Food Processing Export Strategy

Food Processing Export Strategy Foreign Direct Investment Action Plan

Consultation Document Draft Final

Project: Trade Enhancement Programme A (TEP-A Lot 2, Comp 4)

Assignment: 4.15.3 Policy and Capacity Building: Food Processing Export Council

Author: Paul Baker Date: May 2007

Disclaimer: The views and propositions expressed herein are those of the expert (Paul Baker) and do not necessarily represent any official view of the European Commission or any other organisations mentioned in the Report

Export Strategy for Processed Food – Foreign Investment Action Plan

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Preface This report has been produced as part of an assignment to support capacity building of the Food Processing Export Council (FPEC) in order to ensure that the Council is able to perform and act as a qualified partner for the Ministry of Trade and Industry (MTI), representing and serving the development of the Egyptian food processing sector. The purpose of the report is to briefly analyse the FDI export situation of the Egyptian Processed Food Sector (in comparison to Europe and MEDA region) and to put-forward suggestions for a possible series of actions to support the promotion and attraction of FDI (‘Action Plan’). In its current form, the report attempts to raise a number of relevant issues to be addressed by the industry, and policy-making and support institutions, as part of the development of an industry-wide medium-tern strategy for the food processing sector. Finally, the reader should note that the views and propositions expressed in this report are those of the author and do not necessarily represent the views of the European Commission (funding agency), COPCA (contractor), the Egyptian Food Export Council (beneficiary) or any other organisation mentioned in the Report.


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Executive Summary

Introduction The context for this report is provided by earlier analysis and strategic recommendations for the food processing sector in Egypt that have identified the need and opportunities for foreign investment as complementary to boosting Egypt’s processed food exports. To take these findings a step forward, this report examines the recent performance of foreign investment in the food processing sector in Europe, MEDA region and Egypt. Following from this analysis, a framework for targeted investment promotion and attraction is utilised as the basis for developing a series of recommendations to strengthen the overall foreign investment promotion and attraction effort of the sector. The purpose of the recommendations is to provide a basis for discussion within the food processing industry, and between the industry and relevant national institutions and other stakeholders. At the time of writing, GAFI – the sole governmental authority concerned with facilitating investment procedures, assisting investors, and promoting Egypt’s potential sectors abroad – is in the process of moving towards a more targeted and sector orientated approach to its investment promotion functions. After a period during which GAFI has sought to put in place the necessary elements for providing a full range of services for potential investors, the intention is for GAFI to become a more pro-active promotion agency. This shift in emphasis provides an important opportunity for the food processing sector to build a constructive partnership with GAFI for the active promotion (and attraction) of investment opportunities in the sector. To successfully achieve the food processing sector’s aims and priorities in terms of foreign investment attraction will, however, require the active participation of the sector in shaping the ‘agenda’ and ‘priorities’ for the investment promotion and attraction effort. More importantly, even with a high prioritisation, a very intense foreign investment promotion effort is unlikely to yield significant positive results without the development of an attractive ‘value proposition’ to be offered to potential investors. Although the overall ‘value proposition’ is a wide ranging concept, the more closely it reflects the business requirements and preoccupations of the potential foreign investor then the more likely it is to succeed. Thus, developing a successful ‘value proposition’ requires a comprehensive understanding of business realities within the sector, something which may be beyond the reach of an investment promotion agency such as GAFI that has a broad scope of responsibilities, sector coverage and limited resources to dedicate to individual sectors. This being the case, enhancing cooperation and collaboration and the mutual sharing of expertise between GAFI and the food processing sector should form the basis for developing a ‘joint-approach’ for investment promotion and attraction. Investment strategy and priority setting The first set of recommendations relate to the determination of an investment strategy (in line with the general development strategy for the food processing sector) and, in turn, the identification of priorities for FDI promotion and attraction efforts. These elements need to be put in place in order to provide a framework for setting the agenda for future activities for both the food processing sector and GAFI, and for other stakeholders. The overall structure (referred to as the investor targeting process) is set out in Fig. A.


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Fig. A Investor targeting process

Strategic Vision &

Goals

Host country FDI 'needs' and 'opportunities'

(Domestic FDI portfolio)

International FDI 'needs' and 'opportunities'(Intl. FDI portfolio)

Key location criteria(Investment 'drivers')

International benchmark of location criteria

Long-list of

potential FDI targets Se

lect

ion

&

prio

ritia

satio

n

Short-list of

potential FDI targets

Food sector development strategy and investment priorities The starting point for developing an investment promotion strategy for the food processing sector is to evaluate and then articulate the strategic investment requirements of the sector. The analysis and recommendations of the “Egyptian Processed Food Sector Review” (IMC, May 2005) and “Food Export Strategy Report (IMC, May 2006) provide a starting point but are not sufficient to clearly identify those investment requirements within the sector that may potentially be met through foreign investment. Accordingly, the first required action is to undertake a more comprehensive evaluation of the strategic investment requirements of the food processing sector, both in terms of requirements across different product segments and throughout the supply chain of each product segment. From this evaluation, the main goals and priorities for foreign investment promotion and attraction in the food processing sector should be identified; together with priorities related to supporting sectors (e.g. agriculture, packaging, transport/logistics, etc.)

Recommendation 1 Sector and product segment investment requirement analysis

Undertake a detailed analysis for ‘priority’ food sub-sectors / product segments (full supply/value chain) of investment requirements that may be addressed through foreign investment. Categorise these investment ‘opportunities’ in terms of preferred foreign investment relationship/type: ‘greenfield’, joint-ventures, mergers and acquisitions, private equity and venture capital, etc.;

Determine foreign investment goals and priorities at sector and product-segment levels, and integrate these into the overall sector-level strategy development.

Identifying investor’s needs and requirements It is one thing to set goals and priorities for foreign investment, but these need to be matched by investors’ needs and requirements if an actual investment is to take place. As with the strategic vision and goals, a more comprehensive – and ongoing - evaluation of the needs and requirements of potential investors is required. The analysis in this report provides some indications of recent trends in foreign investment behaviour in the food processing sector and underlying – but rather generic – motivations for foreign investment decisions. This analysis needs to be taken further to identify more specific


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trends in investment behaviour in the food processing sector that distinguishes different sub-sectors/product segments and points in the value chains and/or business activities.

Recommendation 2 Foreign investor requirement and ‘opportunities’ analysis and monitoring

Undertake a detailed analysis and evaluation of the needs and requirements of potential foreign investors by ‘type’ of investor and for ‘priority’ food sub-sectors / product segments (full supply/value chain);

Implement a system for regular monitoring of foreign investment behaviour within the food processing sector to identify ‘positive’ and ‘negative’ developments for the attraction of foreign investment in Egypt.

Foreign investment matching and prioritisation On the basis of the analysis of domestic investment needs and requirements and those of potential foreign investors, then a preliminary matching can be made between the ‘domestic FDI portfolio’ and the ‘international FDI portfolio’. In this respect, Egypt will need to ‘offer’ three basic and interrelated requirements to potential investors: access to production inputs at competitive price and quality levels; access to final markets for production; and, in turn, adequate levels of return on investment. Beyond these basic requirements, the list of potential FDI targets can be further refined through assessment (benchmarking) of critical location factors and investment drivers to establish a shortlist of priority investment targets.

Recommendation 3 Foreign investment target prioritisation

Match foreign investment developments and strategies (‘opportunities’) with Egyptian investment goals and priorities (‘FDI portfolio’), taking account of key investment location criteria, to determine a short-list of investment target priorities;

Integrate ‘investment target priorities’ into the development of the Egyptian food processing sector investment value proposition and positioning.

Developing a ‘value proposition’ and positioning Once a short-list of potential FDI targets has been identified then an attractive ‘value proposition’ needs to be assembled that can be presented to potential investors. As shown in Fig. B, the ‘value proposition’ is a wide ranging concept that encompasses not only the specific investment project concept(s) but also a wide range of location benefits (and costs) to the potential investor. The overall ‘value proposition’ covers both general factors and conditions that affect the location decision making process and sector specific factors. When developing the ‘value proposition’ it is clearly important to take into account the characteristics of the sector/product-segment being targeted, the geographical origin of the potential investor and the type of company/investor. From this, for each ‘investment concept’ an assessment needs to be made of the critical success factors for attracting foreign investment and, as appropriate, actions undertaken to enhance and/or address problems related to these factors.


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Fig. B Value proposition development

Strategic Vision &

GoalsShort-list

of potential

FDI targets

Investment Project

Concept

Location driven 'offer'

Investor driven 'demand'

Financial Return(Return on Investment)

Location (financial) Benefits

Location (financial)

Costs

Service Value'Time and

Enegy' Costs

Image Value

Personal Interaction

Value Psycological Cost

'Soft' factors

'Hard factors

VALUE PROPOSITION

Benefits Costs

The starting point proposed in this report for development of an operational framework for development of an overall value proposition for investment in the food processing sector is to consider the process in terms of the main investment promotion functions as illustrated in Fig. C. In turn, it is hoped that this approach will help facilitate the identification areas of potential synergies and cooperation between the food processing sector and the national investment promotion system, notably GAFI. Fig. C Overview of investment promotion functions

Strategic Vision &

Goals




FDI TARGETS

VALUE PROPOSITION

POLICY ADVOCACY

Advocate for policies to enhance the investment and general business climate and

to address investor’s concerns.

IMAGE BUILDING

Creating a positive image of the country and the food sector to potential inward investors and to the business community in general.

INVESTMENT GENERATION

Value proposition development (from investment project concept to final

proposition)

Creation of a flow of inward investment prospects: marketing investment

opportunities (general to targeted activities)

Retaining and expanding existing inward investment

INVESTMENT FACILITATION

Project handling: assist investors to evaluate opportunities; provide information and

support during the pre-establishment phase.

INVESTMENT SERVICING

Assist investors in the operational phase (e.g. 'Aftercare' / 'Corporate Development')

INVESTMENT PROMOTION FUNCTIONS


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Policy advocacy Unless it can be demonstrated to potential investors that a location (Egypt) posses a good environment in which they can invest and conduct their business then no matter how much effort is put into the FDI promotion and attraction effort it is unlikely to be successful. Although much progress has been made in improving the investment environment in Egypt, there is currently no formal structure/organisation with a mandate to advocate on behalf of business, in general, and foreign investors, specifically, for improvements in the investment environment in the food processing sector. One option would be to create an advocacy group that could identify and prioritise investors concerns and problems with respect to the investment environment in the food processing sector; articulate the sectors position vis-à-vis initiatives to improve the situation; and, make proposals for initiatives, specific actions, and forms of cooperation to enhance the investment environment. A priori, this group should draw on the first-hand experience of those foreign companies that have already invested in the sector to identify ‘problem areas’ of particular concern to foreign investors. Moreover, beyond the direct positive contribution that a foreign investment policy advocacy group could have in increasing awareness and influencing policy with respect to (sector specific) short-comings in the investment environment, the existence of such a group could in itself be a positive factor in the overall ‘value proposition’ presented to foreign investors. The existence of a body specifically dealing with the concerns of foreign investors in the sector, particularly one able to engage in constructive dialogue with relevant public authorities and other stakeholders, would send a positive signal that the food sector takes seriously the specific problems that may be encountered by foreign investors.

Recommendation 4 Food Sector Foreign Investors’ Advocacy Group

Support the creation of a representative body for foreign investors within the food processing sector that would serve to:

Identify and prioritise business/foreign investors concerns and problems with respect to the investment environment of the food processing sector;

Consider/develop options for improving the investment climate and articulate a food sector position vis-à-vis such initiatives/options;

Propose options for joint initiatives/actions - both within the food sector itself and in cooperation with relevant counterparts and stakeholders - to support enhancement of the food sector (foreign) investment environment;

Promote awareness to existing and potential foreign investors of the Foreign Investors’ Advocacy Group.

Image building Creating a favourable investment climate is the first step in creating a positive image of an investment location. Without a good investment climate investment promotion may actually be counter productive since it will tend to highlight the disadvantages of investing in a country and hence discourage business from investing both at present and, even if the investment environment is improved, in the future because investors continue to perceive the location as being a poor place to invest.


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For investment in the food processing sector Egypt possesses clear positive attributes in terms of key location decision making criteria (e.g. large and growing market size, access to regional markets, low labour and utility costs, access to expanding raw material/agricultural base etc.) Therefore, if we consider ‘image building’ as a next step – after improving the investment environment – then its general purpose is to create awareness of the location (i.e. Egypt as a location for foreign investment in the food processing sector) among potential investors, both in terms of increasing Egypt’s visibility and in overcoming negative perceptions. Formulating an ‘image building’ strategy should start from a basic understanding of the existing level of awareness and perceptions among potential investor targets. Of course, in this respect, having a clear idea of which are the potential targets in terms of product-segments and ‘type’ of investor will narrow down the field for which this information needs to be obtained. An obvious way to obtain this information would be to undertake an opinion/perception survey of potential investors (i.e. recruit a marketing/survey company). If this is beyond the resources available, then possible alternative approaches may include: (a) reviewing information sources likely to be utilised by potential investors to evaluate investment opportunities and investment environment of the food processing sector; for example, Egyptian government services (GAFI, MOI, MFA) internet/online materials, analyst reports, commercial services (e.g. foreign commercial representation in Egypt), chambers of commerce, etc.; or (b) the systematic collection of feedback from ‘outward’ and ‘inward’ trade missions, on the awareness and perceptions of the investment possibilities and environment of the food processing sector in Egypt.

Recommendation 5(a) Investors’ awareness and perception analysis

On the basis of identified potential investment targets (product-segments and ‘type’ of investor) undertake an analysis of the existing visibility/awareness/perceptions of the food processing sector and investment environment of the sector;

Identify weakness (and strengths) in the overall ‘image’ of the food processing sector, investment opportunities and environment within the sector, and critical success factors;

Integrate the above findings into development of an ‘investment marketing’ / ‘image building’ approach for the food processing sector.

Notwithstanding the outcomes and findings from the analysis of investors’ awareness and perceptions, there appear to be three main areas for developing investment-orientated image building activities and synergies in the utilisation of common ‘image’ and ‘marketing’ messages:

Within sector (intra-industry): for example, at the level of the utilising common ‘brand image’ and highlighting common quality and competitive advantages etc. of the sector in both export-orientated and investment-orientated activities.

This could also extend to emphasising the investment opportunities and investment ‘success stories’ of companies within the food processing sector. Testimonials of the success of previous investments (particularly by foreign investors) are a strong selling tool of an investment location.

Across sector (inter-industry): for example, one of the most important ‘outward’ projections of Egypt’s image is through promotion of the tourism sector; this could provide opportunities for indirect promotion of the food sector by integrating food


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products in tourism marketing activities or more directly in the actual delivery of tourism services.

National level (across investment agents): for example harmonising ‘brand’ utilisation and ‘marketing messages’ of the food processing sector across different agencies engaged in investment promotion/attraction (e.g. GAFI, MOI, etc.).

From the above, it is clear that there are considerable areas of potential overlap between ‘image building’ and promotion activities of the food processing sector and other sectors and agents. The possibilities for the food processing sector to have a positive influence in developing synergies will be enhanced if the sector itself has developed a clear ‘image building’ strategy and outputs that can be integrated into the promotional efforts undertaken by others. At the same time, the food sector needs to be aware of what other image building/promotion activities are being undertaken in order to identify possible opportunities for cooperation, collaboration and harmonisation of image building / promotion approach and activities.

Recommendation 5(b) Investment ‘image building’ approach and implementation

Identify key elements to be integrated into the investment-orientated image building for the food processing sector (target product segments, competitive advantages, pre-conceptions to be addressed, etc.);

Identify potential opportunities for developing synergies in image building activities within the sector and between the food processing sector and other sectors/agents;

On the basis of the above, develop and implement sector level and joint investment-orientated image building activities/actions.

Investment facilitation Investment facilitation services come into play after a potential investor has already demonstrated an interest in investing in a location. The location has, therefore, already made it onto a ‘short-list’ of possible investment locations. The types of activities covered by facilitation services include organising site visits, assisting investors with site selection and land acquisition, dealing with national and local authorities, assistance in handling registrations and permits etc., and assistance in obtaining essential services. Logically, investment facilitation services come into play only after investment generation activities have been undertaken. However, in terms of their resource requirements relative to their incremental contribution to enhancing the effectiveness of investment promotion efforts, strengthening facilitation services can be more ‘cost effective’ than dedicating extra resources to investment generation activities. Often, the quality (efficiency and effectiveness) of facilitation services can be crucial in converting the potential interest of investors into actual investments. The lead agency for providing investment facilitation services is typically the investment promotion agency (i.e. GAFI) but a whole range of other counterparts are involved, from legal and financial services, industrial site management, etc. In this context, for potential investments in the sector, the food sector can also play a role in enhancing the overall ‘facilitation service’. For example:


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Support to the lead facilitation agency (e.g. GAFI)1 in preparation and implementation of facilitation services. This could be in an advisory role to prepare staff of the lead agency on situation of the business environment, likely concerns of potential investors, or appropriate site selection criteria. More practically, representatives of the food sector could form part of the team charged with provision of facilitation services to the potential investor (e.g. being ‘on-hand’ to organise site visits, answer investors questions and provide information and materials, organising meetings with potential suppliers and customers, etc.)

Raising (investor) awareness and readiness among local companies (particularly for companies seeking joint-venture partners) of foreign investor’s requirements and expectations. Often one of the major obstacles to establishing investment relationships between local and foreign companies is that the local company has limited ‘investor readiness’ in terms of understanding the types of information that it will be expected to provide (business/investment plans, financial accounts) or the modes of conducting negotiations and, in particular, recognition that the foreign investor will have his own ‘concept’ for any proposed project. This can be particularly the case for smaller companies and family-owned businesses that have developed their own ‘specific’ ways of conducting business. This being the case, one sector-level activity that can be envisaged is some form of training programme or support service designed to improve investor awareness and readiness.

Recommendation 6(a) Investment facilitation services

Identify potential contributions and support that could be made by the food processing sector to investment facilitations services (e.g. site visits, site selection, supplier and customer relations);

Develop with lead investment facilitation agencies (e.g. GAFI) a joint approach for support for investment facilitation services.

Recommendation 6(b) Investment support programme for local companies

Develop a programme or service to assist local companies to enhance their awareness and readiness to interact with potential foreign investors/partners.

Investor servicing Investor servicing (also referred to as ‘aftercare’ or ‘corporate development’) can play two key roles: firstly, in encouraging existing investors to expand their investments (re-investment) and, secondly by averting the possibility of existing investors re-locating. Although figures differ across countries, it is often the case that more than half of FDI may come from existing investors and that ‘aftercare’ services can be a more cost-effective way of increasing FDI than investment generation activities. Monitoring existing FDI projects to ensure that investors have a positive experience of the host country can play a crucial role in this process. In the context of the food processing sector, probably the key opportunities arising from investor servicing are to encourage existing foreign investors to expand their investments and, in addition, to ‘upgrade’ their investments from not only production 1 This could also include other organizations that might assist potential investors (e.g. foreign commercial representation in Egypt, bi-lateral chambers of commerce, business associations, etc.)


