
$2,600 in 2004, while the economy has witnessed 4.5 to 6.9 percent
growth rates. foreign direct investment (fdi) did not exceed $390
million in 2004, but analysts expect it to increase strongly this
year as investor confidence grows.
raya’s entry into this emerging market came on the tailcoat
of ot, which launched algeria’s first gsm network in early
2002. djezzy, of which ot owns 85.21 percent and algeria’s
cevital spa the remaining share, has witnessed dizzying growth in
three years, grabbing 60 percent of the market share and accounting
for 37 percent of ot’s revenues in 2004. the precocious upstart
got the jump on algeria’s state-run telecom, algérie
télécom (at), which received a gsm license in 2000
but did not effectively start mobile operations until august 2004.
a third gsm operator, nedjma, a subsidiary of kuwait’s wataniya,
is also in the market.
and the market appears to have room for all three to grow. according
to the algerian post & telecommunications regulatory authority,
mobile penetration reached just 15.26 percent at the end of 2004.
fixed-line penetration is even lower, estimated at 9.48 percent.
foreign investors have complained that it often takes up to a month
to get internet service at a new office because isps depend on at
to supply phone lines.
at’s weakness has become ot’s strength. the egyptian multinational
– working in a partnership with egypt’s state-owned fixed-line
operator, telecom egypt – won a $65 million fixed-line license
in early 2005. it plans to launch fixed-line telephone service in
november and expand to three cities by mid-2006. the company is
also constructing two undersea cables to france that will give the
company exclusive connectivity to europe.
greasing the machine
record-high oil prices have given algeria room to maneuver. the
petroleum sector accounts for nearly 40 percent of gdp and the bulk
of exports. with crude prices hovering around $70 per barrel, bouteflika’s
government has extra cash to spend. it recently initiated a $55
billion public spending program through 2009 that aims to rebuild
infrastructure neglected during the political turmoil of the 1990s.
major investments are under way to upgrade the country’s road
and rail networks. in algiers, a french consortium has won a bid
to construct the capital’s first underground subway line, which
was begun in 1982 but halted due to worsening civil unrest. several
airports are being enlarged or newly constructed.
significant opportunities for foreign investment lie in algeria’s
ambitious mega-projects, including the construction of several large
dams and canal networks aimed at feeding fresh water to cities and
irrigation projects along the country’s narrow coastal strip.
algeria also needs electricity networks, oil and gas pipelines,
and port facilities. the sheer volume of construction involved has
already attracted cairo-based arab contractors, which has been contracted
for a number of projects including construction of the futuristic
ministry of finance building in algiers.
the algerian government is also seeking foreign companies to remedy
the country’s housing shortage. social housing programs aim
at providing no less then one million new units by 2009 – creating
numerous opportunities for foreign construction, real estate and
building material firms. so far, only chinese suppliers who fly
in their own workers have found it profitable to engage in these
low-cost housing programs, though their workers often protest the
conditions. local architects claim the government is creating ghettos.
“the standard of living has to relate to the income situation
of the people,” explained a senior official at a bank that
finances social housing.
egypt’s orascom construction industries (oci) opened a cement
factory in late 2003, the first private cement operation in algeria.
last july, it opened its second production line, increasing its
annual capacity to 4.7 million tons. oci’s cement is said to
be superior in quality over its algerian competitors’, which
helped it secure a 25-percent market share in 2005, up from 15 percent
the previous year.
off the map
compared to egypt with its 8 million tourists in 2004, tourism
is virtually absent in algeria. less then 100,000 tourists came
to the country last year, with the bulk of them heading directly
for the vast desert in the south of the country. as a result, algeria
lacks tourism infrastructure, with only four major hotels in its
capital, all but one being state-run. analysts predict it could
take years before the government is able to put together a coherent
tourism development plan.
but international airlines are not waiting. german carrier lufthansa
and qatar airlines added algiers to their scheduled service in summer
2005, entering what was until recently a heavily protected civil
aviation market. the government has also offered a majority stake
in tassili airlines, a charter service specialized in transporting
workers to and from oil fields.
