Egypt is working hard to improve its trade relationship with Sub-Saharan Africa, but progress is slow due to structural obstacles. Sarah Rundell reports.
The tale of a Kenyan chicken producer receiving a first sales enquiry from an Egyptian poultry importer could make it sound like African producers are finally tapping Egypt’s lucrative markets for agricultural products, livestock and foodstuff. But in reality, the story encapsulates exactly the type of issues blocking efforts to boost trade flows between Egypt and its continental partners: it turns out the Kenyan poultry potentially winging its way to Egyptian diners originally came from Brazil, because the Kenyan producer couldn’t meet the quantity or quality demanded by the Egyptians.
Egypt remains out of reach for many African producers, and despite growing consumer demand, few of Egypt’s finished goods from its diversified and developed industrial sector end up in African markets. Sub-Saharan Africa accounts for just 3% of Egypt’s total trade, with most Egyptian exports going to South Africa, Mauritius and Côte d’Ivoire. Bustling Nigeria, Africa’s biggest economy with a gross domestic product of US$568.5bn, accounts for just 0.6% of Egypt’s total trade.
But this could all be about to change. After a long period of neglect, Egypt and Africa are working hard to boost trade flows. Confronted with instability in the Middle East and stagnant demand from traditional markets in Europe, Egypt has woken up to opportunities to export its goods to Africa’s large and fast-growing economies. Meanwhile, African countries are putting agreements in place to supply Africa’s third-largest economy and population.
A Tripartite Free Trade Area (TFTA) comprising 26 African countries in a single market that joins regional economic communities (RECs) Comesa (of which Egypt is a member) EAC and SADC was signed into existence in Sharm El Sheikh last year. The Cape-to-Cairo bloc makes up over half of the continent’s GDP and population.
The Cairo government has set up a Regional Investment Agency affiliated to Comesa and a new Egyptian Agency of Partnership for Development (EAPD), housed within the Ministry of Foreign Affairs, aims to boost trade and investment volumes.
A shake-up at state-owned El-Nasr Company for Export and Import also promises to open new markets for Egyptian products in Africa, with the company using its premises and showrooms across the continent to showcase Egyptian wares.
The Engineering Export Council of Egypt (EEC-EG), which represents companies including component manufacturers for the auto industry and makers of hospital equipment, is helping its members market their goods with new showrooms in Mombasa and Nairobi. “Buyers like to see the products,” explains Maha Saleh, executive director at the organisation, who says only 1% of Egyptian engineering exports currently go to Sub-Saharan Africa.
One of the problems is poor transport links because of the lack of dedicated, regular air and marine shipping routes between Egypt and most African countries. It takes a costly 20 days to ship products from Egypt to Kenya – and that’s the quick route. The Rift Valley Railway will improve the route to market in Kenya and Uganda, Saleh hopes.
Some Egyptian industries have taken a proactive approach. “Roadshows and exhibitions in Nigeria by an Egyptian pharmaceutical group have been met with remarkable success, with close to 200 products undergoing approvals and certification,” says Kanayo Awani, managing director, Intra-African Trade Initiative, at the African Export-Import Bank (Afreximbank). “This is a growing sector for intra-African trade.”
Africa’s infrastructure deficit promises opportunities for Egyptian companies with proven expertise in its extensive housing and power sector, as well as flagship infrastructure projects like the extension of the Suez Canal and the Cairo metro, underway despite political and economic uncertainty.
The Export Credit Guarantee Company of Egypt (ECGE) insures short and medium-term deals against risks such as buyer insolvency and civil disturbance in the buyer countries. Demand for cover for Egyptian infrastructure exports like electric cables and cement to African markets has risen in recent years, with ECGE’s African portfolio growing from 10% of its total book in 2008 to over 25% today.
ECGE and the African Trade Insurance Agency (ATI) are working together to encourage trade opportunities, particularly co-operating and sharing information on buyer and seller insurance cover, explains Souvik Banerjea, a senior marketing officer at ATI. “I would say most of the large infrastructure projects in Africa are still handled by the Chinese, Indians or Europeans but we are hoping for major avenues of co-operation around trade here,” he says.
Egypt could use its expertise in the construction and operation of seaports, suggests Afreximbank’s Awani, outlining one of Afreximbank’s goals for a Red Sea-Indian Ocean corridor that includes revamped ports along the trade route and transit, logistics and packing facilities to maximise products’ added value.