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activities but also to administrative services (regional corporate head-quarters), distribution and logistic services, technology centres and customer support services (e.g. customer call centres). In principal, these elements should be part of (and be identified by) the overall strategic vision and goals; for example, if one of the key priorities is to expand the presence of ‘brand orientated multinationals’ and for them to place their regional headquarters in Egypt, then this is probably more easily achieved through persuading existing foreign investors to expand their current activities that persuading new investors to locate a regional headquarters in the country. From the above example, it is hopefully evident that ‘investor servicing’ can play an important role in expanding foreign investment. Moreover, the fact that existing investors decide to expand their investments sends out a strong signal to other potential investors of the attractiveness of environment for investing and doing business in Egypt. In this context, we can also see the importance of the ‘policy advocacy’ role (see Recommendation 4). At the level of the food processing sector, possibly the main contribution that can be made to enhancing the investor servicing function is to enter into a constructive dialogue with GAFI (and other relevant organisations) to ensure that the sector’s strategic investment priorities are integrated in strategies and approaches for the delivery of investor servicing programmes (‘aftercare’, ‘corporate development’). Here, a pro-active approach on behalf of the sector could encourage the prioritisation of the food sector within such programmes, while active cooperation from the sector-level organisations could increase the effectiveness of such services in encouraging further investment. In this respect, the ‘food processing sector’ could adopt a role of informing GAFI (and other relevant organisations) of problems being encountered by existing foreign investors and to alert them of possible opportunities to persuade these investors to expand or upgrade their existing operations. Further, where such opportunities exist, food sector organisations and GAFI could cooperate with the local foreign investor office in the preparation of a ‘business case’ for investment expansion or re-location of corporate functions to Egypt.

Recommendation 7(a) Investor servicing

Enter into dialogue with GAFI (and other relevant organisations) to design and implement a investor ‘aftercare’ services for the food processing sector (in accordance with the sector’s identified strategic investment priorities);

Develop a pro-active approach within the food sector to alerting the investor ‘aftercare’ service provider (GAFI) of ‘problems’ and possible opportunities for expansion or upgrading existing investments;

Recommendation 7(b) Investor ‘corporate development’ programme

Develop active cooperation with local offices of foreign investors in order to develop a ‘business case’ for expanding investment and/or re-location of corporate functions to Egypt.


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Investment generation – product development Investment generation can be describes as ‘the creation of a flow of inward investment prospects’. This is what is normally thought of as being at the heart of investment promotion, that is to say activities specifically designed to attract foreign investors. From the perspective of the investment approach set out in this report, the investment generation function is concerned with translating the strategic investment goals and objectives into a ‘business concept’ that defines investor targets, outline value propositions, and critical success factors (see Recommendations 1 to 3) and then informing the potential investor of the entire ‘value proposition’ in a way that results in the effective generation of investment leads. The approaches utilised to ‘market’ investment opportunities in a given location can span from very general ‘marketing’ activities to highly targeted approaches to specific investor groups and even individual investors; also, as described above it can extend to retaining and expanding existing inward investment. At the outset, it should be recognised that investment generation can be extremely resource intensive. Sophisticated marketing and especially targeted marketing (e.g. proposition based) is complex and long-term. It requires undertaking a whole range of activities including: network development, attending conferences and trade fairs, undertaking missions abroad, and direct meetings with companies. Even when a contact has been made with a potential investor, building the types of relationships necessary to eventually secure an investment requires considerable perseverance. Undertaking these activities can require significant and sustained allocation of financial and staff resources to investment promotion/generation activities. Given the above comments, there is a key question regarding the extent of resources that can be made available to improve the food sector ‘package’ that is developed to promote investment opportunities in the food processing sector. Moreover it requires evaluating the extent to which it is feasible to move towards a more pro-active and targeted marketing (e.g. proposition based) approach. It is beyond the scope of this report to answer these questions but, at the same time, it is clear that simply presenting brief descriptions of a sector and ad hoc investment ‘opportunities’ is unlikely to make an effective (i.e. added-value) contribution to increasing investment in the food processing sector. If we take as our starting baseline the information currently available from GAFI with regard to the food processing sector, this falls someway short of delivering an attractive ‘package’ for potential investors. The information available on the food processing sector is limited, the range of sub-sectors identified as potential opportunities is not supported by convincing arguments as to why they are attractive to potential investors, and specific projects are presented without any apparent reason as to why they have been selected. All in all, there is quite some way to go in presenting an attractive food sector investment product(s) to potential investors2. This being the case, if foreign investment in the food processing sector is to be effectively promoted then a more sophisticated ‘package’ and approach needs to be developed. This will require not only greater prioritisation of the sector in the promotional efforts of GAFI (and other relevant organisations) but, also, the active cooperation and collaboration of the food processing sector. If we focus primarily on the identification and development of those elements of the value proposition that are 2 The purpose of these comments is not to criticise GAFI; their ability to develop an effective and attractive product is limited to their available resources and expertise of the food sector.


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the most sector specific, then such cooperation and collaboration could be developed in the following areas:

General promotional material and information: more comprehensive and better presented information on the food processing sector in general and, specifically, for specific product-segments identified as investment priorities. Attention should be given to tailoring materials and information to the requirements of target investor groups. In this respect, the food sector can contribute through helping to identify (and providing) relevant information to be provided and critical success factors.

Specific investment propositions: currently, the readily available information on ‘actual’ investment propositions/opportunities (e.g. joint ventures, M&A opportunities, bankruptcy opportunities) being proposed by local companies is limited and, as such it is of minimal value to potential investors. Improving this type of information often requires significant support to the local company/proposer to develop sound business arguments to support their projects and accompanying information (investment/business plan). In doing so, it has to be remembered that the bottom line for investors is the return on their investment and that arguments such as increasing employment, which may be a socially valuable objectives, are not among the primary concerns of most investors.

Generic investment propositions: these are outline projects (e.g. outline ‘greenfield’ investment projects) that are used to illustrate the type of investment opportunities that could be of interest to potential foreign investors, or that are proposed by development agencies to fit the requirements of their locations. In developing such proposals it needs to be recognised that foreign investors will have their own project concepts and are very unlikely to be interested by a specific project proposed in this way. It often appears that this type of proposition is developed to illustrate the (high) rate of return on investment, while failing to address the business logic and competitive advantage of a given location for the type of project being proposed. As a ‘marketing tool’ such propositions are perhaps most effective not because of their specific characteristics but, if appropriately benchmarked against competing locations, as illustrations on a like-for-like basis the relative return on an investment in the host location (Egypt) against potentially competing locations.

Investor ‘tailored’ propositions: this approach would be used when a very specific investor or group of potential investors is being targeted. Normally such an approach would only be adopted when there is already information that the potential investor(s) is looking at the possibility of investing in the region, or where the potential investor is seen as a critical component in the overall development strategy of the sector. The starting point for the development of such propositions is an in-depth analysis of the particular needs and requirements of the potential investor(s) that serves as the basis for development of a ‘tailored’ investment proposition.


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Recommendation 8 Product development

Formation of a joint GAFI-food sector group for promotional material and investment project propositions enabling the food sector to provide information and expertise to align the promotional approach and information with sector priorities, and enhance overall quality and relevance.

Develop a mechanism to provide support to local food sector companies (or others proposing investment projects) to assist in the development of sound business arguments to support their projects and the development of accompanying information (investment/business plan)

Upgrade available information and promotional materials in line with the requirements of target investor groups.

Upgrade information on available investment projects and investment concepts: – Specific investment propositions (e.g. joint ventures, M&A opportunities, bankruptcy

opportunities) – Generic investment propositions (e.g. outline ‘greenfield’ investment projects) benchmarked

against competing locations,: – Investor ‘tailored’ propositions for specific target investors or investors with a confirmed

interest in investing in the region

Organisational concept The purpose of designing an organisational concept is to try to develop structures and systems that maximise the efficiency and effectiveness of the overall (aggregate) FDI promotion effort; while integrating sufficient flexibility and adaptability to respond to changes and new opportunities as they arise. At the same time, the organisational concept needs to make allowances for the fact that a whole range of agencies, organisations, companies and individuals can be engaged in FDI promotion activities (e.g. Government ministries and designated national development and investment promotion agencies, regional development agencies, industrial zones & technology parks, industry associations, financial and investment intermediaries, companies seeking investment partners, etc.). The multitude of ‘actors’ involved, directly or indirectly, in foreign investment attraction and promotion means that there exist possibilities for mutual reinforcement of FDI promotion activities or, where the activities of different actors are not coherent, the possibility that ‘competing’ activities will actually reduce the overall effectiveness of the investment promotion effort. The existence of such opportunities and risks provide the basis for arguing for a coordinated ‘joint approach’ to investment promotion that integrates all of the key ‘actors’ involved in the investment promotion, attraction and facilitation effort and seeks to create mutually reinforcing synergies and avoid the negative outcomes of uncoordinated action. Although it is beyond the scope of this report to carry out a detailed resource and institutional analysis, it appears to be clear that GAFI - the sole governmental authority with responsibility for promoting and facilitating foreign investment in Egypt and the natural point of contact for initial investor enquiries - should have a central position in defining the overall organisational concept. At the same time, the food processing sector, together with other relevant stakeholders, should work alongside GAFI to ensure that an appropriate (i.e. efficient and effective) organisational structure is put in place for


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developing a ‘business concept’ matching Egypt’s investment ‘opportunities’ with target investors (i.e. product development) and for delivering the ‘value proposition’ to potential investors (i.e. product delivery). With regard to the two main activities, it is in the area of product development that the food processing sector has potentially the strongest role to play, while a priori GAFI is in the strongest position to undertake more resource intensive activities such as targeted investment promotion (e.g. lead generation). At the same time, the food processing sector should monitor the activities of the GAFI to ensure that it is effectively promoting foreign investment opportunities on behalf of the food processing sector. If it is accepted that investment promotion and attraction activities can be more effectively implemented on the basis of enhanced cooperation and collaboration and the mutual sharing of expertise between GAFI and the food processing sector then the first stage in developing a ‘joint approach’ is to make sure that the sector-level investment priorities are integrated into, and coherent with the national-level priorities for FDI promotion and attraction. Obviously, where the national level priorities - as translated in the sector focus of GAFI, for example - encompass those of food processing sector then there is a much clearer basis for mutual cooperation. If this is not the case, then it will be the responsibility of the food processing sector itself to persuade national authorities to give a high priority to promotion of investment in the food processing sector. From the part of the food sector, among the pre-conditions for achieving the prioritisation of the sector within investment promotion activities are:

Development of a clear articulation of the potential contribution and importance of the food processing sector and, in turn foreign investment in the sector, for achieving the overall economic and social development goals of Egypt.

Development of a clear prioritisation of the product segments where foreign investment needs exist, the types of investment required, and the opportunities and probabilities of successfully attracting foreign investors (e.g. outline ‘business concepts’).

Consensus-building within the food-processing sector on the above mentioned elements, so that the sector can put-forward a common position on the need for, and general approach, to promote foreign investment in the sector.

Recognition of the resource limitations of the existing investment promotion structures and development of proposals for ways in which the food sector could assist in overcoming these limitations (e.g. strengthening sector specific knowledge, cooperation in promotion activities, joint-activities to secure funds for sector specific promotion activities).

The above considerations point to the need for the food-processing sector itself to set up some form of (formal or informal) grouping with responsibility for foreign investment related matters that affect the sector.


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Recommendation 9 Food Sector Foreign Investment Coordination Group

Create a Food Sector FDI Coordination Group that would be mandated to:

Lobby on behalf of the food processing sector to ensure that the food processing sector (together with its supporting sectors) is identified as a national priority for investment promotion;

Form the interface between the food processing sector and relevant national authorities and other stakeholders engaged in investment promotion and attraction activities;

Act to develop consensus within the food processing sector on the appropriate role and potential of foreign investment to contribute to achieving national and sector-level development goals and the business objectives of the sector as a whole;

Translate sector-specific development priorities into foreign investment ‘needs and requirements’.

Monitor the effectiveness of the national effort to promote and attract foreign investment in the food processing sector

Next steps This report has set out a series of recommendations for enhancing the foreign investment promotion and attraction effort for the food processing sector in Egypt. From these, the obvious starting point is for the sector to enter into discussion with GAFI to review these recommendations, to assess available resources and possible scope for cooperation and, on this basis, to initiate a joint ‘action plan’ for promoting foreign investment in the sector. As stressed in the report, the short-term priority should be to develop a clear strategic vision and priorities, and identify potential target investors (i.e. investor targeting process, see Fig. A). Beyond this, the food sector should assist GAFI through the identification of realistic and potentially attractive investment project concepts that can for the basis for the development of clear food processing sector ‘value propositions’ (see Fig. B).


Paul Baker May 2007 xvi

Table of Contents

1. Introduction ............................................................................................................. 1 1.1. Food Export Strategy recommendations and analysis .......................................... 1 2. Foreign investment and internationalisation in the agro-food sector ..................... 3 2.1. Foreign investment in the agro food sector in Europe ........................................... 3 2.1.1. Product segments subject to internationalisation............................................. 3 2.1.2. Activities subject to internationalisation............................................................ 3 2.2. Foreign investment in the agro food sector in MEDA region ................................. 5 2.2.1. Presence of multi-national food companies in MEDA region........................... 5 2.2.2. Investment projects in the agro food sector in MEDA region........................... 5 2.3. Foreign investment in the agro food sector in Egypt............................................ 10 2.3.1. Overview ......................................................................................................... 10 2.3.2. Assessment of investment performance ........................................................ 10 2.3.3. Investment environment ................................................................................. 12 2.3.4. Egypt’s promotion of investments in the agro-food sector............................. 12 2.4. Summary............................................................................................................... 13 3. Foreign investment promotion overview............................................................... 15 3.1. Introduction ........................................................................................................... 15 3.2. Foreign investment decision making process ...................................................... 15 3.2.1. Motivating factors for internationalisation....................................................... 15 3.2.2. Forms of internationalisation .......................................................................... 16 3.2.3. Factors influencing investment decisions....................................................... 16 3.3. Foreign investment promotion framework (concept)............................................ 18 3.3.1. Investment promotion as a ‘strategic process’ ............................................... 18 3.3.2. Step 1: Strategic vision and goals .................................................................. 19 3.3.3. Step 2: Developing a ‘business concept’ ....................................................... 19 3.3.4. Step 3: Developing an ‘organisational concept’ ............................................. 23 3.3.5. Step 4: Defining ‘core processes’ ................................................................... 26 4. Foreign investment promotion framework for the Egyptian food sector .............. 27 4.1. Strategic vision and goals..................................................................................... 27 4.2. Business concept.................................................................................................. 29 4.2.1. Investment / investor targeting ....................................................................... 29 4.2.2. Value proposition and positioning .................................................................. 31 4.2.3. Critical success factors ................................................................................... 34 4.3. Food sector contribution to investment promotion ‘functions’.............................. 35 4.3.1. Policy advocacy .............................................................................................. 35 4.3.2. Image Building ................................................................................................ 37 4.3.3. Investment Facilitation .................................................................................... 39 4.3.4. Investor Servicing ........................................................................................... 40 4.3.5. Investment Generation ................................................................................... 42 4.4. Organisational concept ......................................................................................... 45 5. Outline food sector ‘Action Plan’ for investment promotion and attraction .... Error! Bookmark not defined.


Paul Baker May 2007 xvii

5.1. Introduction ............................................................ Error! Bookmark not defined.

Appendix 1 Food & beverage investments in MENA .................................................. 48 Appendix 2 Leading agri-food companies ................................................................... 51 Appendix 3 GAFI: Food Processing Information ......................................................... 53 Appendix 4 Additional information (Private Equity) ..................................................... 56 Index of Tables Table 1 Agro-food investment projects and employment by product segment and

receiving region in Europe (2002-2004) ........................................................ 4 Table 2 Agro-food investment projects and employment by activity and receiving

region in Europe (2002-2004)........................................................................ 4 Table 3 The 15 leading food multinationals present in the MEDA countries. ............. 6 Table 4 Food sector investment projects 2003-2004 by country of destination

(Europe and MEDA) ...................................................................................... 7 Table 5 Food sector investment projects 2003-2004 by country of origin and region

of destination (Europe and MEDA)................................................................ 8 Table 6 Food sector investment projects 2003-2004 in MEDA region by country of

origin and destination..................................................................................... 8 Table 7 Food sector investment projects 2003-2006 in MEDA region by country of

origin and destination..................................................................................... 9 Table 8 Illustration of FDI goals (strategy options) for olive oil ................................. 28 Table 9 Illustration of the ‘value proposition’ ............................................................. 33 Index of Figures Figure 1 FDI promotion – strategic logic.................................................................... 19 Figure 2 Investor targeting process ........................................................................... 21 Figure 3 Value proposition development ................................................................... 23 Figure 4 Overview of investment promotion functions .............................................. 25 Figure 5 Ranking of world agri-food companies by sales, 2005 (source: CIAA) ...... 51 Figure 6 Ranking of European agri-food companies by European sales, 2005

(source: CIAA) ............................................................................................. 52 Index of Boxes Box A Overview of recent policy developments to improve Egypt’s investment

environment (CIHEAM)...................................................................................... 14 Box B FDI location factors ........................................................................................... 17


Paul Baker May 2007 xviii


Paul Baker May 2007 xix

List of Acronyms AFII l'Agence française pour les investissements internationaux / Invest in France

Agency

ANIMA Euro-Mediterranean Network of Investment Promotion Agencies

CAP Common Agricultural Policy (European Union)

CEEC Central and Eastern European Countries

CIAA Confederation of the food and drink industries of the EU

EFPS Egyptian Food Processing Sector

EGP Egyptian Pound

ESR Export Strategy Report (“Food Export Strategy Study – PS137 – Final Report”, STEM-VCR, May 2006, for IMC)

EU European Union

FDI Foreign Direct Investment

FP Food Processing

FPI Food Processing Industry

FPEC Food Processing Export Council

FSR Food Sector Review (“Egyptian Processed Food Sector Review – Final Report” ECORYS-NEI, May 2005, for IMC)

GAFI General Authority for Investment and Free Zones

GCC Gulf Cooperation Council

GOEIC General Organization for Exports and Imports Control

IMC Industrial Modernisation Centre

IOOC International Olive Oil Council

IPA Investment Promotion Agency

IPRT Inward Processing Relief Traffic

MEDA Group of 10 partner countries of the European Union: Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestinian Authorities, Syria, Tunisia, Turkey, plus Cyprus and Malta, which became members of the EU in 2004.