for the few intrepid egyptian firms that have ventured into the
algerian market, timing is key. the country is still largely off
the map for western investors, giving egyptian firms a competitive
headstart as the country attempts to rebuild its economy. while
significant opportunities exist, investors eyeing the algerian market
must be aware that the country is still tightly wound in red tape.
one of the biggest obstacles is the country’s state-dominated
banking sector. often it takes weeks to complete even the most basic
of transactions – a detriment to foreign companies that need
to inject capital into their operations, pay contracted firms or
send revenues home. one egyptian investor explained that algeria’s
state banks offer very little in the way of services. “these
banks function more as treasuries – they just keep money,”
he said. “they don’t do what banks are supposed to do,
which is
provide the economy with capital.”
the bureaucracy, corruption and informal market structure are the
by-products of a decades-old centralized, socialist government,
explains raya’s khalil. yet he sees this not as an obstacle,
but rather an advantage for egyptian investors. “egyptian companies
have an edge here, because we’ve passed this very same stage.
egypt is also quite a bureaucratic country, so we are well suited
to work in algeria. we also know the culture, and while arabic language
is an asset, we also speak english and french.”
raya’s case is a good example. chinese firms have been extremely
aggressive in winning market shares as telecom equipment suppliers,
but they’ve run up against a number of obstacles. unable to
navigate the murky waters of arab distribution channels, chinese
companies have limited their activities to wholesale. egyptian companies
have succeeded in sale and service, though khalil is cautious to
say it’s a cake walk. “if the market were easy, competition
would be furious.”
sudan
a pot-holed road to recovery
by abdel aziz nosseir
when it comes to potential in africa, egypt’s southern neighbor
certainly has a lot – though with a sizeable dose of risk.
sudan is the largest country in africa, spanning 2.5 million square
kilometers, and with all the right ingredients for a trade economy.
blessed with an abundance of natural resources – fertile land,
plenty of water, mineral wealth and proven oil reserves – it
is bordered by nine neighbors – egypt, libya, ethiopia, eritrea,
chad, zaire, uganda, kenya and central africa republic – and
the red sea.
yet despite its rich resources and potential for trade, sudan is
one of the poorest countries in the world, ranking a low 141 out
of 177 countries on the undp’s human development index (hdi).
it took long steps backwards during its 21-year civil war, which
killed and displaced millions and sapped the country’s resources.
the war pitted the arab muslim government of northern sudan against
the christian and animist south. a peace agreement signed in january
2005 ended the fighting and set plans for sharing legislative power
and resources, with the south to hold a referendum in six years
on whether to secede from the north.
while the peace has appeared at times fragile, the economic symbiosis
between the populated north and oil-rich south makes it in everybody’s
interest. “since the peace agreement, the situation has changed,”
assured an official at the sudanese embassy in cairo. speaking on
the condition of anonymity, he noted that the overall political
situation has improved. developing war-neglected infrastructure
is a high priority.
indeed, sudan is basically starting from scratch. “we need
investments in every field, including oil, infrastructure, agriculture,
industry and services,” the embassy official said.
he emphasized that the government of president omar hussein el-bashir
values the role of the private sector and has laid the groundwork
for investment. “the state respects and fully supports the
private sector. we’re counting on it to achieve 75 percent
of our future development plans. the state has completed its political
and institutional construction and all that will positively reflect
on the investment climate.”
a privatization plan launched in the early 1990s earmarked 190 public
companies for sale, but due to the ongoing conflict never got off
the ground. the planned sale of the national electricity company
and ailing national carrier sudan airways failed to materialize.
the government has, however, scored some successes. it recently
sold a 60-percent stake in the country’s largest bank, bank
of khartoum, to uae-based dubai islamic bank (dib). and its partially
privatized telecommunications monopoly, sudatel, is one of the country’s
most profitable companies.