“On average the cost to export a container in Egypt is roughly half that of the regional average, and only modestly higher than that of OECD high-income countries. Egypt can capitalise on its expertise in constructing and operating seaports to develop other ports in Africa in order to integrate a shipping plan for trade,” she says. Egyptian power companies adept at executing large-scale power projects could also find opportunities to sell products and services in Africa, she adds.
Fear of political risk and non-payment and a lack of insurance schemes to protect trade and investment have stalled Egypt’s trade with Africa in the past. ECGE reports that foreign currency shortages in some African markets can stretch payment deadlines, something Angus Downie, chief macroeconomist at the African Development Bank (AfDB) in Cairo has also noticed. “Access to foreign exchange is a concern to many in the private sector.
Foreign exchange is not always available for importers to settle bills, which can lead to delays in goods reaching end-users or consumers,” he says. In one initiative, Afreximbank is introducing payment platforms and clearance mechanisms to settle payments in order to reduce the reliance on foreign currency, and to formalise the trade currently being done on an informal basis. Multilaterals are also working to boost trade finance and supply chain finance solutions for Africa’s SME exporters, pushing factoring and forfaiting across Africa. “Factoring businesses are slowly emerging across Africa, which is positive,” says Awani.
While Egyptian trade missions push into Africa, African exporters appear more on the back foot when it comes to exploiting opportunities with Egypt. Very few African corporations have asked ATI for support to export to Egypt, says Banerjea. “We have had hardly any enquiries from traders in our member countries. I can think of only two customers that have asked for insurance to export to Egypt,” he says.
One reason is that African companies struggle to meet the technical requirements, quality and scale Egyptian importers demand. Many of the businesses able to exploit trade links with Egypt are not actually local, African businesses, he says. “We insured a company wanting to export to Egypt from Tanzania but it was an Indian company based in Tanzania; it wasn’t a home-grown entity.”
He believes that although the Egyptian market offers huge potential for African exporters, many need to grow into “bigger organisations”, and manufacturers need to “up their game,” investing in technology that will allow them to produce goods for a larger market. East African companies, for example, will benefit most from Egyptian investment if they focus on technology transfer, especially in the fields of agriculture, manufacturing and energy, he says.
Trade agreement headaches
Trade flows will also depend on the success of new trade agreements, and the TFTA is a large and unwieldy membership group to co-ordinate. It will be implemented in phases, with phase one focusing on issues such as tariff liberalisation, rules of origin and customs and transit procedures. The challenge of harmonising the currently different rules of origin across the three groupings will be tough, and African manufacturers are particularly concerned that Egypt’s repackaged goods, like the sugar it imports from Brazil, as well as electronic equipment and paper materials from other countries, will undercut their domestic industries.
African manufacturers are worried about “dumping” by countries with more competitive export sectors, and Egypt has technological advantages and cheaper energy costs. It’s something that African producers “have already experienced with cheap Chinese manufactures”, explains the AfDB’s Downie. Multinational firms like battery maker Eveready and chocolate firm Cadbury have taken advantage of free trade under Comesa to use cheaper manufacturing operations in Egypt to produce goods which they then export to Kenya.
“We haven’t seen many of these companies come back to Kenya. They are serving African markets from Egypt,” says Eric Musau, a research analyst
from Standard Investment Bank in Nairobi. Being a member of Comesa hasn’t smoothed all the bumps of Egypt’s trade with the bloc. According to the AfDB, the volume of trade between Egypt and Comesa countries was 2.8% of Egypt’s total in 2012 – and without Libya it was only 1.9%.
The main obstacles still affecting trade within regional blocs include the existence of non-tariff measures like border procedures, inefficient infrastructure, a lack of storage and warehousing facilities and a lack of trade promotion activities. Other factors such as weak interest from Egypt’s private sector, which has traditionally focused on markets in Europe and the Middle East, and a lack of information on potential opportunities, continue to blight trade.
New political will fanning Egyptian-African trade flows will start to change that but progress will face headwinds from the slowdown in global trade. Commodity price falls have hurt African exports and Egypt is feeling the impact of the fall in trade revenues through the Suez Canal, says Hanan Morsy, lead economist for the southern and eastern Mediterranean at the European Bank of Reconstruction and Development (EBRD).
“I think the biggest risk to progress is the slowdown in global trade,” she says. The EBRD has committed in excess of €1bn in Egypt through 27 projects since the start of its activities in the country at the end of 2012.
Regions and governments may be throwing their weight behind improved trade links but the reality is still some way off. “Egypt has simply never been developed as a market for Sub-Saharan Africa, and it will take time,” says Banerjea.