MENA Middle East - North Africa

MFA Ministry of Foreign Affairs

MFN Most Favoured Nation

MOI Ministry of Investment

MTI Ministry of Trade and Industry

SMEs Small and Medium-sized Enterprises

SWOT Strengths, Weaknesses, Opportunities, Threats

TARIC Integrated Tariff of the European Communities

TEP-A Trade Enhancement Programme - A


Paul Baker May 2007 xx

ToR Terms of Reference

UNIDO United Nations Industrial Development Organisation

WIR World Investment Report


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1. Introduction

This Report is intended as a consultation document, providing background analysis of international and Egyptian developments of foreign investment in the food processing sector. The document raises a range of issues that – in the opinion of the author – should be addressed as part of a comprehensive ‘Export Strategy’ and ‘Action Plan’ for the olive oil sector. Deliberately, the document tries to focus on aspects that are specifically relevant for enhancing the promotion and attraction of foreign investment but it is recognised, at the same time, that improving the investment promotion and attraction performance of the olive oil sector will require issues to be analysed and addressed throughout the entire sector value chain and beyond. With regard to the proposed recommendations, they are not a comprehensive description of required actions, but rather are intended to be illustrative and to serve as a basis for promoting future discussion within the sector and other relevant stakeholders. As the starting point for this analysis, and the reasons underlying the choice of the foreign investment as an appropriate area for analysis, stem from an earlier ‘Food Export Strategy Report’; the recommendations from the Report are outlined in the following sub-section. Following from this, Section 2 provides an overview of the foreign investment developments in the food processing sector in Europe, MEDA and Egypt; Section 3 provided an outline framework for foreign investment promotion; Section 4 applies this framework in the context of the food processing sector in Egypt and provides a series of recommendations.

1.1. Food Export Strategy recommendations and analysis

The IMC: “Food Export Strategy Report” (May 2006)3 has identified the attraction of brand orientated multinationals as a potentially important element of the overall export strategy. This attraction would inter alia contribute towards expanding Egypt’s export of branded products (with associated ‘brand’ value premium) and to establishing Egypt’s position as a regional hub location for multinational companies’ operations in the MENA region. Towards achieving this outcome, the Strategy Report indicates that special incentives would be a key component to attracting new FDI, along with consolidation of a ‘business-friendly’ business and investment environment. The Strategy Report reaches the conclusion that Egypt is well positioned to attract foreign investors in the food processing sector that are considering re-location of production away from high-cost (e.g. EU) locations and that wish to enter or expand their presence in the growing regional market. This is particularly the case where companies are facing slow growth in their existing (local) markets and are, therefore, seeking out faster growing market opportunities. The Strategy Report identifies two product areas that look particularly promising for Egypt to position itself as a regional ‘hub’ exporting to the GCC area: products directly depending on agricultural output – such as fruit, vegetables, milk – and products with a segmented demand requiring investment in multiple production lines (e.g. confectionery and chocolate.)

3 “Food Export Strategy Study – PS137 – Final Report”, STEM-VCR, May 2006


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At the same time, the Strategy Report points to a number of constraints to attracting foreign investment. Many of these are of a general nature, in that they apply to all foreign companies seeking to invest and conduct business in Egypt. However, some constraints that are specific – or are of particular importance - to the food processing sector are mentioned4. Notwithstanding these constraints, a benchmarking analysis of Egypt as a location for foreign direct investment (FDI) contained within the Strategy Report suggests that Egypt is potentially the most attractive location within the region. In particular, this attractiveness stems from the large domestic market, relative low labour cost and relatively stable macroeconomic and social/political situation.

4 For example, the need to develop and implement a unified food law and unified food regulatory authority; Delays in clearance and high fees in Egyptian ports for imported ingredients and packaging materials.


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2. Foreign investment and internationalisation in the agro-food sector

This section provides a very brief overview of internationalisation of the agro-food sector in Europe and the MEDA region.

2.1. Foreign investment in the agro food sector in Europe

2.1.1. Product segments subject to internationalisation

AFII (2006)5 provides an analysis of the breakdown of foreign investment projects in Western and Eastern Europe for the period 2002-04 by product segment (see Table 1). Both in terms of project numbers and employment creation, some 70 percent of investments were concentrated in the processing sectors (low and high value added) and beverages. Noticeably, even in E. Europe, there are almost as many projects in high-value added processing as in low-value added processing projects and, to the extent that the employment data are complete6, a greater level of employment creation in high value-added processing.

2.1.2. Activities subject to internationalisation

AFII (2006)7 provides an analysis of the breakdown of foreign investment projects in Western and Eastern Europe for the period 2002-04 by type of function concerned (see Table 2. Although the vast majority of projects were undertaken in W. Europe, it is noticeable that the investments in Europe concerned not only productions facilities but also logistics projects (supply to production sites and to distribution/consumption centres).

5 Ibid, footnote 25 6 Note: employment data are not complete and under represent total employment creation. 7 Ibid, footnote 25


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Table 1 Agro-food investment projects and employment by product segment and

receiving region in Europe (2002-2004)

W. Europe E. Europe Total E. Europe Share of

total Projects Employment Projects Employment Projects Employment Proj. Emp.

Processed products (low value added) 63 22.7% 1,724 17.8% 30 28.0% 360 11.0% 93 24.2% 2,084 16.1% 32.3% 17.3% Processed products (high value added) 64 23.0% 3,177 32.8% 27 25.2% 975 29.9% 91 23.6% 4,152 32.0% 29.7% 23.5% Beverages 56 20.1% 1,793 18.5% 22 20.6% 1,145 35.1% 78 20.3% 2,938 22.7% 28.2% 39.0% Services 36 12.9% 1,293 13.3% 15 14.0% 388 11.9% 51 13.2% 1,681 13.0% 29.4% 23.1% Inputs 15 5.4% 364 3.8% 5 4.7% 45 1.4% 20 5.2% 409 3.2% 25.0% 11.0% Marine products 16 5.8% 341 3.5% 2 1.9% 350 10.7% 18 4.7% 691 5.3% 11.1% 50.7% Ingredients / intermediate products 16 5.8% 478 4.9% 1 0.9% 0 0.0% 17 4.4% 478 3.7% 5.9% 0.0% Animal and vegetable products 9 3.2% 343 3.5% 4 3.7% 0 0.0% 13 3.4% 343 2.6% 30.8% 0.0% Materials and equipment 1 0.4% 155 1.6% 1 0.3% 155 1.2% Unknown 2 0.7% 30 0.3% 1 0.9% 0 0.0% 3 0.8% 30 0.2% 33.3% 0.0% Total 278 100% 9,698 100% 107 100% 3,263 100% 385 100% 12,961 100% 27.8% 25.2%

Source: AFII observatoires Europe et France

Table 2 Agro-food investment projects and employment by activity and receiving

region in Europe (2002-2004)

W. Europe E. Europe Total E. Europe Share of

total Projects Employment Projects Employment Projects Employment Proj. Emp.

Production / fabrication 164 59.0% 6,971 71.9% 83 77.6% 2,498 76.6% 247 64.2% 9,469 73.1% 33.6% 26.4% Commercial office / representation 44 15.8% 137 1.4% 8 7.5% 0 0.0% 52 13.5% 137 1.1% 15.4% 0.0% Distribution / logistics 24 8.6% 738 7.6% 13 12.1% 390 12.0% 37 9.6% 1,128 8.7% 35.1% 34.6% Administrative services 26 9.4% 1,080 11.1% 1 0.9% 0 0.0% 27 7.0% 1,080 8.3% 3.7% 0.0% Research centre 9 3.2% 330 3.4% 9 2.3% 330 2.5% Conditioning / assembly 4 1.4% 410 4.2% 1 0.9% 0 0.0% 5 1.3% 410 3.2% 20.0% 0.0% Other services 2 0.7% 32 0.3% 1 0.9% 375 11.5% 3 0.8% 407 3.1% 33.3% 92.1% Call centre / on-line service 1 0.4% 0 0.0% 1 0.3% 0 0.0% Waste treatment 1 0.4% 0 0.0% 1 0.3% 0 0.0% Unknown 3 1.1% 0 0.0% 3 0.8% 0 0.0% Total 278 100% 9,698 100% 107 100% 3,263 100% 385 100% 12,961 100% 27.8% 25.2%

Source: AFII observatoires Europe et France


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2.2. Foreign investment in the agro food sector in MEDA region

2.2.1. Presence of multi-national food companies in MEDA region

Analysis by ANIMA (2005) 8 suggests that the leading 100 food industry multinationals have only 160 subsidiaries in the MEDA region. This number is modest when compared to 2,000 subsidiaries in Western Europe and 400 in Eastern Europe. Moreover, over the past few years the number is increasing more modestly in MEDA than in Asia or CEEC region.

2.2.2. Investment projects in the agro food sector in MEDA region

An analysis of AFII and ANIMA data for the period 2003-2004 shows that the MEDA countries are of relatively marginal interest in terms of the number of international investment projects well behind Western Europe and Eastern Europe (see Table 4) despite the good performance by Turkey and Morocco. As shown in Table 5 the largest single investing country (in terms of number of projects) in the Euro-Mediterranean region is the USA, and also for the MEDA region alone. The main European investors in MEDA region are France, United Kingdom, Spain and Italy, while there are some from the Gulf States, Turkey and Iran. The pattern of investments within MEDA by country of indicate the ‘preference’ of southern European investors (France, Spain) for the Maghreb and of northern European and American firms for Turkey (see Table 6). Using more up to date information, the pattern of investment projects for the period 2003 to 2006 shows a similar pattern (see Table 7)9. Looking at the sector-composition of projects, we observe several investments by the major European multi-product food companies (Danone, Nestlé, Unilever) and, in particular, the high proportion of investments in the beverage sector (both alcoholic and non-alcoholic). There are also several investments in the dairy sector and oil sector (predominantly olive oil). By contrast, there are very few projects in the fruit and vegetables, and meat sectors. The above described pattern of investment is very similar to that observed in Central and Eastern Europe in the decade following the collapse of the Soviet Union. There, the vast majority of agro-food FDI was directed to the agro-industry rather than primary agriculture and, within the agro-industry, most investment went into sugar and confectionary, the tobacco and the soft drinks sub-sector, and vegetable oils, with relatively little investment going to meat and fruit and vegetable processing10.

8 This Section draws heavily upon the report “The agro-food sector in the Euro-Mediterranean” Papers and Documents, ANIMA No 16, (November 2005). Available at: http://www.animaweb.org/study-en.php 9 Data used are presented in Appendix 1. Care has to be exercised because the information refers only to the number of investment projects recorded in the WIPO database which does not provide information on their size and, moreover, it has to be recognised that many smaller investment projects may not be captured by the data. 10 Inflows of FDI focused on a small number of countries, with the Czech Republic, Hungary and Poland accounting for over three-quarters of total FDI inflows to the region during the 1990s.


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Table 3 The 15 leading food multinationals present in the MEDA countries.

Multinationals Country of origin No. of subsidiaries (MEDA region)

1 Sara Lee Corp USA 20

2 Nestlé Switzerland 19

3 Unilever Netherlands/UK 18

4 Pepsico USA 15

5 Procter & Gamble USA 14

6 Danone France 9

7 Kraft Food USA 8

8 General Mills USA 5

9 Heineken Netherlands 5

10 Cadbury Schweppes U.K. 4

11 Sodial France 4

12 Cargill Inc. USA 3

13 Mars Inc. USA 3

14 Fonterra Coop Group Australia 3

15 McCormick & Co USA 2

Source: Tozanli (2004)11 as reported in ANIMA (2005)

11 Tozanli S., 2004, “The place of Mediterranean countries in the foreign investments of the top 100 food processing multinational enterprises”, presentation at SIAL, 21 October.


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Table 4 Food sector investment projects 2003-2004 by country of destination (Europe and MEDA)

Country Number of projects Employment created France 41 1246 Spain 36 621 United Kingdom 29 1450 Germany 21 692 Belgium 12 400 Portugal 13 750 Switzerland 11 258 Netherlands 10 400 Ireland 8 769 Sweden 7 486 Italy 6 0 Austria 5 158 Denmark 3 20 Greece 3 0 Norway 1 0 Iceland 1 7 Total of above 207 7257

Poland 17 1218 Romania 16 250 Bulgaria 12 315 Hungary 11 530 Czech Republic 11 120 Lithuania 4 0 Estonia 1 0 Slovakia 1 0 Slovenia 1 0 Total of above 74 2433

Turkey 14 150 Morocco 10 0 Egypt 4 0 Algeria 3 1050 Israel 3 0 Syria 3 0 Tunisia 3 0 Cyprus 2 0 Jordan 2 0 Lebanon 1 0 Total of above 45 1200

TOTAL (all projects) 326 10890

Note: employment numbers are only indicative as data is not available for all projects

Source AFII/ANIMA, as reported in ANIMA (2005)


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Table 5 Food sector investment projects 2003-2004 by country of origin and region of destination (Europe and MEDA)

Destination W. Europe E. Europe MEDA Total USA 40 7 7 54

France 15 8 6 29 United Kingdom 14 6 5 25 Spain 14 4 5 23 Italy 12 2 3 17 Germany 13 6 2 21 Greece 3 9 2 14 Switzerland 15 4 2 21 Austria 3 1 1 5 Netherlands 14 3 0 17 Denmark 10 3 0 13 Belgium 7 1 0 8 Finland 0 3 0 3 Czech Republic 1 2 0 3

Saudi Arabia 0 1 3 4 Turkey 4 3 2 9 Iran 0 0 2 2 Russia 1 2 1 4 Australia 1 0 1 2

Japan 9 1 0 10 Malaysia 6 0 0 6 India 3 0 0 3 Mexico 3 0 0 3

Others 21 6 3 30 Total 209 72 45 326

Source AFII/ANIMA, as reported in ANIMA (2005)

Table 6 Food sector investment projects 2003-2004 in MEDA region by country of

origin and destination

Destination Turkey Morocco Egypt Tunisia Algeria Israel Syria Cyprus Jordan Lebanon Total USA 2 2 1 1 1 7 France 2 3 1 6 United Kingdom 3 2 5 Spain 5 5 Italy 2 1 3 Germany 2 2 Greece 1 1 2 Switzerland 2 2 Austria 1 1 Saudi Arabia 2 1 3 Turkey 1 1 2 Jordan 1 1 Iran 1 1 2 Lebanon 1 1 Russia 1 1 Australia 1 1 Poland 1 1 Total 14 10 4 3 3 3 3 2 2 1 45

Source ANIMA/MIPO, as reported in ANIMA (2005)


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Table 7 Food sector investment projects 2003-2006 in MEDA region by country of origin and destination

Destination Morocco Algeria Turkey Egypt Israel Jordan Syria Tunisia Lebanon Cyprus Total

USA 3: Coca Cola (beverages); Kraft Foods

(multi); Alcoa (food

packaging)

1: Coca Cola

(beverages)

2: Crown Holdings

(food packaging)

(2);

1: Crown Holdings

(food packaging)

1: Unknown (bakery)

8

France 4: Bel (dairy); Groupe

Coopératif Maïsadour

(frozen veg.); Lesieur (oils); Sirh (fish oil);

9:Castel (beverage);

Clextral (cereals); Danone

(multi) (5); Lesaffre

(ingredients); Rolland (dairy)

1: Danone (multi)

1: Danone (multi)

1 Bel (dairy)

2 Castel

(beverage); Lesieur (oils)

18

Spain 5: Cobega (beverage);

Francisco Gil Gomes (fish);

Indumix (dairy); Rostoy

(beverage); SOS (oil)

1: Borges (oil)

6

UK 1: SABMiller (beverage)

1: SABMiller (beverage)

1: Unilever (multi)

2: Tate & Lyle

(sugar); Unilever (multi)

5

Greece 1: Fine Foods (?)

1: Chipita Int. (bakery)

1: Boutaris (beverage)

3

NL 1: Heineken (beverage)

1: Heineken

(beverage)

1: Heineken

(beverage)

3

Germany 1: Orken (beverage)

1: Kingship

(beverage)

2

Italy 1: Mediterranean Fruit Co. (fruit)

1: Barilla (bakery)

2

CH 1: Nestlé (multi)

1: Nestlé (multi)

2

Austria 1: Rauch (beverage)

1

Norway 1: Unknown (fish)

1

Poland 1: Profi SA (?)

1

Saudi Arabia

2: Savola (oil);Unknown

1: Aujan Group

(beverage);

3

Turkey 1: Meysan (multi)

1: Unknown

(meat)

2

Iran 1: Zamzam Cola

(beverage)

1: Zamzam Cola

(beverage)

2

Lebanon 1: Patchi (confectionery)

1: EuroMENA

fund (meat)

2

Kuweit 1:Kuwait Food Americana

(multi)

1

Syria 1: Tabourian

Group (beverage)

1

UAE 1: Al Qudra Holding (oil)

1

Brazil 1: Bunge Ltd (multi)

1: Cristalsev

(sugar)

2

India 1: Rasna (beverage)

1

Japan 1: Unknown (vegetables)

1

Total 15 11 9 9 5 5 4 4 3 3 68 Source Authors calculations based on MIPO


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2.3. Foreign investment in the agro food sector in Egypt

NB: Additional (and more recent) information is available in Appendix 3.

2.3.1. Overview12

There are already a reasonably large number of foreign enterprises installed in Egypt, attracted especially by the size of the market and the need to produce on site given customs protection. According to the statistics of GAFI there were 321 foreign subsidiaries in the agro-food sector representing more than 50% of the issued capital of the companies in the sector. This presence is particularly important in the fats sector, ‘other’ agro-food industries, and the dairy sector; less important in terms of presence of foreign firms in water and beverages. Among recently installed foreign enterprises are Danone Mashraq (a joint venture created in 2002 between Danone and the Egyptian Rashied) which produces biscuits and chocolate-based products. Other companies, of the likes of Kraft Foods, Eastern Company and Patchi have recently made investments in the country.

2.3.2. Assessment of investment performance13

High volumes and growth of demand in the domestic market have attracted multinational investments in the Egyptian food-processing sector. From 1999 to 2004, the value of the top 20 alliances, mergers and acquisitions between Egyptian and foreign multinationals amounted to LE 1760 million. The analysis of the pattern of investments of the main multinationals and other foreign investors in the food sector, indicate that Arab investors tend to invest in green field operations (e.g. "Kharafi Group" (Americana), Ajwaa S.A.) whereas non-Arab investors and especially multinationals tend to favour acquisitions thus securing market shares at the outset (e.g. Kraft Foods, Heineken, Cadbury, Nestle). In many cases, the approach of multinational companies has been to buy into existing Egyptian ‘success stories’; often these are companies that have already ‘mimicked’ the products and/or production methods of multinationals14. For companies from the Gulf region, investments have often been made in businesses that are complimentary to their existing portfolio. This conglomerate building provides a mechanism to secure increased volumes for the conglomerate as the whole so as to offset investments and make savings through more efficient logistics and commercial costs. In some cases, investments in the FPI are also indirectly linked to investments in the tourism sector (hotels) that provide a market for processed food products.

12 Ibid, footnote 8 13 Source: “Egyptian Processed Food Sector Review – Final Report” ECORYS-NEI, May 2005. 14 For example .the Rachid Group’s success with mimicking Dr.Oetker (Germany) and Palsgaard (Denmark) in dry mixed desserts. Three Rachid Group factories (Lipton Tean packing, tomato paste, and dry blends/mix for poultry bouillon soup cubes and coatings) were taken over by Lever Group, and are still marketed under the Fine Foods brand name of Rachid. Further Rachid maintains joint ventures to produce Dreem (dry mix deserts), Meshreq (Milkana processed cheese, in association with Bonne Grain – France) and Prince Biscuits (in association with Danone).


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Several leading international companies have set-up or bought operations in Egypt:

In the early 1990’s, Heinz (tomato products) and Farm Frites (potato products) were among the first wave of investments15; these investment were linked closely to Egypt’s advantages for agricultural production of their key inputs.