finance remains a problem. sudan’s nascent stock market has
attracted only a few dozen listed companies and the country has
almost no independent financial institutions. the banking sector,
which has operated since 1993 according to islamic finance principles
and prohibits the charging of interest, is heavily regulated. “the
banking system is still very weak due to government regulations
as well as the cautious nature of banks themselves,” said a
sudanese national living in cairo. “they seek projects with
limited risk and short-term returns rather than high-risk, long-term
returns.”
bank of sudan, the country’s central bank, has recently taken
steps to improve bank performance, raising minimum capital requirements
and internal liquidity ratios. sixteen of the country’s 25
commercial banks have been fully or partially privatized. few, however,
seem overly eager to finance large development projects.
that’s not to say the country isn’t keen on attracting
investors. “the current investment law was modified in 2003
to [smooth] the entry of private investors into the market and provide
sufficient incentives for them,” said the embassy official.
the law grants investors access to government services at reduced
costs, provides free land to establish projects and guarantees unrestricted
movement of capital for foreign investors. it also provides investment
projects tax-exempt status for five years – 10 years in case
of “strategic” projects, which include those located in
less developed areas or geared to improve export capacity.
like egypt, sudan has allocated a number of industrial areas as
free zones. under a 1994 law, investments in these zones are exempt
from all import and export duties and taxes. local companies receive
an extendable 15-year income tax exemption, while foreign investors
have unlimited exemption and guarantees protecting their property
and assets from nationalization or confiscation by the state.
reality check
all this looks good on paper, admits ibrahim el nur, a sudanese
political science professor at the american university in cairo,
but the situation on the ground is far more complicated, particularly
in the southern half of the country. “the south [remains] a
big challenge because you’re starting from scratch,” he
said. “there, you have to build the state itself, and you have
to encourage the private sector because in the south, there is no
tradition of private sector.”
he says another big challenge is repopulating the region. the war
took its heaviest toll in the south, killing 2 million people and
forcing 4 million to emigrate to escape the fighting, famine and
disease. “the question then becomes whether or not the residents
of the south would return voluntarily,” said el nur, noting
that many of these refugees are currently settled in urban areas.
“why would they return to rural areas unless a very attractive
incentive-structured scheme is put in place?”
despite this, he sees significant opportunities in developing the
south’s agricultural resources. “the south has better
potential for [agricultural investments] than the north because
of its favorable climate,” he said. “the abundance of
rain creates favorable conditions for producing specific crops that
cannot be produced in the north such as coffee, tea and other equatorial
crops.”
the climate and soil may be favorable, but the future of agricultural
investment in the south will depend on the government’s ability
to provide irrigation and distribution networks. “[agriculture]
is a long-term and expensive investment,” said el nur. “i
don’t think many people are interested in investing in agricultural
infrastructure by spending a small fortune before making profits.
it’s the state that has to prepare conducive conditions for
agricultural investment.”
the state also has to reassure investors that it will address the
political instability, widespread corruption and burdensome regulatory
environment that has traditionally discouraged capital inflow. before
the extent of oil reserves became known, few foreign investors dared
put their money in the country.
since the war’s end appeared inevitable in 2002, however, investor
optimism has prevailed. oil exploration has revealed 563 million
barrels in proven reserves and dozens of international energy firms
have rushed in to claim a stake. foreign direct investment (fdi)
rose to $1.4 billion in 2003, double the previous year’s total.
real gdp growth is sustaining an enviable 6-plus percent and oil
revenues have contributed to a trade surplus for the first time
since the country’s 1956 independence. the figures should come
as no surprise. “it’s a typical situation when you have
a peace agreement along with oil discoveries,” said el nur.