The operations of Nestle in Egypt reflect a policy of external growth via the development of new markets. It is now able to exercise considerable control over the ice-cream business, has a strong commitment in the (fresh) dairy sector, and involvement in pet food and baby food.

Americana (Kuwait Food Co.), with a strong presence in the Gulf region, is closely involved with the food service sector16. Within Egypt it has built up a network of powerful processing units: frozen potatoes (Farm Frites), tomato products etc. (Heinz), canned vegetables (California Garden), canned meats (Beefy), and poultry processing (Cairo Poultry-KoKi).

Cadbury brand was introduced into Egypt in 1991 and has established its presence through the takeover of the long established Bimbim company.

Kraft Foods purchased the domestic snack food manufacturer Family Nutrition, extending its range of products beyond fruit juices (Tang brand) and chocolate. Family Nutrition has a 30% share of the Egyptian biscuit market and a 40% share of the cake market17.

International Company Egyptian Company Sector Date Comments Cadbury Bim Bim Confectionary 1997 Best foods / Unilever El Rasheedy Confectionary 2000 Majority stake sold

back to Rasheedy Bongrain Rachid/Meshreq Processed Cheese 2000 Migob / Ajwaa Safola Oil Edible oil 2001 Tasty Foods (PepsiCo) Chipsy Potato chips 2001 Ajwaa Basmah Frozen veg. & value-

added chicken parts 2002

Heineken Alahram beverages Alcoholic beverages 2002 Hero Vitrac Jams 2002 Kraft Foods (Altria Group18)

Family Nutrition Biscuits 2003

Unilever / Lever Mashreq Co.

Fine Foods Dry foods, tea 2003

Danone Rachid/Meshreq Biscuits 2003 Cadbury Schweppes SONUT Beverages 2003 Americana Greenland Dairy & juices 2004

15 Both of these investments were undertaken in association with Americana (Kuwait Food Co.) 16 Leading international brands in which Americana has investments/franchises include: Kentucky Fried Chicken, Hardee’s, PizzaHut and Baskin Robbins. In addition, the company launched its own brand “Chicken Tikka”. 17 The company also exports to, among others, Libya, Saudi Arabia, Israel, USA, Australia and Hungary. 18 Formerly Philip Morris Group


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2.3.3. Investment environment

The general investment environment in Egypt is improving and there appears to be a real effort on the part of public authorities to create better conditions for investment (both domestic and foreign), see Box A19. Nonetheless, Egypt still ranks in the lowest position of 17 countries in the Middle East and North Africa evaluated by the World Bank “Doing Business” assessment20; Egypt is ranked in 165 position out of 175 countries. Similarly, the World Bank enterprise surveys21, which provide a snapshot of the investment climate in 94 countries, show a generally poor performance of Egypt; this is particularly the case in the areas of finance, delays in obtaining utilities, use of technology and innovation, and employment training. Notwithstanding these negative aspects, as the IMC “Food Export Strategy Report” (May 2006)22 points out, the large and growing market in Egypt is a considerably attractive factor for foreign investors in the food processing sector.

2.3.4. Egypt’s promotion of investments in the agro-food sector

General Authority for Investment and Free Zones (GAFI), under the tutelage of the Ministry of Investment, is the principle agency for promoting and attracting foreign investment in Egypt. Information available to foreign investors in relation to the food sector includes:

A very brief and partial description (profile) of the food processing sector23;

A brief overview of factors influencing the food processing sectors’ competitiveness (e.g. raw material supplies, low wages, proximity and access to regional markets, export performance, etc.) and needs for investment for modernisation (technology, training, marketing, etc.)24

Sector success stories – this section is empty for food processing!

Investment opportunities, related to specific projects that can be divided into two main categories:

Brownfield / Joint Venture, for which the current opportunities include: Company Description Type Seller Champion for Oils Establishing a firm to squeeze and pack the vegetable oils and the

related productions Offered for sale National Bank of

Egypt Misr for Refrigeration and Storing - Giza

Refrigeration and factory for ice making Offered for sale Banque Misr

Alexandria Flour Mills & Bakeries

Wheat milling - other activities of the company include baking, macaroni production, biscuits and wafers production

Middle Egypt Flour Mills

The company produces flour, semolina, bran( fine and coarse) , bread, pasta and biscuit

North Cairo Flour Mills Company

Flour milling, packing and transporting. It also produces bread and pasta.

South Cairo Flour Mills

Grain milling specially wheat, storing, packaging, transportation and distribution for grains and its products, bread making, macaroni and biscuits manufacturing besides animal feed production.

Offered for Sale Partially -Shares

Holding Company for Food Industries

19 For an overview of the investment reform agenda see: OECD “Egypt: National Investment Reform Agenda” available at: http://www.oecd.org/dataoecd/4/28/38148849.pdf 20 Source: http://www.doingbusiness.org/EconomyRankings/ 21 See: http://www.enterprisesurveys.org/ 22 “Food Export Strategy Study – PS137 – Final Report”, STEM-VCR, May 2006. This report contains a benchmark analysis of Egypt’s FDI situation relative to other countries in the region. Unfortunately the current author has been unable to trace the source of data used in the evaluation of investor’s perceptions (EU Chambers of Commerce Investment Intentions Survey) 23 See: http://www.investment.gov.eg/MOI_Portal/en-GB/Investment_Opportunities/Sectors+Profile/11/ 24 See: http://www.investment.gov.eg/MOI_Portal/en-GB/Investment_Opportunities/Sectors+Competitiveness/11/


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Greenfield, which are described in the form of individual project fiches, covering: - Extraction and refinement of food oil EGP 105.8 million - Extraction of olive oil – EGP 1.92 million - Extraction of aromatic oil (and pasta) – EGP 3.262 million - Refinement of food oil (and fatty acid) – EGP 62 million - Dehydration of onions and garlic – EGP 5.059 million - Frozen vegetables – EGP 30 million - Production of tomato sauce and ketchup – EGP 1.405 million - Production of date biscuits – EGP 3.319 million - Production of date jam EGP 2.797 million - Production of full cream dried milk – EGP 35.4 million - Production of skimmed dried milk - EGP 39.5 million - Packing of mineral water – EGP 17 million

2.4. Summary

With the exception of Turkey and Morocco, foreign investment in the agro-food sector in the MEDA region has been relatively modest and relative to other countries in the region the performance of Egypt appears no better or no worse than in competing locations given the overall level of interest of foreign investors from the sector in the region. The pattern of investments within the MEDA region appears to reflect the general strategic behaviour of the major companies in the food processing sector, with the most visible involvement of foreign investors in segments such as beverages (both alcoholic and non-alcoholic) and high and low value added processing for local/regional markets (e.g. dairy, confectionary and snack foods, and edible oils). This pattern accords with strategies orientated towards developing new growth markets and establishing dominant market positions in specific product segments. To date, there seems less interest in accessing specific resources or looking for low cost production, though these factors are relevant for some food sectors (e.g. olive oil, fish processing). As a consequence, there is only limited evidence of foreign investment interest in basic animal and food processing activities. Moreover, this pattern would tend to suggest that, to date at least, there is limited specifically export-orientated foreign investment within the food industry in MEDA in general and in Egypt, specifically.


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Box A Overview of recent policy developments to improve Egypt’s investment environment (CIHEAM)

The recent low level of foreign investment in Egypt and the efforts to fully integrate the Egyptian economy into the global economy have had their impact on Egyptian economic policy in the year under review. We have witnessed a number of developments in this respect, the most important of which are: - Legislative amendments including various laws regulating the economic arena in Egypt on the one

hand, and Egypt’s relationship with the economic world on the other. This is illustrated by many examples such as: - New amendments to the law on investment incentives and guarantees, the objective being to

provide more facilities for investment procedures for all investors whether Egyptian or foreign. This was done in order to encourage investment and overcome obstacles.

- Amendments to the customs law lifting the restrictions on imports, the objective being to activate various economic sectors and provide the opportunity for all investors to implement all production requirements at lower cost. A further aim is to eliminate a number of distortions in the customs tariff that were causing a great deal of bureaucracy. As the result of the reductions introduced by this law, Egypt has reached the required final tariff level to be implemented by the beginning of 2005 according to Egypt’s commitments to the World Trade Organisation (WTO) and has even gove beyond that level in accordance with the above-mentioned objectives.

- Establishment of the Standard Customs Tax Centre to assist in the improvement of customs procedures.

- Activation of more economic agreements and arrangements. The implementation of the Liberalisation Trade Agreement between the Arab countries commenced in the beginning of 2005, for instance. Furthermore, the QIZ Agreement (Qualified Industrial Zone) was signed and began to be implemented between Egypt, the US and Israel, introducing a unilateral preferential rate for all products manufactured in the qualified industrial zones (industrial zones selected for deals by virtue of the agreement). This agreement includes: the freedom of immediate entry for all products manufactured in the zone in to the US market duty-free and exempt of quotas or restricytions as long as the products comply with the rule of origin. These rules state that 11.7% of Israeli inputs (of manufacturer’s production price in the selected zone) should be included in the case of commodities exportable to the US market.

- Development of the basic structural projects related to the industrial zones - Liberalisation of the Egyptian pound on the foreign exchange market. In addition, adoption of a

monetary and financial policy of expansion, and, finally, reduction of government intervention in the market forces to a minimum in terms of wages and prices.

- Introduction of a new tax law tending to reduce the burden imposed on investors and to diminish the bureaucratic constraints involved in dealing with the Tax Department. The major modifications of the law included: - Reducing the minimum tax rate to 20% on individuals and companies; - Eliminating the tax on income from securities; - Unifying the tax rat for all types of companies (partnerships, joint stock companies, financing

companies, financial holding companies, … etc.) - Obliging the Tax Department to accept tax declarations submitted to it.

- Creation of a new Ministry of Investment overseeing and controlling all economic sectors related to investments, such as the public works sector, the general authority for investments and free trade areas, the general authority for financial markets, the insurance sector and housing finance. The objective of the new ministry was defined as: “to improve the investment climate, remove the obstacles that stand in the way of national and foreign investors, increase the trust between investors and the government, and eliminate the overlap pf investment regulation laws”

Sources: CIHEAM – Agri-Med “Agriculture, fisheries, food and sustainable rural development in the Mediterranean region“ Annual Report 2006 , available at http://www.medobs.org/panorama/defrapp.htm


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3. Foreign investment promotion overview

3.1. Introduction

Inward investment attraction takes place in a highly competitive environment, with competition existing at supra-national, national and sub-national levels. To be successful in this environment requires designing and implementing investment promotion strategies and inward investment attraction (and investment retention) programmes and activities that effectively combine in order to project the - commercial - advantages of investing in a given location. This section sets out to provide a framework for developing an appropriate strategy for encouraging foreign investment. Section 3.2 provides a brief description of the FDI decision making process, while Section 3.3 provides a ‘generic’ strategic investment promotion development framework. This framework is applied to the Egyptian food processing sector in Section 4.

3.2. Foreign investment decision making process

This sub-section looks briefly at the main factors motivating internationalisation, the forms of internationalisation, and factors influencing decisions over investment locations.

3.2.1. Motivating factors for internationalisation

The main factors explaining the internationalisation of firms in the agro-food sector are25:

Access to new markets, either for the high spending capacity in the major mature markets in developed countries or the rapidly growing markets in developing countries. To a large degree, this explains the prevalence of international subsidiaries of agro-food companies in W. Europe that are attracted by the large market size and in Asia by the rapid growth of local demand.

Access to specific resources, which may encompass strong agricultural base, quality of the industrial and technical environment, the culinary ‘image’ and local speciality products with a strong international reputation. For example, the interest of certain American multinationals to open operations in the south of Europe is linked to the strong image of Mediterranean cuisine.

Search for dominant market position in core product segments, reflecting the strategy of many major firms in the sector to concentrate their activities on core business/product-segments in the search for a strong (leading) global position. This is reflected in a strategy of acquisition of foreign firms within the core product segment(s); this is reflected in strong merger and acquisition activity in recent years in the beverages sector, for example.

Production cost reductions which lies behind the foreign implantation of certain companies (e.g. development of fish processing and vegetable processing in Morocco for export to the European market). Generally, however, the search for cost reductions in the agro-food sector is less important than in other sectors. This reflects: the relatively limited value chains (short production cycles); the problems of

25 Source: Les investissements internationaux dans les IAA en Europe, Direction des Etudes et du Marketing, Notes et Etudes de l’AFII - 2006/1


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conservation for some products which limits possibilities for long-distance international transportation (e.g. limited conservation, cold chain management, low unit values relative to weight, strict sanitary and phyto-sanitary regulations of importing countries). Consequently, the agro-food industry tend to be more locally orientated both in terms of utilisation of resources (agricultural inputs) and supply to local and close regional markets.

3.2.2. Forms of internationalisation

Internalisation of agro-food companies takes several forms:

Export development. Since the 1960s their has been a steady growth in international trade in agro-food products linked to trade liberalisation, the development of international markets, the specialisation of national food chains and the construction of trans-national networks of production and distribution by multi-national companies. The major trade flows of food products concern, in particular, cereals, meat, sugar, and dairy products.

Foreign direct investment (FDI) aimed at developing the international presence of agro-food companies, either through physical investment (e.g. creation and extension of production sites) or through mergers and acquisition activities. Although the agro-food sector lags behind the leading sectors in terms of major M&A deals, there have been a number of important mergers and acquisitions in recent years, notably in the beverage sector.

Other forms of commercial relationships that do not necessarily require capital investments such as franchising, licensing and commercial alliances and cooperation agreements

3.2.3. Factors influencing investment decisions.

Companies’ decisions to undertake a foreign investment project and their choice over possible locations are the outcome of a complicated set of interactions between different factors (see Box B) and the weight attached to each factor in the decision making process will be specific to the investor and the investment to be made. Nonetheless, the ‘bottom line’ for any investment decision is the expected return on investment. Beyond, the basic financial investment-return decision trigger, the most important (and inter-related) determining factors typically appear to relate to the potential market (market size, market growth, market stability) and the ability of the investor to secure an effective utilisation of physical and intellectual assets (e.g. asset utilisation and exploitation potential, asset protection). At the same time, it needs to be recognised that choices over investment decisions are not purely based on objective criteria. Particularly where foreign investments are being considered by small and medium-sized companies, more subjective criteria may be important; often relating to the investors perceptions of the ‘friendliness’, ‘efficiency and professionalism’, ‘trustworthiness’ etc., resulting from contacts made in the potential investment location, their familiarity with the location - which is of obvious relevance for investments coming from a countries ‘diaspora’ – or, more abstractly, their perception of the location as a place to work and live.


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Box B FDI location factors

There is a great deal of literature on FDI decision making, including the major factors impacting on trans-national companies (TNCs) investment decisions. What may be termed ‘primary’ location factors are often classified according to three main types of underlying motivation for making an investment in a foreign country: Market-seeking FDI • Market size and per capita income • Market growth • Access to regional and global

markets • Country-specific consumer

preferences • Structure of markets

Resource or asset seeking FDI • Raw materials • Low-cost unskilled labour • Skilled labour • Technological, innovatory and other

created assets (e.g. brand names), including as embodies in individuals, firms and clusters

• Physical infrastructure (ports, roads, power, telecommunications)

Efficiency-seeking FDI • Cost of resources and assets (listed

under resource or asset seeking FDI) adjusted for productivity for labour resources

• Other input costs (e.g. transport and communication costs to/from and within host economy and costs of other intermediate products

• Membership of a regional integration agreement conducive to the establishment of regional corporate networks

The relative weight attached to each of these factors in motivating the decision to make an investment will be specific both to the investment project under consideration and the company considering making the investment. It is generally recognised, however, that market potential and economic dynamics alone cannot assure a choice of a particular investment location for FDI. The additional critical factors that determine FDI locations are:

• Political and economic stability

• The nature of a country’s legal and regulatory environment

• Presence of qualified labour and requisite industrial strengths

• Communication systems

• The ability for companies to repatriate profits, and

• An acceptable fiscal and financial regime

As a general rule, investors prefer a stable, transparent and reliable legal and regulatory framework. Such a framework entails stable ‘rules of the game’, a judicial system that can enforce laws and contracts effectively, promptly and honestly, and a minimum amount of bureaucratic red tape, interference and arbitrary decision-making by the government.

On top of these critical factors, come a range of additional factors related to business facilitation within the host country. These relate, on the one hand, to the efforts made to promote and encourage FDI and, on the other, to the ease of doing business both from the perspective of the business operations per se and of the staff and employees of the investor.

Taking these factors together, the host country determinants of FDI may be classified under three broad headings: Economic Determinants • See factors listed above (market,

resource or asset, and efficiency-seeking)

Policy Framework • Economic, political and social stability • Rules regarding entry and operations • Standards of treatment of foreign

affiliates • Policies on functioning and structure

of markets (especially competition, and mergers and acquisition (M&A) policies)

• International agreements on FDI • Privatisation policy • Trade policy (tariffs and non-tariff

barriers) and coherence of FDI and trade policies

• Tax policy

Business / Investment Facilitation • Investment promotion (including

image-building, investment generation, and investment facilitation services)

• Investment incentives • Hassle costs (related to corruption,

administrative efficiency etc.) • Social amenities (international

schools, quality of life, etc.) • Aftercare services


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3.3. Foreign investment promotion framework (concept)

As noted in the previous section, the ‘bottom line’ for any investment decision is the expected return on investment. However, if this was the only criteria determining investment choices then all foreign investments would go to the location offering the highest return on investment and that would be the end of the story. The reality is, however, more complicated; both because potential investors don’t have perfect information and because many other factors – both objective and subjective – influence investment decision making. It is for this reason that there is a role to be played by ‘investment promotion’ and in turn for development of a strategic approach to investment promotion activities.

3.3.1. Investment promotion as a ‘strategic process’

This sub-section attempts to set out issues and options for developing a strategic approach to encouraging (export-orientated) foreign investment in the food processing sector26. The basic starting point is to consider the investment decision as an economic supply-demand relationship, where the investor’s decision making choice is determined through matching his ‘demand’ (market, resource, technical, etc. requirements) against the ‘supply’ or ‘offer’ available from different locations. In this context, there has been a marked development overtime of approaches to investment promotion activities:

Location as an image. Until the early nineties, governments used to view FDI attraction primarily as a matter of international image building and granting permits to investors. Even today, many economic development organizations still “sell” their regions through advertisements, glossy brochures and broadly-targeted conferences trying to “push” their region to investors.

Location as a product. Later, and against a background of a widespread increase in competition for FDI, the awareness grew that a business location can be viewed as a product, which should be developed and marketed like any other industrial product. That meant that many concepts and techniques of corporate competitive strategy and business-to-business marketing can be applied to the “business” of FDI attraction.

Location as a solution. Today it is clear that the traditional approaches to FDI attraction are becoming less and less effective in our changing world. Even if we treat a business location as a product, there is a real risk of reducing the process to what could be called “sales-oriented management”, i.e. with an emphasis on promotion while neglecting the marketing aspects. Promotional activities are often confused with real marketing. However, as the market has become a buyers’ market, the only way to success is to discover and satisfy the needs of a customer in a better way than your competitors can. In line with new corporate thinking, seeing your location less as a product and more as a solution is increasingly seen as providing a basis to structure FDI attraction efforts along the principles of a “customer-oriented strategy”.