“everybody’s hoping to get lucky in the country.”
according to el nur, two dominant economies have impacted the market:
asia and turkey. he explains that china, india and malaysia were
among the earliest investors to enter the sudanese market and are
heavily involved in oil, infrastructure and irrigation. turkey,
meanwhile, has become a major investor in the manufacturing sector.
to expand these investments and lure more, sudan will need to rapidly
upgrade its transportation network. apart from a paved road connecting
khartoum to port sudan, almost all of the country’s intercity
road networks are tracks passable only in dry weather. a 4,700-kilometer
narrow-gauge, single-track rail network serves the northern and
central portions of the country, some of its dilapidated rail stock
dating back to the colonial era. outside of khartoum and major cities,
airports are little more than windsock and a gravel strip –
the main street serves as a runway in a pinch.
according to el nur, the poor status of transportation networks,
particularly in the south, makes it difficult to attract investors.
what makes things worse, he adds, is that the government is expecting
the private sector to develop this infrastructure, which is clearly
“not their responsibility.”
sudan’s electricity network is also a major obstacle. only
30 percent of sudanese have access to electricity, and it’s
often spotty at best. at a cost of nearly $1.8 billion, sudan is
building a 1,250 mw hydroelectric dam on the nile 350 kilometers
north of khartoum expected to triple the country’s electricity
generation. when fully operational in 2008, the chinese-built hamdab
high dam will stand 9 kilometers long and 67 meters high, dwarfing
egypt’s aswan high dam.
not surprisingly, egypt is paying close attention to the water engineering
projects in its upstream riparian neighbor. under a water sharing
treaty signed in 1959, egypt is accorded 55.5 billion cubic meters
of nile water per year and sudan 18.5 billion cubic meters. sudan
was too preoccupied with its civil war to use its full quota, but
with reconciliation between the north and south, the government
is pushing ahead with water development schemes – a trend that
undoubtedly makes cairo nervous.
during sudanese first vice president salva kiir’s visit to
cairo last month, egyptian prime minister ahmed nazif reportedly
called for the khartoum government to resume work on the jonglei
canal project, a controversial plan to build a 360-kilometer-long
canal that would increase the downstream flow of nile water by up
to 7 percent. construction of the canal began in 1978, but was forcibly
suspended in 1984 after a series of attacks by armed southern sudanese
groups opposed to the project. many fear the resumption of work
on the canal could ignite civil strife.
piece of the action
given all the construction going on in sudan, el nur feels egyptian
firms should grab a piece of the pie. “the opportunities are
very high, especially in building infrastructure, which is going
to be the main attraction for investment for at least the coming
five years.” he also highlighted the country’s housing
and hotel shortage – areas of egyptian expertise.
mena touristic & real estate investment, with successful projects
in alexandria, king mariout and zamalek under its belt, took its
operations across the border in 2002. “we saw potential to
replicate our experience in egypt in the construction field in sudan,”
explained tarek bahaa, sales and marketing manager for the sudan
projects section. he said the company has entered into a private-public
venture with the sudanese government to build 600 villas for sudanese
on 100 acres in suba, on the outskirts of khartoum.
for a country with $460 annual per capita income and 40 percent
of its population living below the poverty line, real estate prices
are surprisingly high. the price of a small villa in khartoum starts
at $200,000 and may run as high as $800,000. bahaa attributes these
prices to high demand and a lack of competition.
sudanese workers returning from the gulf region are buying up real
estate at a frantic pace. and while sudan is able to import most
building materials duty free from neighboring african nations through
its membership in the 21-member common market for eastern &
southern africa (comesa), costs continue to climb. “the price
of one ton of iron is $1,100 and one ton of cement costs $300,”
he noted.
all of this could become irrelevant if sudan’s fragile peace
begins to crumble. tensions mounted following the death of splm
leader and vice president john garang, whose helicopter crashed
in july under mysterious circumstances. so far, the government has
been able to maintain unity, but investors must be aware that its
future is, at best, uncertain.
iraq
trading in the shadows
by neil macdonald
on the last stretch of egyptian highway to the red sea coast, diesel
fumes cut through the still desert air as dozens of heavy cargo
trucks, the majority bearing jordanian license plates, line up for
entry to the nuweiba ferry docks. the grimy goods strapped onto
the flat-bed trailers – generators, construction vehicles and
spare parts, in addition to numerous dust-coated shipping containers
– attest to the final destination for most of the trucks: iraq,
where “post-war” reconstruction efforts grind on despite
a smoldering insurgency.
the latest figures from the ministry of foreign trade & industry
suggest that egyptian trade with iraq reached a high of $89.7 million
in 2001, then fell shortly before the us-led invasion to oust iraqi
president saddam hussein in early 2003. unusually, the trade balance
rested heavily in egypt’s favor, as it continues to do today
[see sidebar].
but putting precise numbers on egyptian-iraqi trade is difficult.
except for the high-profile telecom and construction-related projects
of cairo-based multinational orascom, most egyptian business seems
to be funneled through middlemen in jordan, who continue to furnish
the iraqi market just as they did in the days of the un-supervised
oil-for-food program, which formally ended after the us-led invasion
in 2003.
moreover, most egyptian firms with interests in iraq are reluctant
to talk about it, citing security concerns, and possibly also fearing
perceptions at home about their “collaboration” in the
us-led occupation of a fellow arab country. yet business of various
kinds with iraq does, nonetheless, carry on, and much of it can
probably be discerned in egypt’s rising trade balance with
jordan, cairo-based economic analysts say.
as egypt’s minister of international cooperation, fayza aboulnaga,
noted on a trip to jordan several months ago, trade between egypt
and jordan has quadrupled in recent years, estimated at over $200
million in 2004. again, the balance strongly favors egypt, with
only around $25 million worth of these goods flowing in from jordan,
according jordanian news sources. egyptian investments in jordan
at the beginning of this year stood at $251 million, while jordanians
have invested around $50 million in egypt and in its free zones,
aboulnaga said.
but these look like paltry sums compared to egypt’s pre-invasion
exports to iraq under the oil-for-food program. total egypt-iraq
trade reportedly topped $2 billion per year, with the vast preponderance
of this money flowing into egypt. in 2001, as the end neared for
the old regime in baghdad, the two countries activated a free trade
agreement (fta) that iraqi officials hoped would help to overcome
international economic sanctions.
on a visit to cairo to put the fta into effect, iraq’s then
trade minister, mohamed mehdi salah, said that egyptian exports
to iraq had amounted to $1.2 billion in 2000, three times the figure
for 1999. iraq had cut its ties with egypt in 1991 after cairo sent
troops to take part in us-led operations to eject iraqi forces from
kuwait. however, iraq and egypt signed a memorandum of understanding
on trade in 1996, allowing egypt to take advantage of the newly
initiated oil-for-food scheme, which allowed iraq to export limited
amounts of oil in exchange for vital imports such as food and medicine.
as the oil-for-food trade picked up, egypt became iraq’s largest
trading partner in the arab world and the fifth largest overall,
ranked behind russia, china, france and india.
oil-for-food rebranded
nowadays, iraq still relies on oil-financed imports for supplies
of food, medicine, building materials and equipment. instead of
the scandal-ridden oil-for-food framework, vital imports are now
financed through the trade bank of iraq (tbi), a post-invasion state-owned
institution backed by us finance house jp morgan and other international
banking partners.
amid post-war reports of kickbacks to un officials from the oil-for-food
trade, the new bank says it maintains higher anti-corruption standards.
“our task is to make sure things are clean,” tbi chairman
hussein al-uzri said. “we do checks and follow strict anti-money-laundering
practices.”
the largest source of tbi-financed imports has been the us, with
more than $790 million worth of letters of credit after the bank’s
first year of operation. but the leading arab country was jordan,
at $685 million, underlining the continued presence of high-margin
middlemen in the supply of food, medicine and spare parts to iraq.
egypt did not appear to register at all in the tbi’s financing
receipts last year. however, at least a few egyptian companies were
working quietly through jordan, al-uzri confirmed. some firms have
managed to carry over business from the oil-for-food days into the
post-invasion reconstruction period. managers at one cairo-based
equipment supplier say their firm, which earned some $100 million
in sales to iraq from 2000 through 2003, was able to bring in more
than $85 million in 2004 from the sale of electrical generator sets
alone. the company expects to expand its iraqi business even further
this year through a new free zone in the southern port of basra.
despite its apparent successes, however, the company asked not to
be named in this article, citing fears of kidnapping or violence
against its staff on the ground in iraq.