The overall approach to developing a framework for investment promotion is illustrated in Figure 1. 26 The investment promotion framework utilised in this section was developed by Business Mobility International and ECORYS Netherlands.


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Figure 1 FDI promotion – strategic logic

Core Processes

Business Concept

OrganisationConcept

WHOM?: Investment Targets (strategic preferences)

HOW?: Critical Success Factors

WHAT?: The Investment Offer

RESOURCES

ORGANISTIONAL STRUCTURE

CONTROLS & INCENTIVES

PRODUCT DEVELOPMENT

PRODUCT DELIVERY

RESOURCE DEVELOPMENT

TRANSFORMATION

Strategic Vision &

Goals

3.3.2. Step 1: Strategic vision and goals

The starting point for developing a strategic approach to investment promotion is to determine the main goals to be achieved through FDI. Whether at a national or sub-national level, or at the sector-level or individual companies, FDI promotion activities are undertaken in anticipation of economic benefits that successful foreign investment will bring in return. At a national or sector policy level, much has been written on the benefits of FDI and most governments are fully aware of the potential of FDI to achieve their economic goals. Taking full advantage of FDI starts from translating national economic competitive strategy goals into FDI-specific goals. For example, targets can be formulated in terms of stimulation of innovation in management and technology, unemployment reduction in poor regions, labour skills improvement, improvement of international trade balance through export increase, improvements of the industrial base through adding a missing chain or cluster development, stimulation of economic growth through increased competition, etc27.

3.3.3. Step 2: Developing a ‘business concept’

Once a clear vision and related goals for foreign investment (promotion) have been determined, the focus can be placed immediately on the client side – the potential investor. The purpose here is to invert the logic of the strategic vision and examine potential investment requirements in terms of viable solutions to investors needs. As it is clearly not possible to cater for all types of investments, some selection needs to be applied. Moreover, investors will have specific requirements that cannot necessarily be foreseen. The ‘business concept’ stage is, therefore, focused on determining which ‘investment solutions’ to develop and present to potential investors. Designing the ‘business concept’ requires providing answers on the following questions:

Who best to address with the offer, to ensure successful targeting of the right investment source countries, the right sectors and companies?

What to offer in order to ensure that the potential investor is presented with a value proposition that is accurately matched to the potential investors’ needs and the location’s inherent advantages?

27 Often, however, ambitious long-term targets are often compromised to the advantage of immediate but more politically spectacular achievements. A well-designed and implemented FDI strategy helps to overcome these shortages.


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How to address critical success factors in order to ensure effective delivery of the value proposition?

Who: investment / investor targeting

Targeting is a widely used technique in strategic planning of any marketing efforts. There are two reasons for targeting: firstly, because it is impossible to deliver a competitive offer to all market segments and, secondly, because resource constraints mean that it is not possible to pursue all potential ‘candidate’ investment projects. Accordingly, the host location has to focus on these investments which are most valuable and which fit best with the location potential. Thus, the following issues have to be addressed: Which FDI adds most value to the host location economy? For example:

FDI sources linked to the existing industrial tissue FDI sources linked to the existing FDI portfolio New FDI opportunities: industries, sectors, which are intensifying their

international mobility What is the potential of the host location to attract this FDI? For example:

Ability to recognize the investor’s needs Ability to evaluate the location’s current performance Ability to improve competitiveness of the offer

It is not the point in this document to go into a detailed description of the targeting process, but it typically involves the following phases/activities.

Long-list of targeted FDI. The establishment of a long-list of potential investment targets is based on the assessment of:

Domestic (‘Host’) FDI portfolio, in terms of both the existing stock of investments - to identify inter alia strengths and weaknesses (gaps) in the existing portfolio - and stock of perceived FDI opportunities; evaluated in relation to their added value to overall economy/sector development objectives (host country ‘needs’);

FDI trends and investor’s strategic behaviour, where these can be segmented by a variety of characteristics such as: destination, source country/region, sector/product segment, type of business activity (production, distribution, R&D, corporate headquarters etc.), modality (greenfield, joint-ventures, M&A), investment value (in terms of capital, employment, local sourcing, innovation, export value, extent to which the investment is embedded in the local industrial cluster, etc.) and type of investor (e.g. multi-national, regional investor, venture-capital/private equity, SME, etc.). The purpose is to identify the key factors influencing ‘demand’ side of the FDI and possible competing investment locations (‘supply’ side).

By contrasting the domestic FDI portfolio with international FDI developments and strategies, host country ‘needs’ and investment possibilities can be matched with the potential international investment requirements (‘opportunities’) and potential target investors and, at the same time, unattractive (non-matched) combinations can be excluded.


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Short-list of targeted FDI. After identification of a long-list of potential FDI targets, the second stage involves confronting this with the competitive position of the host location, to determine the ‘realistic’ ability of the host to attract FDI and to identify priority targets (short-list). In order to evaluate the competitive position of the host, the factors affecting the location decision-making criteria of an investment have to be identified for each potential target group, and the host location’s capacity to meet these criteria benchmarked against potential competing locations:

Location criteria: this requires identifying the main factors affecting the location decision (i.e. decision-making criteria) and to assess the competitive position of the host location in relation to these criteria. This typically involves both collection and analysis of comparative data relevant to assessing the investment/operational/strategic requirements of potential target investors and developing a picture of their business environment. From this a comprehensive list of investment location factors (see Box B) can be identified and prioritised.

Competitive benchmark analysis: this covers benchmarking the host investment environment in relation to the investment criteria of competing locations; where competing locations cover near regional or other locations sharing similar characteristics as the host location and, in addition, other locations that have either attracted investments from potential target investors and/or are expected to try to attract potential target investors in the future.

Selection and prioritisation: On the basis of the benchmark analysis, the final step is to select the final list of target investors. Candidates will be those investors with location criteria for which the host location has a strong relative competitive position. In reaching this assessment, realistic assessments in the host (and competing) location investment environment can be integrated to identify target investor may be realistic candidates in the future or on the basis of specific changes that may be implemented to better match their location criteria.

Figure 2 Investor targeting process

Strategic Vision &

Goals




Key location criteria(Investment 'drivers')

International benchmark of location criteria

Long-list of

potential FDI targets Se

lect

ion

&

prio

ritia

satio

n

Short-list of

potential FDI targets

What: value propositions and positioning

The value proposition refers to the investment ‘concept’ used to interest a potential investor and covers the total benefit/solution that is on offer from investing in the given location (i.e. Egypt). The positioning refers to the efforts of the host location to set its value proposition apart from potential competition from other investment location;


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essentially it refers, therefore, to the factors that differentiate the location from its potential competitors. The value proposition covers the perception of the total benefits and costs a prospective investor expects to incur while investing in the host location. From the starting point of a potential investment project concept (defined via the location’s investment opportunities – location driven – or via the investor’s investment requirements – investor driven), the investment proposition can be considered in terms of ‘hard factors’ (i.e. directly contributing to the financial aspects and returns) and ‘soft factors (i.e. those determining the overall environment in which the investment decision making process takes place), as illustrated in Figure 3. The total benefit to the investor is formed by:

Location (financial) benefits: degree to which the location is able to deliver a competitive solution (e.g. access to resources, market size and margins, etc.)

Service value: degree to which the host location assists the potential investor to become aware and learn about the location, evaluate it, invest there, operate, expand, or even re-locate.

Image Value: for example, where investors seek a prestige location which adds value through co-branding.

Personal Interaction Value: feelings created in personal contact with the promotional interface of the host location (promotional agency, representative office, trade fair team), are always projected on the perception of the host location offer.

The total cost to the investor is formed by:

Location (financial) cost: the experienced and anticipated cost related to the whole process of location decision making (learning about the location), investing, operating and re-locating.

Time and energy cost: the expense in time and energy necessary to learn about the location, evaluate it, investing, operating, and de-investing.

Psychological cost: is related to the investment risk perception; this can be significantly reduced through transparent information supply.

It is of great importance not to overlook any element of the ‘value proposition’ either at the phase of the ‘offer’ development, when communicating to the investor, or during the ‘offer’ delivery (which extends from the project pre-implementation phase through to the operational phase). Overall the value proposition aims to put the project-sector-location on the ‘mental map’ of the potential investor, it goes beyond the objective factors (e.g. potential rate of return on investment). One purpose of the value proposition is, therefore, to overcome preconceptions of the decision-makers caused by fragmented or amalgamated mapping of a geographical region or specific location due to missing information or experience, distorted risk perception or political competition between different located subsidiaries of the company.


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Figure 3 Value proposition development

Strategic Vision &

GoalsShort-list

of potential

FDI targets

Investment Project

Concept

Location driven 'offer'

Investor driven 'demand'

Financial Return(Return on Investment)

Location (financial) Benefits

Location (financial)

Costs

Service Value'Time and

Enegy' Costs

Image Value

Personal Interaction

Value Psycological Cost

'Soft' factors

'Hard factors

VALUE PROPOSITION

Benefits Costs

How: critical success factors

Critical success factors refer to those aspects of the investment promotion and attraction effort that can ‘make or break’ a potential investment decision or, at least, of converting the tentative interest of a potential investor into a serious investment possibility. On the one hand, this may relate to the organisational/operational aspects of the investment promotion effort (see Section 3.3.4); for example, implementing systems for information sharing and cooperation between the various ‘actors’ to ensure a coherent, efficient and flexible development and delivery of the ‘value proposition’ to target investors. On the other hand, the critical success factors relate to ensuring that the ‘value proposition’ is not only in accordance with the strategic intent (vision, goals, etc.) of the promotion effort but is also appropriately matched with the ‘investor target’. For example, attracting major brand-orientated multinationals requires a different focus and approach from efforts to attract an SME investor interested in securing low-cost supplies for export to the investor’s home market. Accurately identifying and managing critical success factors so that the value proposition is in accordance with the target investor’s needs demonstrates an understanding of the investor’s business and priorities and, as such, underpins a compelling offer.

3.3.4. Step 3: Developing an ‘organisational concept’

The purpose of designing an organisational concept is to try to develop structures and systems that maximise the efficiency and effectiveness of the overall (aggregate) FDI promotion effort; while integrating sufficient flexibility and adaptability to respond to changes and new opportunities as they arise. At the same time, the organisational concept needs to make allowances for the fact that a whole range of agencies, organisations, companies and individuals can be engaged in FDI promotion activities (e.g. Government ministries and designated national development and investment promotion agencies, regional development agencies, industrial zones & technology parks, industry associations, financial and investment


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intermediaries, companies seeking investment partners, etc.). This multitude of ‘actors’ means that there exist possibilities for mutual reinforcement of FDI promotion activities or, where the activities of different actors are not coherent, the possibility that ‘competing’ activities will actually reduce the overall effectiveness of the investment promotion effort. Creating mutually reinforcing synergies and avoiding the negative outcomes of uncoordinated action calls for the development of a ‘joint approach’ to investment promotion that integrates all of the key ‘actors’ involved in the investment promotion, attraction and facilitation effort. The purpose of proposing a ‘joint approach’ is to avoid the negative consequences of uncoordinated FDI promotion activities (e.g. where the formal investment promotion structure in promoting opportunities that are not in accordance with the sector-level strategy and needs and requirements) with the aim of maximising the efficiency and effectiveness of the overall (aggregate) FDI promotion effort. In particular, a joint approach should: Contribute to delivering clear and coherent messages to potential investors, Contribute to enhancing the ‘professionalism’ of services provided to (potential)

inward investors.

In meeting these aims, a joint approach can also serve as: a mechanism for offsetting resource limitations and lack of capacity within the overall

FDI promotion system; A mechanism for improving information flows within the investment promotion

system and, consequently, for improved oversight and management of the system as a whole.

The main functions associated with investment promotion activities are illustrated in Figure 4. These are typically the functions assigned to an investment promotion agency (IPA) but it needs to be recognized, however, that a far wider group of ‘actors’ actually form the interface between the potential investor and the investment location, and that each actor will influence the shape the overall delivery mechanism for these functions. The way in which each of these functions is implemented and their effectiveness of implementation will, in turn, contribute to both shaping the overall ‘value proposition’ being offered to potential investors and the de facto selection of target investors (‘FDI targets’). Starting from the presumption that the strategic vision and goals have been determined, and the respective host country and potential investors’ needs and opportunities identified, then the development of the ‘organisational concept’ is primarily concerned with providing structures and systems for defining and developing the ‘value proposition’ and ‘FDI targets’, and for establishing and allocating responsibilities for the various activities (‘investment promotion functions’) that will serve to successfully match these two elements.


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Figure 4 Overview of investment promotion functions

Strategic Vision &

Goals




FDI TARGETS

VALUE PROPOSITION

POLICY ADVOCACY

Advocate for policies to enhance the investment and general business climate and

to address investor’s concerns.

IMAGE BUILDING

Creating a positive image of the country and the food sector to potential inward investors and to the business community in general.

INVESTMENT GENERATION

Value proposition development (from investment project concept to final

proposition)

Creation of a flow of inward investment prospects: marketing investment

opportunities (general to targeted activities)

Retaining and expanding existing inward investment

INVESTMENT FACILITATION

Project handling: assist investors to evaluate opportunities; provide information and

support during the pre-establishment phase.

INVESTMENT SERVICING

Assist investors in the operational phase (e.g. 'Aftercare' / 'Corporate Development')

INVESTMENT PROMOTION FUNCTIONS

The basic activities undertaken in designing an organisational concept cover: Developing an inventory of available resources/assets and resource requirements:

Financial resources/budgets Information systems and management tools: e.g. websites, investor/company

databases, B2B systems, knowledge information system, management information system etc.

Human and ‘intangible’ knowledge assets: including both internal resources (in terms of skills, competences, development needs, etc) and external resources (e.g. networks, support services, etc.)

Communication channels and institutional linkages: such as access to public administrations, government decision makers, senior-level business contacts.

‘Brand awareness’: both generic (country/region/sector) or with reference to specific institutions/companies etc.

Designing an organisational structure based on the resource requirements - something which often requires significant effort to create a consensus between the different stakeholders on their role and the commitment to support the implementation of the business and organisational concept. This may encompass: Establishing ownership and roles and responsibilities for FDI attraction across

different stakeholders. Allocation of functional responsibilities and tasks, distribution of authority,

information flows, points of control and accountability. Aligning internal structures with functional responsibilities and required activities

and outputs.


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Development of systems for monitoring and evaluation of the (investment promotion) implementation phase. This covers, inter alia, the identification and monitoring of performance indicators (e.g. number and value of investment projects, increased awareness and image enhancement in target groups, etc.)

3.3.5. Step 4: Defining ‘core processes’

All the activities that relate to attraction of FDI attraction can be grouped into four categories, allowing for their better management, as follows: Product development: this encompasses the development of the location value

offer (i.e. investment solution) which should be constantly monitored and evaluated against the changing environment.

Product delivery: the value proposition has to be assembled and effectively communicated to the investor. Resulting investment has to be serviced and supported in the aftercare program.

Resource development: there are many direct and indirect stakeholders who may benefit from the inward investment promotion and are potentially interested in providing resources necessary to develop capabilities in FDI attractions. Managing the relations with these resource providers is referred to as the resource (or stakeholders) development process.

Transformation: At last, all the strategic logic, concept, organization and processes should be equipped with a clear mechanism to allow for changes and transformation process in the most objective and controllable way, to avoid costly ad hoc political decisions and ownership discontinuity.


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4. Foreign investment promotion framework for the Egyptian food sector

4.1. Strategic vision and goals

The current development of a strategic vision for the food sector is discussed in an accompanying report to this document28. The most recent attempt to define a comprehensive strategy for the food processing sector is the report for IMC: “Egyptian Processed Food Sector Review” (May 2005)29. Subsequent to this report, an export strategy for the food processing sector is set out in a report for IMC: “Food Export Strategy Report” (May 2006)30. These two documents provide the basis for articulating the ‘current’ export-orientated strategy for the food processing sector31. In terms of specific areas for foreign investment attraction in the food-processing sector, the “Food Export Strategy Report” (May 2006)32 has identified the attraction of brand orientated multinationals as a potentially important element of the overall export strategy. This attraction would inter alia contribute towards expanding Egypt’s export of branded products (with associated ‘brand’ value premium) and to establishing Egypt’s position as a regional hub location for multinational companies’ operations in the MENA region. However, given the perceived needs of the food-processing sector the scope of FDI-goals can be set much wider than this, both in direct relation to the sector and, also, with respect to up- and down-stream sectors and ‘horizontal’ input and support services. What is needed is a more comprehensive evaluation of the strategic (investment) requirements of the food processing sector, both in terms of requirements across different product segments and throughout the supply chain of each product segment. From these the main goals and priorities for foreign investment (i.e. vision for foreign investment) should be set. As an illustration, Table 8 provides a skeleton example of some of the issues and possible FDI strategy options that may be relevant for addressing these issues.

Recommendation 1 Sector and product segment investment requirement analysis

Undertake a detailed analysis for ‘priority’ food sub-sectors / product segments (full supply/value chain) of investment requirements that may be addressed through foreign investment. Categorise these investment ‘opportunities’ in terms of preferred foreign investment relationship/type: ‘greenfield’, joint-ventures, mergers and acquisitions, private equity and venture capital, etc.;

Determine foreign investment goals and priorities at sector and product-segment levels, and integrate these into the overall sector-level strategy development.

28 “Food Processing Export Strategy - Preliminary Review”, Trade Enhancement Programme A (TEP-A Lot 2, Component 4), May 2007 29 “Egyptian Processed Food Sector Review – Final Report” ECORYS-NEI, May 2005. 30 “Food Export Strategy Study – PS137 – Final Report”, STEM-VCR, May 2006 31 In addition, previous support for the development of the Processed Food Export Strategy was provided in July 2005 within the context of TEP-A; this resulted in the output of outline proposals and recommendations that mainly concerned approach and steps to be taken for the development of an export strategy. 32 “Food Export Strategy Study – PS137 – Final Report”, STEM-VCR, May 2006


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Table 8 Illustration of FDI goals (strategy options) for olive oil

Supply chain Issues Foreign investment Strategy options Raw material supply Grove establishment Production, grove

management

Access to finance for new planting in accordance with international 'best practice'

Greenfield investment or joint venture development in cultivation (e.g. international growers or downstream ‘customers’: processing / final markets)

Harvesting Collection Transportation

Better coordination, olive selection and sorting, more efficient transportation to processing centres

As above and/or encouragement of foreign investment / strategic partnerships with transport/logistic supply companies

Processing

Basic processing Access to finance for investment in capacity and new technologies

Absence of refining capacity

Value-added processing Access to R&D and innovation capacity for new product development

Greenfield investment or joint venture development in processing (e.g. international processors or downstream ‘customers’ : processing / final markets). Emphasis on technology access and product development and diversification.

Intermediate supply / inputs

Bottling and packaging Shortage of supply of glass bottles / cost of imported bottle

Encouragement of investment in domestic packaging industry, specifically glass production.