other egyptian companies, however, are still trying to collect on
their contracts from the pre-invasion period. according to a report
issued by the central bank of egypt (cbe) and the foreign trade
ministry earlier this year, egyptian firms were trying to collect
some $131.9 million in unpaid debts from the former iraqi regime.
egypt’s $2 billion worth of exports in 2002, the last year
before regime change, consisted mainly of foodstuffs, pharmaceuticals
and industrial materials, the report said, adding that iraq was
the second largest importer of egyptian goods, after saudi arabia.
post-war freezer burn
in the wake of the us-led invasion, egyptian exporters and expat
laborers found their iraqi accounts receivable frozen. the egyptian
government initially agreed to delay their payment requests until
a new iraqi government was elected. after iraq’s january elections,
however, the unpaid companies and workers again started clamoring
for compensation. the payment problem has been further complicated
by egypt’s own efforts to upgrade its banking system. under
the unified banking law, passed in june 2003, all banks in egypt
are subject to higher capital requirements, with the minimum for
a foreign branch operation being raised to $50 million, from $10
million. the new rules have added to the headaches at the sanctions-battered
al-rafadein bank, iraq’s largest commercial bank, which was
responsible for processing most of the trade and remittance payments
to egypt. to facilitate these payments, state-owned al-rafadein
maintained a branch operation in cairo since the mid-1980s, when
some 1.3 million egyptians were working in iraq.
however, the iraqi banking system was subsequently stretched to
breaking point by wars and sanctions, so that al-rafadein bank has
now proven unable to boost the capital for its egyptian branch operation
to the required $50 million. in august, a delegation from the iraqi
foreign ministry met with cbe governor farouk el okdah to plead
the case for letting al-rafadein keep its cairo branch open and
inject the needed capital under a slowed-down timetable.
according to financial daily al-alam al-youm, al-rafadein assistant
manager hamdiyah mahmoud argued that the continued operation of
the bank would be “in the interest of egyptian workers”
who were still owed remittances. the bank had previously asked to
raise its capital in $5 million increments, but egypt’s monetary
authorities rejected the idea, mahmoud said. unlike other foreign
bank branches, she added, al-rafadein could not be expected to turn
a profit out of retail services in egypt.
un security council documents suggest that arab african international
bank (aaib), a cairo-based bank owned by the egyptian and kuwaiti
governments, also served as an important channel for the flow of
oil-for-food funds and has since been trying to collect payments
from al-rafadein and other iraqi institutions.
in tbi chairman al-uzri’s view, the egyptian companies burned
by the asset freeze probably tried to cut corners and never obtained
proper oil-for-food letters of credit, which were supposed to come
through the french bank bnp paribas.
despite the allegedly heavy scrutiny on today’s iraqi-import
transactions, the tbi can normally issue a letter of credit within
about 10 days of application, al-uzri said. he compares this to
months of waiting for the old oil-for-food lcs.
financial issues have been harder to resolve in the ongoing absence
of full diplomatic relations between egypt and the new iraq. although
an iraqi ambassador, safia al-souhail, received official accreditation
from egypt more than a year ago, cairo failed to upgrade its own
mission in baghdad to full embassy status. this hesitance to confer
legitimacy on iraq’s us-backed government was heightened with
the kidnapping and murder of egyptian envoy ihab al-sherif three
months ago. egypt promptly withdrew its entire diplomatic staff
and told al-souhail to postpone the opening of the iraqi embassy
in cairo.
relations between the two countries are still uncertain, but upgrading
efforts appeared to come back on track in september with the opening
of a newly whitewashed iraqi embassy compound in central cairo’s
upscale island district of zamalek.
gaza
preoccupied with recovery
by frederik richter
israel’s withdrawal from gaza last month after 38 years of
occupation left behind an economy in ruin, heavily damaged infrastructure
and a shattered national identity. for the 1.4 million palestinians
living in the barren gaza strip, a quick economic recovery is a
matter of life or death. according to a recent united nations conference
on trade & development (unctad) report, 61 percent of households
in gaza are living below the poverty line of $350 per month, one
third of the labor force is jobless and gdp has eroded by 15 percent
since 1999.
egypt has promised to throw its full political weight towards settling
not only the political issues surrounding the future of gaza, but
also the economic ones. the government has pledged to assist the
palestinians in rebuilding infrastructure, administering borders
and restructuring their banking sector. “if we want gaza to
be the basis for a new palestinian state long term, we have to provide
[the residents] with homes and jobs,” the washington times
quoted egyptian prime minister ahmed nazif as saying. “a lot
of effort has to go into rebuilding the infrastructure, not just
in the political but in the economic sense.”
international donors are lining up to support gaza’s economic
recovery. the european commission (ec), which has long been the
biggest aid contributor to the palestinians, has pledged to provide
d280 million in aid. some d60 million of this would be allocated
to rebuilding infrastructure and strengthening institutions, particularly
in the fields of customs administration, transport, energy, health
and social services. the us, japan and arab countries have also
pledged significant aid packages.
but the aid could be in jeopardy unless the palestinian authority
(pa) can sort out the rampant corruption that has mired its administration.
financiers may be reluctant to chip in given accusations that earlier
eu funding was funneled into financing militant groups. in addition,
the potential for a violent showdown between the pa and powerful
militant groups such as hamas can only make donors and investors
edgy.
shipments were often delayed, left to spoil or refused. since the
start of the second palestinian intifada in late 2000, the border
between gaza and egypt has been prone to long waits and frequent
closures. medhat mostafa, an egyptian marble exporter with years
of experience shipping to israel and the palestinian territories,
relates that marble shipments sent through the gaza border to israeli
companies were brisked through customs in half an hour, “but
when i sent material to gaza or to palestinian-israeli partners,
it took two days to clear customs.”
the border has always been a thorny issue. israeli security officials
fear that opening gaza’s land, sea and air borders will make
it easier for palestinian militants to smuggle in weapons. but keeping
them closed could turn the gaza strip into a giant prison.
on september 12, israel relinquished control of the gaza-egyptian
border after egypt deployed 750 border guards to prevent the illegal
crossing of goods and people. for several days following the withdrawal,
egyptian and palestinian guards repeatedly failed to seal the border.
thousands of palestinians slipped through into egypt, returning
with cases of cigarettes, consumer goods and weapons.
palestinian president mahmoud abbas has assured israel that the
border situation is under control. “the chaos that existed
is over,” he declared during a tour of the border zone. he
added that new x-ray machines and electrical lines were being installed
at the main rafah crossing in the hope that israel would allow it
to reopen. israel would prefer to keep the main trade crossing point
at kerem shalom, 76 kilometers southeast of rafah.
finding a niche
with the border situation likely to be resolved soon, the potential
for developing egypt-gaza trade is high. analysts say gaza’s
best export opportunities lie in furniture, fruits, vegetables and
fresh-cut flowers. egypt could supply consumer goods, food products,
textiles and chemicals.
mostafa noted that egyptian companies have been able to underbid
their israeli competitors and grab a share of the israeli market,
though political sensitivities have prevented business from reaching
its full potential. elaborating, he explained that since the outbreak
of the second intifada, the number of palestinian workers allowed
to cross into israel has been restricted. as a result, manufacturing
costs rose sharply in israel and israeli firms shifted to importing
cheaper egyptian semi-finished products. while this presented an
export opportunity, the reluctance of egyptian people to do business
with israel made it a difficult one.
at one point, mostafa recalls, his workers refused to load trucks
with marble that was bound for businesses in israel. “this
ended after they [the israelis] announced their withdrawal,”
he said.
analysts say gaza’s recovery hinges on the reopening of yasser
arafat international airport, which operated for two years until
the israeli army closed it in 2000, destroying its control tower
and bulldozing the runway. palestinian officials estimate it will
cost $26 million to rebuild the airport and open it for business.
the eu has agreed to cover the cost of constructing a new cargo
terminal, while japan has earmarked funds for a new passenger hall.
but egyptian construction firm arab contractors, a perennial favorite
for government contracts and whose subsidiary built much of the
original airport, says it has no concrete plans to bid on the airport’s
reconstruction or any other projects in gaza. it is, however, watching
the situation closely. “we’ll have to see in the future,”
says effat abdullah, the company’s public relations manager.