Support services

Technology and laboratories

Absence of certified testing laboratory PPP* or joint venture (industry level) for establishment of research and testing laboratory (commercial or semi-commercial basis) with equivalent international service provider

Marketing

Joint-venture or strategic partnership (e.g. international processors or downstream ‘customers’: processing / final markets).

Improvement in 'branding' etc. Limited knowledge of international markets

Encouragement of investment in advertising / marketing sectors.

Logistics & transport

Logistic constraints to international markets Encouragement of foreign investment / strategic partnerships with transport/logistic supply companies

Market access (local)

Retail Food Service Ingredients

Development of retail sector to improve outlets for final value-added products. Development of food service sector and ingredients (further processing) to improve market for higher value-added product

Encouragement of foreign investment in food retail, food service and further processing sectors

Market access (domestic)

Retail Food service Ingredients

Competition from major European (and other international) producers. Limited 'consumer' awareness of (quality) Egyptian product'

Joint-venture or strategic partnership (e.g. international processors or downstream ‘customers’: processing / final markets).

Notes * PPP: Public-Private Partnership


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4.2. Business concept

As noted in Section 3.3.3, the ‘business concept’ deals with the ‘who’, the ‘what’, and the ‘how’ of the investment promotion effort.

4.2.1. Investment / investor targeting

As described in Section 3.3.3, the purpose of investor targeting is to prioritise the domestic investment opportunities to be promoted to potential investors and to narrow down the field of target investors to whom these (prioritised) investment opportunities will be presented. Within the context of the food processing sector, the starting point should be the strategic requirements identified within the framework of the sector-level development strategy (see Section 4.1). These may be broadly defined in terms of product-segments (e.g. dairy, vegetable processing, etc.) or type of investor (e.g. brand-orientated multi-segment multinationals, single-segment multinationals, SMEs), or may be more specific: for example, for specific investments in olive cultivation and processing (see Table 8). These ‘host’ needs and opportunities (i.e. Egyptian food sector investment portfolio) should be matched against potential foreign investor needs and requirements (‘opportunities’). For example:

Brand-orientated multinationals: have been identified as a potential target for FDI attraction. The analysis undertaken in the “Food Export Strategy Report” and in Section 2.2 indicates, on the one hand, a relatively limited presence of leading multi-national agro-food companies in the region but at the same time their growing interest, particularly for Egypt, in accessing the region’s fast growing markets. The analysis also points to these companies preferences; both in terms of product segments (e.g. beverages, dairy, confectionary and snack foods, and edible oils) and their typical mode of entry into the market (e.g. through mergers and acquisitions of local companies). We can also see different geographical/location preferences for companies originating from different investment source countries (e.g. French and Spanish firms for Maghreb; USA and N. Europe for Egypt and Turkey).

Further analysis is still required to assess the critical location factors for these companies and to benchmark Egypt’s position in relation to these factors against competing locations: market-size and growth potential are clearly important but are not sufficient to trigger investment; the importance of access to already installed production facilities and distribution chains differs across product segments, as does access to locally-supplied raw materials, technologies, etc.

The various elements outlined above, need to be matched against the Egyptian needs and requirements/opportunities, taking into account the country’s relative competitive advantages in terms of key location criteria. Thus, the promotion effort can move from the ‘generic’ brand-orientated multinational towards identifying specific product segments, source investment countries and, even, specific target companies.

Strategic Investor (example: Olive oil / olive products33): Egypt has ambitious plans to increase the cultivation of olives but there is a potential need for foreign

33 For more information, see: “Food Processing Export Strategy – Olive Oil Action Plan”, Trade Enhancement Programme A (TEP-A Lot 2, Component 4), May 2007


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investment in order to reach this objective. Furthermore, areas for developing joint ventures exist where strategic partners can facilitate market access, product diversification etc. (see Table 8). European (and other international) producers are looking for lower cost supply options given their high labour costs, which is particularly important for table olives that must be harvested by hand. In addition, Egypt is able to achieve high yields and high quality levels. Although some further analysis of critical location factors may be required, Egypt appears to fulfil the basic location requirements of potential foreign investors in the olive sector. What is necessary is to enhance awareness of Egypt’s potential and to provide benchmark analysis and concrete data to demonstrate Egypt’s competitive advantages relative to other locations.

With the necessary information to hand, selection and prioritisation of target investors is required; both in relation to source countries/regions, position in the supply chain, and position within the market. Here, consideration needs to be given to the ability and willingness of potential partners (foreign investors) to address the needs of the relatively ‘immature’ olive sector; particularly for olive oil (i.e. emphasis on delivering market access, marketing skills, training and technical support, etc.)

Private Equity (PE) Funds and Venture Capital (VC): Within Europe, private equity (PE) investors have been very active in the food sector, both at the level of major deals and medium to smaller size deals, where they have been attracted by iconic brands, stable cash flows, the emergence of profitable niches, and the less cyclical nature of the sector 34. With companies within the food processing sector, divesting in non-core operations, enhancing core operations and seeking to penetrate lucrative niches35, this has opened-up oportunities for PE funds. Whereas companies within the food sector are under considerable pressure from retailers and often short of cash for investing in underperforming operations (e.g. management restructuring, brand development, R&D) or consolidation activities (e.g. M&A), PE investors have the funds to step-in and takeover and restructure underperforming operations or to act as partners in M&A.

Although it appears that the focus of food-orientated PE activities outside of traditional developed markets appears to be orientated towards Central and Eastern Europe (and rapidly growing Asian markets), the experience of PE funds coupled with the possible re-focusing of food-sector strategies towards the Middle East may create greater PE interest for the food sector in Egypt. At the same time, although relatively young, there is a rapidly growing PE sector within the Middle East36. While, we can see some of the leading food processing companies (e.g. Nestlé) setting up their own PE funds while other major financial institutions/banks also have specific focus on the food sector (e.g. Credit Agricole - IDIA AgriCapital).

The types of investment opportunities of interest to PE/VC investors, and hence the types of investment opportunities / value propositions of interest to them, have specific characteristics. Typically PE investors are interested in opportunities that

34 See, for example, Price, Waterhouse & Coopers “M&A Insights – Food Sector” (2007) available at: http://www.pwc.com/extweb/pwcpublications.nsf/docid/81924F7FB3BB573D852572AA00449BE5 35 See Section 3.2.1 (Search for dominant market position). This corresponds to the strategy of companies within the sector to establish market leading positions and attempting to widen and vary their brand portfolios that has lead to them to divest of low return or non-strategic businesses or products 36 See, for example, “Venture Capital Development in MENA Countries – Taking Advantage of the Current Opportunity” MENA Investment Policy Brief, Issue 1, (April 2006), available at http://www.oecd.org/dataoecd/26/54/37256468.pdf and “Regional Feature: The Middle East and North Africa”, EM PE Quarterly Review, Volume III, Issue 1, Q1 2007, available at: http://www.empea.net/research/articles.aspx


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allow them to re-structure underperforming operations or to consolidate companies/operations within a specific segment (vertical or horizontal integration) where there are opportunities for rationalisation and efficiency gains. By contrast, VC investors (a sub-set of PE investors) are focussed on taking stakes in start-up companies, or companies undertaking new or ‘turnaround’ ventures. There objective is not to take a ‘strategic’ (long-term) position within a sector but, rather, to ‘sell-on’ their investments once an improved business performance of the assets has been achieved.

From the perspective of the potential recipient/beneficiary, the advantages of PE/VC investors come clearly from the additional access to finance, but also inter alia from possibilities for access to technology, improved management and corporate governance. One specific type of business that may benefit from PE/VC partnerships are family owned businesses that cannot raise finances through public share issues37.

The above examples are only intended to be illustrative of the types of investment ‘matches’ that could be made. As with the strategic vision and goals (see Section 4.1) a more comprehensive – and ongoing - evaluation is required of potential foreign investor needs and requirements (‘opportunities’) that leads to clearer and more concrete identification of potential investment targets. Recommendation 2 Foreign investor requirement and ‘opportunities’ analysis and

monitoring

Undertake a detailed analysis and evaluation of the needs and requirements of potential foreign investors by ‘type’ of investor and for ‘priority’ food sub-sectors / product segments (full supply/value chain);

Implement a system for regular monitoring of foreign investment behaviour within the food processing sector to identify ‘positive’ and ‘negative’ developments for the attraction of foreign investment in Egypt.

Recommendation 3 Foreign investment target prioritisation

Match foreign investment developments and strategies (‘opportunities’) with Egyptian investment goals and priorities (‘FDI portfolio’), taking account of key investment location criteria, to determine a short-list of investment target priorities;

Integrate ‘investment target priorities’ into the development of the Egyptian food processing sector investment value proposition and positioning.

4.2.2. Value proposition and positioning

The investment ‘offer’ can be considered at various levels, which in the current context could be the food sector ‘cluster’ (including up-stream and down-stream sectors and supporting services and input providers), the food processing sector itself, individual segments and products groups, and down to specific projects38. It is important however

37 See ““Venture Capital Development in MENA Countries – Taking Advantage of the Current Opportunity” MENA Investment Policy Brief, Issue 1, (April 2006); Ibid footnote 36. 38 See, for example, the projects available from GAFI, described in Section 2.3.4


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to recognise that developing the investment ‘offer’ is not simply about identifying which sectors, product-segments, or specific investment projects may be of interest to potential investors. Rather, it encompasses an altogether more holistic approach to the definition and positioning of the ‘offer’ of a given investment location towards potential investors. To put this in more concrete terms, some factors that may be integrated into developing a ‘generic’ value proposition for the food sector in Egypt are shown in Table 9. Some of the sector specific factors can be derived from general strategy development activities (i.e. industry assessment and SWOT analysis) while others may require further detailed assessment. In addition to sector specific factors, the ‘value proposition’ covers factors that, in a more general context, affect the environment for reaching investment decisions, their implementation and subsequent business start-up and operation. It is beyond the scope of this report to go into detail on each of these issues but the main point is to illustrate the wide-range and diversity of possible factors that enter into the overall investment ‘business concept’ or ‘value proposition’. In developing the ‘value proposition’ it is important to take into account the characteristics of the sector/countries/companies being targeted. For example:

Major multi-national branded food companies will make investment decisions based very much on their specific global and regional business strategies and have at their disposal the necessary resources to independently undertake the necessary market/location research. In all probability they will have market analysts regularly monitoring developments in Egypt and already have their own investment location evaluation of the country and competing locations in the region. Their investment decisions reflect global strategies and regional development priorities that are largely beyond the influence of specific investment promotional efforts unless they are closely aligned to these strategies and priorities. Accordingly such firms are unlikely to be influenced by typical (general) investment promotion activities but, nonetheless, aspects related to: ‘personal interaction value’ (see Table 9) such as access to highest levels of decision making; ‘financial cost’ such as the level of support for project implementation; and ‘image value’ can nonetheless be extremely important.

Medium-sized and smaller investors have far more limited resources to dedicate to investment location decision making and so are in far greater need of services that facilitate the collection, assessment and evaluation of information relevant for the investment decision making process. Also, they are far more likely to utilise the resources of intermediary associations and support organisations (chambers of commerce and business associations, diplomatic commercial representation). They are also more likely to be sensitive to ‘time and energy costs’ and ‘psychological costs’ (see Section 3.3.3)

From the above examples, it is hopefully apparent that the development of a ‘value proposition’ should be tailored not only to the sector, individual segment or product groups, or specific project but, should also be tailored to the target group of companies. Alternatively, in the case of ‘source country’ orientated targeting, the ‘value proposition’ should take account of the level of knowledge and pre-conceptions within the target country concerning the investment location.


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Table 9 Illustration of the ‘value proposition’

Benefits / costs Specific problems / Investor perceptions

Proposition factors (examples)

Location benefits

Access to raw material Limited / underdeveloped agricultural sector

High quality (potential) of fruit and vegetables; increasing utilization of HACCP, ISO etc.

Market access (domestic)

Low purchasing power Underdeveloped retail sector

Rapid growth of domestic market (population), rising incomes, etc. Entry of international players into the retail market segment, etc.

Market access (international)

Poor transport connections Customs procedures

Improving transport infrastructure (port development) Proximity and established trade relations to MENA and Gulf regions. Trade agreements (bilateral, regional, WTO) Modernisation and simplification of customs procedures

Service value Information provision

and evaluation Investment facilitation Business support

services and ‘aftercare’

[To be evaluated]

Very poor ranking and negative assessment in leading international surveys of investment and business environment (see Section 2.3.3)

Supporting information on the Egyptian food-processing sector (structure, performance, ‘success stories’ etc.) Investor support services: GAFI ‘one-stop-shop’ investment; other investment facilitators/intermediaries (public sector and private: banks/financial service companies; investment advisors; legal/accounting) Government commitment to improving economic, business and investment environment. Industry and foreign investor support associations and structures

Image value

Region level [To be evaluated] Country level [To be evaluated] Sector level Limited international visibility as a

location for successful companies and investments

Product level Lack of internationally recognised successful ‘brands’

Inter-sector Limited international visibility (other than tourism)

Highlight successful companies and investments. Investor testimonials etc. Technological/innovation capacity (examples) Information on economic structure, successful companies etc. with particular reference to relevant sectors (e.g. finance, transport/logistics etc.). Development of joint promotion themes (e.g. food-tourism)

Personal interaction value

Government / Ministries Investment Promotion

Agencies etc. Industry representatives Potential investment

partners and suppliers etc.

[To be evaluated]

[Emphasis on developing professional, effective and efficient interaction between all elements of the host ‘promotional interface’ and the potential investor] [Specific activities related to increasing ‘investor awareness’ and ‘investor readiness’ among potential investment partners, beneficiaries and other stakeholders]

Financial cost

Investment decision-making process (pre-feasibility assessment)

Investment implementation (feasibility to project inception)

Investment start-up Business operation

phase

[To be evaluated]

[Services to facilitate potential investor access to relevant information sources, contact persons, authorities etc.] [Services to facilitate feasibility assessment; business registration, permits, licenses, etc.] [Services to facilitate utility and services supply; supplier/customer relations; recruitment and employment procedures etc.] [Aftercare services; support infrastructure: technical, R&D, marketing and export assistance, etc.]

Time and energy cost

[as above] [To be evaluated] [as above]

Psychological cost

Regional risk [To be evaluated] Country risk Political/social situation, corruption,

etc. Investment guarantees and treaties; taxation rules etc.

Sector risk Health/disease/environmental/pollution issues etc.

Legislative provisions and implementation in relevant fields


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Within Egypt, GAFI is the sole governmental authority concerned with facilitating investment procedures, assisting investors, and promoting the Egypt’s potential sectors abroad. If, as appears to be the case, GAFI is seeking to complement its specific responsibilities (i.e. investor facilitation) and general ‘image-building’ activities with a more targeted approach to investment promotion then this should move the Agency towards a more ‘value proposition’ orientated approach to investment promotion. In the context of the food processing sector, however, the sector information currently available to potential investors from GAFI (and from elsewhere) is very limited and general. Some specific product segments are identified as offering investment opportunities39, and certain specific projects are outlined (see Section 2.3.4); further information of Egyptian companies seeking investment/join-venture partners is also available from the UNIDO Investment Promotion Unit in Egypt40. If a more targeted (investment proposition based) approach to promoting foreign investment in the food processing sector is to be implemented then developing investment ‘value propositions’ that move towards provision of detailed and sector/product-segment specific ‘information’ and ‘services’ is required, together with sector specific strengthening of each element of the value proposition.

4.2.3. Critical success factors

From the two examples described in the previous sections, it is evident that the critical success factors will differ depending on the type of target investor and investment opportunity being proposed. However, by firstly identifying and then taking steps to enhance and/or address problems related to critical success factors, then the probability of ensuring that the ‘value proposition’ is appropriately matched - in accordance with the strategic intent (vision, goals, etc.) of the investment promotion effort - with the ‘investor target’ can be significantly increased. As noted in Section 3.3.3, the simple fact of being aware of and, hopefully, managing the critical success factors can have a positive influence on the overall ‘value proposition’. To put this in more concrete terms, factors that would make a positive contribution to identifying and addressing critical success factors could include:

Enhanced awareness, understanding and expertise of the food-processing sector within the IPA (i.e. GAFI); either directly or through their network of contacts.

Enhanced awareness within the food industry (individuals or representative associations) of the factors driving investment decisions and of potential investors requirements and expectations.

Government policy and activities of state institutions that shows awareness of business needs and investment/business environment constraints within the food processing sector.

39 Sectors/activities mentioned include: ‐ Establishing technological incubators for the production of agricultural products, for exportation by using the latest

technologies. ‐ Integrated complex for slaughtering, freezing & packaging meat and processing animal remains. ‐ Establishing factories for the production of: Powder milk, Preparation & Packaging for Dried Horticultures, Olive Oil

Extraction, Preparation & Freezing Vegetables, Food Oil Extraction & Refining (Sunflower, Soya Beans), Food Oil Refining, Tomato Food Paste and Ketchup, and Fodder from Rice Straw.

40 See: http://mediterraneanexchange.unido.org/main2.asp?id=21&lan=en


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To achieve this will require, in the first instance, that the relevant agencies should be convinced of the ‘need for’ and ‘positive outcomes’ of prioritising and allocating resources to investment promotion efforts targeted towards the food processing sector. Beyond this step, notwithstanding the ‘outward’ approach towards potential investors, the awareness, knowledge and understanding of the business and investment environment and preoccupations of the food processing sector should be enhanced; something that cannot simply be the responsibility of the formal investment promotion system (e.g. GAFI) but is also the responsibility of the food sector itself, and other relevant stakeholders.

4.3. Food sector contribution to investment promotion ‘functions’

Section 3.3.4 set out the main functions within the foreign investment promotion and attraction ‘system’. In this sub-section we examine the possible contribution that could be made by the food processing sector to each of these functions, and the possible synergies between the sector and the national-level investment promotion effort. These contributions and synergies could, in turn, serve as the ‘building blocks’ for developing a joint approach to investment promotion.

4.3.1. Policy advocacy

Unless it can be demonstrated to potential investors that a location (Egypt) possesses a good investment climate then no matter how much effort is put into FDI promotion it is unlikely to succeed in attracting investment. Although the Government of Egypt has taken various recent initiatives to improve the investment environment in Egypt (see Section 2.3.3) there are still many areas of concern that lie within the domain of public-policy and public-administrations, and that directly affect the attractiveness of Egypt as food processing sector. In a broader As the primary interface between investors and local policy-makers41, one of the functions typically assigned to an IPA is to advocate for policies to enhance the investment and general business climate and to address investor’s concerns (both general and specific). However, in the case of Egypt, this does not appear that a policy advocacy role falls within the mandate of GAFI42. Furthermore, although in many countries there is a ‘foreign investor’s association’ that will act to advocate on the behalf of foreign investors for improvements in the business/investment environment but, again, there does not appear to be such an organisation in Egypt43. Similarly, it would appear that there is no organisation that has a policy advocacy role mandate with respect to representing the interests and concerns of the food processing sector insofar as they relate to investment and, specifically, foreign investment.

41 Primarily the Ministry of Investments, which is the government institution mandated with enhancing the investment environment. 42 GAFI’s mission statement states that GAFI’s strategic direction inter alia to “Develop/enhance an interactive working relation with different bodies affecting the investment climate in Egypt” 43 The nearest such organisation appears to be the Egyptian Businessmen’s Association, whose mission statement is: “To encourage inward investment by acting as a catalyst to spur the exchange of trade and investment between Egypt and the world community, and by providing world class information, comprehensive and maximised level of technical support for the Egyptian Business Community”.


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Consequently there is no apparent formal structure that could advocate on behalf of business/foreign investors in the food processing sector for improvement in the investment environment. A first step to address this absence would be for relevant industry associations (Egyptian Chamber of Food Industries, Food Export Council, Egyptian Businessmen’s Association etc.) or, eventually, a grouping of existing foreign investors already present within the sector44, to form an organisation (formal or informal) to:

Identifying and prioritise business/foreign investors concerns and problems with respect to the investment environment of the food processing sector45;

To consider options for improving the investment climate (including both investment policy areas and the functioning of the investment promotion and attraction system) and to articulate a sector position vis-à-vis initiatives to improve the situation.

To propose, to the relevant counterparts (e.g. GAFI, MOI, IMC, etc.), to other stakeholders and potential support organisations, and to the food processing sector itself, options for joint initiatives/actions and cooperation to support enhancement of the food sector (foreign) investment environment.

A priori, this ‘organisation’ should draw on the first-hand experience of foreign companies that have invested in the food processing sector in Egypt to identify ‘problem areas’ encountered from the investment-decision making phase through to implementation and subsequent business start-up and ongoing operation. Furthermore, in undertaking the above mentioned activities, consideration should be given to identifying possible synergies and areas of cooperation with GAFI46, which according to its strategic direction is committed to ‘incorporating an aftercare mechanism that develops a “servicing investors” culture’ and whose services include ‘acting on behalf of investors with regards to governmental agencies’. Beyond the direct positive contribution that a foreign investment policy advocacy group could have in increasing awareness and influencing policy with respect to (sector specific) short-comings in the investment environment, the existence of such a group could in itself be a positive factor in the overall ‘value proposition’ presented to foreign investors. The existence of a body specifically dealing with the concerns of foreign investors in the sector, particularly one able to engage in constructive dialogue with relevant public authorities and other stakeholders, would send a positive signal that the food sector takes seriously the specific problems that may be encountered by foreign investors. The presence of major foreign investors within the policy advocacy group would obviously add to the ‘credibility’ of the grouping. While, if the group also shows that it is concerned also with smaller investor’s issues, this could be of specific value to medium-sized and smaller investors that would not in their own right have the capacity to influence public policy makers and/or other administrative functions.

44 In principle, as a representative of sector/business interests and a counterpart to policy-making administrations, the ‘body’ engaged in such an activity should be independent from public institutions. This would a priori exclude GAFI from participating. 45 This should be broadly defined so as to cover not only public-policy and public-administration functions but also the wide range of elements that make up Egypt’s ‘value proposition’ to potential investors (see Section 3.3.3 and Section 4.2.2). 46 See: footnote 42 and footnote 44.


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Recommendation 4 Food Sector Foreign Investors’ Advocacy Group

Support the creation of a representative body for foreign investors within the food processing sector that would serve to:

Identify and prioritise business/foreign investors concerns and problems with respect to the investment environment of the food processing sector;

Consider/develop options for improving the investment climate and articulate a food sector position vis-à-vis such initiatives/options;

Propose options for joint initiatives/actions - both within the food sector itself and in cooperation with relevant counterparts and stakeholders - to support enhancement of the food sector (foreign) investment environment;

Promote awareness to existing and potential foreign investors of the Foreign Investors’ Advocacy Group.

4.3.2. Image Building

Creating a favourable investment climate is the first step in creating a positive image of an investment location and without a good investment climate investment promotion may actually be counter productive since it will tend to highlight the disadvantages of investing in a country and hence discourage business from investing both at present and, even if the investment environment is improved, in the future because investors continue to perceive the location as being a poor place to invest. In the case of Egypt, as pointed out in Section 2.3.3, the general outward perception of the business/investment environment in Egypt is relatively poor. At the same time, for investment in the food processing sector Egypt possesses clear positive attributes in terms of key location decision making criteria (e.g. large and growing market size, access to regional markets, low labour and utility costs, access to expanding raw material/agricultural base etc.) Therefore, if we consider ‘image building’ as a next step – after improving the investment environment – then its general purpose is to create awareness of the location (i.e. Egypt as a location for foreign investment in the food processing sector) among potential investors, both in terms of increasing Egypt’s visibility and in overcoming negative perceptions. Formulating an ‘image building’ strategy should, in principle, start from a basic understanding of the existing level of awareness and perceptions among potential investor targets. Of course, in this respect, having a clear idea of which are the potential targets in terms of product-segments and ‘type’ of investor (see Section 4.2.1) will narrow down the field for which this information needs to be obtained. An obvious way to obtain this information would be to undertake an opinion/perception survey of potential investors (i.e. recruit a marketing/survey company). If this is beyond the resources available, then possible alternative approaches may include:

Review/survey of information sources likely to be utilised by potential investors to evaluate investment opportunities and investment environment of the food processing sector; for example, Egyptian government services (GAFI, MOI, MFA) internet/online materials, analyst reports, commercial services (e.g. foreign commercial representation in Egypt), chambers of commerce, etc.


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Systematic collection of feedback from ‘outward’ and ‘inward’ trade missions, on the awareness and perceptions of the investment possibilities and environment of the food processing sector in Egypt.

On the basis of the ‘feedback’ obtained, these should be contrasted with the ‘realities’ of investment opportunities (both domestic and foreign, see Section 4.2.1) and the ‘value proposition and positioning’ of the food processing sector (see Section 4.2.2). Weakness (and strengths) in the overall ‘image’ of the food processing sector, investment opportunities and environment within the sector, and critical success factors (see Section 4.2.3) should be identified. In turn, this information should be integrated into development of an ‘investment marketing’ / ‘image building’ approach for the food processing sector.

Recommendation 5(a) Investors’ awareness and perception analysis

On the basis of identified potential investment targets (product-segments and ‘type’ of investor) undertake an analysis of the existing visibility/awareness/perceptions of the food processing sector and investment environment of the sector;

Identify weakness (and strengths) in the overall ‘image’ of the food processing sector, investment opportunities and environment within the sector, and critical success factors;

Integrate the above findings into development of an ‘investment marketing’ / ‘image building’ approach for the food processing sector.

On the basis of the above, appropriate resources will need to be mobilised to implement proposed ‘image building’ activities. It is beyond the scope of this report to enter into the definition of the appropriate approach for ‘image building activities’. Nonetheless, some consideration can be given to the development of a ‘joint approach’ to investment-orientated image building activities. In the context of ‘image building’ the purpose of developing a joint approach is to ensure that common key messages concerning the attractiveness of a location (e.g. target sectors, competitive advantages) so as to avoid confusion potential investors. Moreover, using common ‘themes’ across different image building activities undertaken by different stakeholders creates the possibility for mutually reinforcing ‘branding’ of the location. With respect to development of an investment-orientated image building ‘join approach’ for the food processing sector there are three main areas for developing possible synergies in the utilisation of common ‘image’ and ‘marketing’ messages to be considered:

Within sector (intra-industry): for example, at the level of the utilising common ‘brand image’47 and highlighting common quality and competitive advantages etc. of the sector in both export-orientated and investment-orientated activities.

This could also extend to emphasising the investment opportunities and investment ‘success stories’ of companies within the food processing sector. Testimonials of the success of previous investments (particularly by foreign investors) are a strong selling tool of an investment location.

Across sector (inter-industry): for example, one of the most important ‘outward’ projections of Egypt’s image is through promotion of the tourism sector; this could

47 I.e. “Egyptian Food” logo/branding.


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provide opportunities for indirect promotion of the food sector by integrating food products in tourism marketing activities or more directly in the actual delivery of tourism services.

National level (across investment agents): for example harmonising ‘brand’ utilisation and ‘marketing messages’ of the food processing sector across different agencies engaged in investment promotion/attraction (e.g. GAFI, MOI, etc.).

From the above, it is clear that there are considerable areas of potential overlap between ‘image building’ and promotion activities of the food processing sector and other sectors and agents. The possibilities for the food processing sector to have a positive influence in developing synergies will be enhanced if the sector itself has developed a clear ‘image building’ strategy and outputs that can be integrated into the promotional efforts undertaken by others. At the same time, the food sector needs to be aware of what other image building/promotion activities are being undertaken in order to identify possible opportunities for cooperation, collaboration and harmonisation of image building / promotion approach and activities.

Recommendation 5(b) Investment ‘image building’ approach and implementation

Identify key elements to be integrated into the investment-orientated image building for the food processing sector (target product segments, competitive advantages, pre-conceptions to be addressed, etc.);

Identify potential opportunities for developing synergies in image building activities within the sector and between the food processing sector and other sectors/agents;

On the basis of the above, develop and implement sector level and joint investment-orientated image building activities/actions.

4.3.3. Investment Facilitation

Investment facilitation services come into play after a potential investor has already demonstrated an interest in investing in a location. The location has, therefore, already made it onto a ‘long-list’ or ‘short-list’48 of possible investment locations. The types of activities covered by facilitation services include organising site visits, assisting investors with site selection and land acquisition, dealing with national and local authorities, assistance in handling registrations and permits etc., and assistance in obtaining essential services. Logically, investment facilitation services come into play only after investment generation activities have been undertaken (see sub-section ‘investment generation’). However, in terms of their resource requirements relative to their incremental contribution to enhancing the effectiveness of investment promotion efforts, strengthening facilitation services can be more ‘cost effective’ than dedicating extra resources to investment generation activities. Often, the quality (efficiency and effectiveness) of facilitation services can be crucial in converting the potential interest of investors into actual investments.

48 Often potential investors will establish a ‘long list’ of countries as a first step in the location decision making-process and then, after initial analysis, will ‘short-list’ locations for in-depth evaluation.


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The lead agency for providing investment facilitation services is typically the IPA (i.e. GAFI) but a whole range of other counterparts are involved, from legal and financial services, industrial site management, etc. In this context, for potential investments in the sector, the food sector can also play a role in enhancing the overall ‘facilitation service’. For example:

Support to the lead facilitation agency (e.g. GAFI)49 in preparation and implementation of facilitation services. This could be in an advisory role to prepare staff of the lead agency on situation of the business environment, likely concerns of potential investors, or appropriate site selection criteria. More practically, representatives of the food sector could form part of the team charged with provision of facilitation services to the potential investor (e.g. being ‘on-hand’ to organise site visits, answer investors questions and provide information and materials, organising meetings with potential suppliers and customers, etc.)

Raising (investor) awareness and readiness among local companies (particularly for companies seeking joint-venture partners) of foreign investor’s requirements and expectations. Often one of the major obstacles to establishing investment relationships between local and foreign companies is that the local company has limited ‘investor readiness’ in terms of understanding the types of information that it will be expected to provide (business/investment plans, financial accounts) or the modes of conducting negotiations and, in particular, recognition that the foreign investor will have his own ‘concept’ for any proposed project. This can be particularly the case for smaller companies and family-owned businesses that have developed their own ‘specific’ ways of conducting business. This being the case, one sector-level activity that can be envisaged is some form of training programme or support service designed to improve investor awareness and readiness.

Recommendation 6(a) Investment facilitation services

Identify potential contributions and support that could be made by the food processing sector to investment facilitations services (e.g. site visits, site selection, supplier and customer relations);

Develop with lead investment facilitation agencies (e.g. GAFI) a joint approach for support for investment facilitation services.

Recommendation 6(b) Investment support programme for local companies

Develop a programme or service to assist local companies to enhance their awareness and readiness to interact with potential foreign investors/partners.

4.3.4. Investor Servicing

Investor servicing (also referred to as ‘aftercare’ or ‘corporate development’) can play two key roles: firstly, in encouraging existing investors to expand their investments (re-investment) and, secondly by averting the possibility of existing investors re-locating. Although figures differ across countries, it is often the case that more than half of FDI may come from existing investors and that ‘aftercare’ services can be a more cost- 49 This could also include other organizations that might assist potential investors (e.g. foreign commercial representation in Egypt, bi-lateral chambers of commerce, business associations, etc.)


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effective way of increasing FDI than investment generation activities. Monitoring existing FDI projects to ensure that investors have a positive experience of the host country can play a crucial role in this process. Similarly, if an existing investor is considering re-location, perhaps because costs have risen or market and supply conditions have altered, then pro-active involvement to assist an investor to mitigate changes in the business environment or to consider changing the range of business activities undertaken in the location (e.g. from production to corporate service) can be more important than new business development (investment generation) in terms of overall FDI performance. In the context of the food processing sector, probably the key opportunities arising from investor servicing are to encourage existing foreign investors to expand their investments and, in addition, to ‘upgrade’ their investments from not only production activities but also to administrative services (regional corporate head-quarters), distribution and logistic services, technology centres and customer support services (e.g. customer call centres). In principal, these elements should be part of (and be identified by) the overall strategic vision and goals (see Section 4.1); for example, if one of the key priorities is to expand the presence of ‘brand orientated multinationals’ and for them to place their regional headquarters in Egypt, then this is probably more easily achieved through persuading existing foreign investors to expand their current activities that persuading new investors to locate a regional headquarters in the country. From the above example, it is hopefully evident that ‘investor servicing’ can play an important role in expanding foreign investment. Moreover, the fact that existing investors decide to expand their investments sends out a strong signal to other potential investors of the attractiveness of environment for investing and doing business in Egypt. In this context, we can also see the importance of the ‘policy advocacy’ role (Food Sector Foreign Investors’ Advocacy Group) outlined in Section 4.3.1. At the level of the food processing sector, possibly the main contribution that can be made to enhancing the investor servicing function is to enter into a constructive dialogue with GAFI (and other relevant organisations) to ensure that the sector’s strategic investment priorities are integrated in strategies and approaches for the delivery of investor servicing programmes (‘aftercare’, ‘corporate development’). Here, a pro-active approach on behalf of the sector could encourage the prioritisation of the food sector within such programmes, while active cooperation from the sector-level organisations could increase the effectiveness of such services in encouraging further investment. In this respect, the ‘food processing sector’ could adopt a role of informing GAFI (and other relevant organisations) of problems being encountered by existing foreign investors and to alert them of possible opportunities to persuade these investors to expand or upgrade their existing operations. Further, where such opportunities exist, food sector organisations and GAFI could cooperate with the local foreign investor office in the preparation of a ‘business case’ for investment expansion or re-location of corporate functions to Egypt.


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Recommendation 7(a) Investor servicing

Enter into dialogue with GAFI (and other relevant organisations) to design and implement a investor ‘aftercare’ services for the food processing sector (in accordance with the sector’s identified strategic investment priorities);

Develop a pro-active approach within the food sector to alerting the investor ‘aftercare’ service provider (GAFI) of ‘problems’ and possible opportunities for expansion or upgrading existing investments;

Recommendation 7(b) Investor ‘corporate developmen’ programme

Develop active cooperation with local offices of foreign investors in order to develop a ‘business case’ for expanding investment and/or re-location of corporate functions to Egypt.

4.3.5. Investment Generation

Investment generation can be describes as ‘the creation of a flow of inward investment prospects’. This is what is normally thought of as being at the heart of investment promotion, that is to say activities specifically designed to attract foreign investors. From the perspective of the investment approach set out in this report, the investment generation function is concerned with translating the strategic investment goals and objectives into a ‘business concept’ (see Section 3.3.3 and Section 4.2) and then informing the potential investor of the entire ‘value proposition’ in a way that results in the effective generation of investment leads. The approaches utilised to ‘market’ investment opportunities in a given location can span from very general ‘marketing’ activities to highly targeted approaches to specific investor groups and even individual investors. Also, as described in Section 4.3.4, it can extend to retaining and expanding existing inward investment. At the outset, it should be recognised that investment generation can be extremely resource intensive. Sophisticated marketing and especially targeted marketing (e.g. proposition based) is complex and long-term. It requires undertaking a whole range of activities including: network development, attending conferences and trade fairs, undertaking missions abroad, and direct meetings with companies. Even when a contact has been made with a potential investor, building the types of relationships necessary to eventually secure an investment requires considerable perseverance. Undertaking these activities can require significant and sustained allocation of financial and staff resources to investment promotion/generation activities. Given the above comments, there is a key question regarding the extent of resources that can be made available to improve the food sector ‘package’ that is developed to promote investment opportunities in the food processing sector. Moreover it requires evaluating the extent to which it is feasible to move towards a more pro-active and targeted marketing (e.g. proposition based) approach. It is beyond the scope of this document to answer these questions but, at the same time, it is clear that simply presenting brief descriptions of a sector and ad hoc investment ‘opportunities’ (see below) is unlikely to make an effective (i.e. added-value) contribution to increasing investment in the food processing sector.


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Preparatory phase

The starting point for product development is to translate the overall strategic vision and goals (see Section 4.1) into a ‘business concept’ (see Section 4.2) that defines investor targets, outline value propositions, and critical success factors. In turn, the value outline ‘value proposition’ needs to be developed (‘product development’) and then assembled and effectively communicated to the investor (‘product delivery’). As noted in Section 4.1, a more comprehensive evaluation of the strategic (investment) requirements of the food processing sector, both in terms of requirements across different product segments and throughout the supply chain of each product segment. Moreover, as noted in Section 4.2, a more comprehensive evaluation is required of potential foreign investor needs and requirements (‘opportunities’) that results in a clearer and more concrete identification of potential investment targets. Completing these activities should be the first element of the preparatory phase.

[See: Recommendation 1 and Recommendation 2]

Product development

In the context of the investment promotion framework set out in this document, product development encompasses the development of the location value proposition (i.e. the ‘investment solution’) that is being offered to prospective investors. As described throughout this report, the value proposition is a wide ranging concept (see Section 4.2.2) which, at the same time, should be developed taking into account both the investor targets (see Section 4.2.1) and critical success factors (see Section 4.2.3). If we take as our starting baseline the information currently available from GAFI with regard to the food processing sector, this falls someway short of delivering an attractive ‘package’ for potential investors. The information available on the food processing sector is limited, the range of sub-sectors identified as potential opportunities is not supported by convincing arguments as to why they are attractive to potential investors, and specific projects (see Section 2.3.4) are presented without any apparent reason as to why they have been selected. All in all, there is quite some way to go in presenting an attractive food sector investment product(s) to potential investors50. This being the case, if foreign investment in the food processing sector is to be effectively promoted then a more sophisticated ‘package’ and approach needs to be developed. This will require not only greater prioritisation of the sector in the promotional efforts of GAFI (and other relevant organisations) but, also, the active cooperation and collaboration of the food processing sector. Among the basis information and materials that could be developed are:

General promotional material and information: more comprehensive and better presented information on the food processing sector in general and, specifically, for specific product-segments identified as investment priorities. Attention should be given to tailoring materials and information to the requirements of target investor groups. In this respect, the food sector can contribute through helping to identify (and providing) relevant information to be provided and critical success factors.

50 The purpose of these comments is not to criticise GAFI; their ability to develop an effective and attractive product is limited to their available resources and expertise of the food sector.