“if the [egyptian] government wants to do something there and
the commissions work, we’ll do it.”
arab contractors was also involved in the building of a seaport
on the outskirts of gaza city. israel halted construction of the
port in late 2000, subsequently destroying its half-finished facilities.
in february, israeli foreign minister silvan shalom said his government
had reluctantly decided to allow the pa to go ahead with port construction.
tenders have not yet been announced, though construction is expected
to last three years and provide up to 10,000 badly-needed jobs for
palestinians.
in the meantime, egypt has offered the use of its airports and seaports
in sinai to facilitate the movement of goods to and from gaza. a
proposed arrangement is in the works, though no details have been
made public.
egyptian officials have also been meeting with their palestinian
counterparts to discuss opportunities for expanding bilateral economic
cooperation. during a meeting in cairo last month, egyptian minister
of foreign trade and industry rachid mohamed rachid and palestinian
minister of economy and trade mazen sinokrot agreed to establish
a joint committee to set a detailed framework for the future of
economic ties and facilitate communication. they also suggested
the possibility of creating an industrial free zone in rafah, a
palestinian town on the egyptian border.
no concrete plans yet
it could take decades to rebuild gaza’s damaged infrastructure
and develop the necessary institutions to create a viable economy.
the reconstruction effort presents significant opportunities, and
challenges, for egyptian construction firms, among the most seasoned
in the region.
“the whole gaza strip needs a lot of work and the majority
of egyptian companies are willing to go”, affirms mohamed m.
kamel, director of the chamber of building material industries.
he said egyptian firms have a clear lead over international competitors,
not only due to their proximity to gaza, but also their competitive
pricing. in addition, lower labor costs give egyptian building materials
a 40-percent cost advantage over world market prices. as such, kamel
expects exports of building materials such as cement, marble and
ceramics to israel and the palestinian territories to double in
2006.
omar mohanna, chairman of suez cement company, is optimistic. he
cites the huge demand and opportunities for egyptian cement suppliers
in the region, pointing out that in 2004, these companies exported
11.7 million tons of cement, representing roughly one-third of production.
suez cement alone exported 2,000 tons of white cement to gaza. he
expects it to ship 10,000 tons in the coming year.
given the potential, egyptian market leader orascom construction
industries (oci) is surprisingly cool about the prospect of contracts
in gaza. “we prefer to do large industrial infrastructure projects
and apply strict criteria for bids,” says hassan badrawi, oci’s
investor relations manager. “all contractors are very busy
in the region, and we are highly selective of bids,” he said,
adding that oci would continue to monitor developments in gaza as
the region lies within its core market.
next to construction and building materials, natural gas could be
the most lucrative sector for egyptian firms eyeing business in
gaza. british gas is developing gas fields off the gaza coast and
is expected to begin construction of a 60-kilometer underwater pipeline
to carry the gas to the egyptian port of al-arish in sinai. under
a deal inked between egypt and the palestinian authority in late
june, egypt will purchase the gas at a cost of up to $45 million
per year once the pipeline is complete.
energy-hungry israel declined an offer to buy the gas from the pa,
but may have become an unwitting partner in the deal. in late july,
egypt and israel inked a $2.5 million agreement for egypt to sell
1.7 million cubic meters of natural gas to israel over the next
15 years. in all likelihood, egypt will pump the pa’s gas to
al-arish, then resell it to israel via its al-arish-ashkelon pipeline,
currently under construction.
israel may not want to admit it, but it needs an economically viable
gaza for more than just rerouted oil. economic prosperity could
provide israel with cheap labor and –- more importantly –
security. but as the gaza strip’s minuscule $768 million economy
is less than one percent the size of israel’s, it is bound
to live in its neighbor’s shadow for a long time to come.
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