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Specific investment propositions (e.g. joint ventures, M&A opportunities, bankruptcy opportunities): currently, the readily available information on ‘actual’ investment propositions/opportunities being proposed by local companies appears to be extremely limited and, as such it is of limited value to potential investors. Improving this type of information often requires significant support to the local company/proposer to develop sound business arguments to support their projects and accompanying information (investment/business plan). In doing so, it has to be remembered that the bottom line for investors is the return on their investment; arguments, such as, increasing employment may be socially valuable objectives but are not among the primary concerns of most investors.

Generic investment propositions (e.g. outline ‘greenfield’ investment projects): these are outline projects that are used to illustrate the type of investment opportunities that could be of interest to potential foreign investors, or that are proposed by development agencies to fit the requirements of their locations. In developing such proposals it needs to be recognised that foreign investors will have their own project concepts and are very unlikely to be interested by a specific project proposed in this way. It often appears that this type of proposition is developed to illustrate the (high) rate of return on investment, while failing to address the business logic and competitive advantage of a given location for the type of project being proposed. As a ‘marketing tool’ such propositions are perhaps most effective not because of their specific characteristics but, if appropriately benchmarked against competing locations, as illustrations on a like-for-like basis the relative return on an investment in the host location (Egypt) against potentially competing locations.

Investor ‘tailored’ propositions: this approach would be used when a very specific investor or group of potential investors is being targeted. Normally such an approach would only be adopted when there is already information that the potential investor(s) is looking at the possibility of investing in the region, or where the potential investor is seen as a critical component in the overall development strategy of the sector. The starting point for the development of such propositions is an in-depth analysis of the particular needs and requirements of the potential investor(s). On this basis a ‘tailored’ investment proposition could be made,


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Recommendation 8 Product development

Formation of a joint GAFI-food sector group for promotional material and investment project propositions enabling the food sector to provide information and expertise to align approach and information with sector priorities, and enhance overall quality and relevance.

Develop a mechanism to provide support to local food sector companies (or others proposing investment projects) to assist in the development of sound business arguments to support their projects and the development of accompanying information (investment/business plan)

Upgrade available information and promotional materials in line with the requirements of target investor groups.

Upgrade information on available investment projects and investment concepts: – Specific investment propositions (e.g. joint ventures, M&A opportunities, bankruptcy

opportunities) – Generic investment propositions (e.g. outline ‘greenfield’ investment projects) benchmarked

against competing locations,: – Investor ‘tailored’ propositions for specific target investors or investors with a confirmed

interest in investing in the region

Product delivery

The product delivery stage covers assembling and effectively communicating the ‘value proposition’ to the potential investor; it also covers the effective delivery of facilitation services (see Section 4.3.3) and investor servicing (see Section 4.3.4). A priori, as the national IPA, GAFI is the natural point of contact for initial investor enquiries and, moreover, should have greater resources (manpower and financial) and so be in a better position to undertake more resource intensive activities such as targeted investment promotion (e.g. lead generation). It also makes sense, in terms of overall coordination of the investment promotion effort that ‘product delivery’ for the food sector is aligned with other promotional efforts of GAFI. At the same time, the food processing sector should monitor the activities of the GAFI to ensure that it is effectively promoting foreign investment opportunities on behalf of the food processing sector.

4.4. Organisational concept

Section 3.3.4 outlined the basic considerations that need to go into the development of an investment promotion organisational framework. As a first step, a clear mapping is required of the various actors and stakeholders that actually or potentially could contribute to promotion of foreign investment in the food processing sector. In turn, this mapping should serve to identify both the existing and required resources for implementing effective foreign investment promotion for the sector. From this an organisational structure and systems for monitoring and evaluating the effectiveness of the investment promotion effort should be developed and implemented. It is beyond the scope of this report to carry out a detailed resource and institutional analysis. Moreover, as GAFI is the sole governmental authority with responsibility for promoting and facilitating foreign investment in Egypt, and the natural point of contact for initial investor enquiries, then it should have a central position in defining the overall


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organisational concept. Notwithstanding this comment, as a basic principle, the allocation of functional responsibilities (within the context of a joint approach) should seek to streamline the FDI promotion system so as to avoid unnecessary duplication of functions and ensure that functions are allocated in a manner consistent with available resources and capacity. Also, particular attention should be given to the way in which – on the basis of allocation of functional responsibilities – the FDI promotion system will interact with (potential and actual) investors with the aim of minimising the complexity of the system from the perspective of the investor. From the perspective of promoting and attracting investments in the food processing sector, the food processing sector together with other relevant stakeholders should work alongside GAFI to ensure that an appropriate (i.e. efficient and effective) organisational structure is put in place for matching Egypt’s investment ‘opportunities’ (value proposition) with target investors. In terms of outlining an organisational structure based on joint approach then, from the side of the food processing sector, the starting point is to set out the strategic objectives51 for development food processing sector in terms of the sectors/product-segments and/or activities to be attracted, and the type of size level of foreign investment sought. In turn, these sector priorities need to be integrated into, and coherent with the national-level priorities for FDI promotion and attraction. Obviously, where the national level priorities - as translated in the sector focus of GAFI, for example - encompass those of food processing sector then there is a much clearer basis for mutual cooperation. If this is not the case, then it will be up-to the food processing sector itself to persuade national authorities and, in turn, GAFI to give a high priority to promotion of investment in the food processing sector. Even if there is agreement on the strategic priority of the food sector, continuous ‘lobbying’ may be required to maintain this priority and to ensure that sufficient resources are allocated to promotion activities. From the part of the food sector, certain pre-conditions (actions) for achieving the prioritisation of the sector for investment promotion may include:

Development of a clear articulation of the potential contribution and importance of the food processing sector and, in turn foreign investment in the sector, for achieving the overall economic and social development goals of Egypt.

Development of a clear prioritisation of the product segments where foreign investment needs exist, the types of investment required, and the opportunities and probabilities of successfully attracting foreign investors (e.g. outline ‘business concepts’52).

Consensus-building within the food-processing sector on the above mentioned elements, so that the sector can put-forward a common position on the need for, and general approach, to promote foreign investment in the sector.

Recognition of the resource limitations of the existing investment promotion structures and development of proposals for ways in which the food sector could assist in overcoming these limitations (e.g. strengthening sector specific knowledge,

51 The importance of setting strategic objectives is discussed in Section 3.3.2 and Section 4.1. 52 See Section 4.2


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cooperation in promotion activities, joint-activities to secure funds for sector specific promotion activities53)

The above considerations point to the need for the food processing sector itself to set up some form of (formal or informal) grouping with responsibility for foreign investment related matters that affect the sector and to act as the industry’s counterpart to the formal investment promotion system (i.e. GAFI, MOI).

Recommendation 9 Food Sector Foreign Investment Coordination Group

Create a Food Sector FDI Coordination Group that would be mandated to:

Lobby on behalf of the food processing sector to ensure that the food processing sector (together with its supporting sectors) is identified as a national priority for investment promotion;

Form the interface between the food processing sector and relevant national authorities and other stakeholders engaged in investment promotion and attraction activities;

Act to develop consensus within the food processing sector on the appropriate role and potential of foreign investment to contribute to achieving national and sector-level development goals and the business objectives of the sector as a whole;

Translate sector-specific development priorities into foreign investment ‘needs and requirements’.

53 For example, securing funds from ‘other’ government agencies (e.g. IMC), donors, industry for background studies, investor analysis, etc.


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Appendix 1 Food & beverage investments in MENA This appendix provides information on foreign investment in the agri-business sector recorded in the Mediterranean Investment Promotion Observatory (MIPO) database available from the Anima Project (Euro-Mediterranean Network of Investment Promotion Agencies) website54. Year Company Home Country Sector Description Type

2005 Rauch Austria Turkey Beverage Austrian juice and beverage brand, Rauch is launching activities in the Turkish market

I

2004 Bunge Ltd Brazil Turkey Multi The global food company inaugurates its ports in Turkey to enhance its position in the Turkish market

I

2006 Cristalsev Brazil Syria Sugar American Cargill and Brazilian Cristalsev to set up with local partners a new sugar plant in Syria for a total investment of US$ 80 million

I

2005 Bel France Syria Dairy The cheese producer to create 200 jobs in 2006 I

2005 Bel France Morocco Dairy The group invests Euro 2.6 million in a new company in Tangiers I

2004 Castel France Algeria Beverage The French group builds a soft drink production unit and acquired a local beverage producer

I

2004 Castel France Tunisia Beverage Concession contract for the production of Heineken beer in Tunis I

2006 Clextral France Algeria Cereal Clextral, French specialist of cereal processing, opens a branch in Algiers

I

2006 Danone France Algeria Biscuit Danone to build a plant producing cookies near Reghaia I

2006 Danone France Turkey Dairy Danone to invest up to Euro 35 million by 2010 for a milk and dairy production unit in Luleburgaz

I

2006 Danone France Algeria Multi Danone to buy Algerian water company Tessala I

2005 Danone France Egypt Multi The group to acquire Olait company I

2005 Danone France Algeria Multi Construction of a factory in Algiers with a Tunisian company, Sotubi I

2005 Danone France Algeria Multi Opening of a new warehouse in the eastern part of the country I

2007 Danone France Algeria Dairy The group is planning to develop one of its major fresh milk food production center in the world on the basis of its local subsidiary's capacities

A

2006 Groupe coopératif Maïsadour

France Morocco Vegetables French Groupe Coopératif Maïsadour invested Euro 1 million in a new vegetable freezing plant

I

2006 Lesaffre France Algeria Ingredient The French Group Lesaffre bought two fresh yeast industrial plants from the collapsing Algerian public conglomerate ERIAD

I

2005 Lesieur France Morocco Oil Creation of a table oil refinery in Aïn Harrouda for 6 million euros I

2007 Lesieur France Tunisia Oil The French group participates in oil producer Cristal Tunisie, with an equal stake as YK HMILA and Lesieur Cristal Maroc

I

2004 Rolland France Algeria Dairy Partnership agreement with the family business Grand Lotus to produce the "Flipi" ice cream

I

2005 Sirh France Morocco Fish A fish oil refinery opens in Agadir for 7 million euros I

2005 Kingship Germany Syria Beverage Joint venture with a Syrian businessman to create the first private brewery

I

2005 Orken Salt Company

Germany Egypt Beverage The firm along with World Company for Development and Real Estate Investment started the establishment of a factory manufacturing mineral water and syrups

I

2004 Boutaris Greece Cyprus Beverage The Greek wine producer extends his activity by opening a manufacturing unit on the island

I

2003 Chipita International

Greece Egypt Bakery The Greek number 1 agrobusiness company will create joint ventures in Egypt

A

2004 Fine Foods Greece Turkey ??? Greek food company Fine Foods will build a factory in the Biga county, North West of Turkey

I

54 http://www.animaweb.org/observatoire_en.php


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2006 Rasna India Israel Beverage Soft drink major Rasna plans to set up a manufacturing facility in Israel by entering into a joint venture with a local partner

I

2004 Zamzam Cola Iran Turkey Beverage Iran based ZamZam Cola arrives in Turkish market I

2004 Zamzam Cola Iran Lebanon Beverage Opening of a factory of soft drinks in Bekaa valley for the Lebanon and the Middle East markets

I

2004 Barilla Italy Turkey Bakery Freshcake, subsidiary of Ulker and Barilla, opens a new factory I

2003 Mediterranean Fruit Company

Italy Morocco Fruit European commercial office in Morocco for fruit produces I

2006 Unknown Japan Egypt Vegetables Japanese investors to set up a plant for vegetable processing in order to be exported abroad

A

2006 Kuwait Food Americana

Kuwait Egypt Dairy Americana will invest Euro 10 million in its subsidiary Green Land's Egyptian facilities to face a growing demand for dairy products

I

2007 EuroMENA fund Lebanon Jordan Meat The private equity fund to invest US$3.2 million in a meat distributor which is the market leader in cold cuts and sandwich meats in Jordan and Palestine

I

2004 Patchi Lebanon Egypt Confectionary Lebanese chocolate maker Patchi plans to open a chocolate plant in Egypt

A

2005 Heineken Netherlands Cyprus Beverage Heineken acquires Ivan Taranov brewery for 560 million US$ I

2006 Heineken Netherlands Algeria Beverage After Tunisia, Heineken considers setting up in Algeria A

2006 Heineken Netherlands Tunisia Beverage Heineken investis Euro 27 million for 49,99% of SPDB and construction of a new brewery

I

2004 Unknown Norway Morocco Fish Norwegian officials are in the process of promoting Norwegian investments in the fisheries industry of Western Sahara

A

2004 Profi SA Poland Israel ??? Polish food products manufacturer Profi SA intends to open factories in Russia and Israel

A

2006 Aujan Group Saudi Arabia

Turkey Beverage Saudi beverage giant Aujan plans to invest US$ 1bn in a new fruit juice plant in Turkey

I

2003 Unknown Saudi Arabia

Morocco Beverages Manufacturing unit of aerated beverages, dairy products and oils A

2004 Savola Saudi Arabia

Morocco Oil Saudi investment in edible oil I

2005 Borges Spain Jordan Oil The group starts the building of an olive oil plant in Jordan with local partners

I

2004 Cobega Spain Morocco Beverage Augmentation of the production capacities of its bottling plants for 21 million euros

I

2005 Francisco Gil Gomes

Spain Morocco Fish The fish cannery producer will invest 3 million euros in a new anchovy factory

I

2003 Indumix Spain Morocco Dairy Creation of a nutrition expertise office for milk cow farmers, then installation of a plant

I

2005 Rostoy Spain Morocco Beverage The juice manufacturer builds a factory with the Rahal group in Tangiers

I

2005 Sos Spain Morocco Oil The group, leader on the olive oil sector, is planning the construction of a cookies plant

A

2006 Nestlé Switzerland Syria Multi Nestlé has announced an additional USD 7 million worth of investments

I

2005 Nestlé Switzerland Turkey Multi Nestle opens a storage and distribution centre in Gebze, north western Turkey

I

2005 Tabourian Group Syria Lebanon Beverage The firm buys Sannine Mineral Water for 11,5 million US$ I

2004 Unknown Turkey Cyprus Meat A new slaughter house, conform to European norms, has just launched its operations

A

2004 Meysan Turkey Jordan Multi The instant food producer has opened a plant in Amman I

2004 SABMiller UK Morocco Beverage SABMiller will invest 21 million US dollars in a holding of several breweries

I

2004 SABMiller UK Algeria Beverage The SABMiller brewer enters in the Castel business I

2006 Tate & Lyle UK Israel Sugar Tate & Lyle invests in Israeli sugar venture I

2004 Unilever UK Turkey Multi The group invests in a third tea production plant in Turkey I

2005 Unilever UK Israel Multi Unilever Israel to invest 2.1 million euros in Haifa plant I

2006 Al Qudra Holding UAE Morocco Oil Al Qudra launches investment in olive oil production in Morocco I


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2004 Coca Cola USA Egypt Beverages The company makes new investments aimed at boosting regional production

A

2005 CocaCola USA Israel Beverage Coca Cola Israel takes over Tabor Winery I

2006 Crown Holding USA Tunisia Multi Opened in 2006, Crown plant in Tunis could be extended with a second production line

I

2005 Crown Holdings USA Jordan Multi Creation of a third can production line in an Amman factory I

2004 Crown Holdings USA Jordan Multi Capacity enhancement in Crown's existing bottling plant in Jordan I

2003 Kraft Foods USA Egypt Multi Kraft Foods enters the Egyptian market I

2005 Unknown USA Lebanon Bakery A factory for the production of cornflakes and other cornbased products is to be constructed in the West Bekaa region

A

Note:

Source: Mediterranean Investment Promotion Observatory (MIPO)


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Appendix 2 Leading agri-food companies Figure 5 Ranking of world agri-food companies by sales, 2005 (source: CIAA)


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Figure 6 Ranking of European agri-food companies by European sales, 2005 (source: CIAA)


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Appendix 3 GAFI: Food Processing Information

Food Processing Industry in Egypt

Overview The Food processing industry is one of the most promising industries in Egypt with a great potential in high added‐value production. The industry accounts for a large yet stable share of output and employment in Egypt; it represents 50 per cent of total manufactured output with total production value of EGP 31 billion in 2004, and a strong annual rate of 20 per cent. It ranks the second largest industry in Egypt ( after the textiles and garment industries in Egypt) in terms of output produced. As regards employment, there were 4,700 registered enterprises in the food processing industry in 2004, employing roughly 250,000 skilled workers. One of the main advantages that Egypt has in term of this industry is the existence of a high‐potential agricultural base with high quality raw materials (including exotic fruits and vegetables) and different horticulture varieties provided in the off‐season which offer Egypt an important comparative advantage of inputs supply to the food processing industry. The industry is highly diversified in terms of output. Its major product groups include preserved foods such as dried, canned and frozen fruits and vegetables, preserved and processed meat, poultry and fish, milk and dairy products, edible oils, sugar and confectionery products, and fermented and distilled beverages. Egypt’s regional exports of processed food is concentrated in the European Union markets, followed by the Middle East and the COMESA region. Potential for increased trade with the EU region comes with the Government of Egypt’s efforts to reduce customs and duties within the EU‐partnership agreement framework

Investments

Since 1970, 2812 companies has invested EGP 17.5 billion in food processing industry, where 30.7% of them were specialized in processing agricultural products; the investments in this sector are mainly directed to inland investments (2515 Co.), followed by companies under law 159 (260 Co.), and finally free zones (37 Co.); the following figure show the distribution of food processing investments by sub‐sectors for the period 1970‐04/2007:

pro cessed meat and f ish3.8%

So ft and natural drinks

8.4%

F lavo rs 0.2%

P ro cessing agricultural pro ducts

35.5%

Sweets, and P asta10.1%

o ther5%

D airy pro ducts9.5%

M ills7.5%

F ats and o ils10.7%C o o ling and freezing

wareho uses2.7%

P re-pro cessed pro ducts

6.6%


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The majority of the food processing investments took place within a period of 6 years (2001 – 2006); 60.6% of the companies investing in this sector, and 46.1% of the total issued capital have been registered during this period of time; in the following figure the development in the food processing investments from 2001 to 2006 is shown:

The majority of the food processing registered companies are working under inland regime; the number of companies distributed by investment regime is shown in the following table:

Year Inland (#) Free Zones (#) Law 159 (#) 2001 166 5 26

2002 154 1 34

2003 166 4 39

2004 249 2 28

2005 380 4 32 2006 204 3 27

Total 1319 19 186

Mainly, the local investors are dominating the investments in food processing industry, followed by Arab investors, then investors from other countries as shown in the following table:

Year Egyptian Investments

(million EGP) Arab Investments (million EGP)

Foreign Investments (million EGP)

2001 805.6 39.2 109.4

2002 602.4 136.6 7.1

2003 577.4 201.1 ‐23.3

2004 1242.0 296.9 241.2

2005 1332.7 792.3 717.3 2006 487.1 251.6 237.9

Total 5047.3 1717.8 1289.6

Million EG

P 954.2746.1 755.3

1780.2

2842.3

976.6

2001 2002 2003 2004 2005 2006


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Projects

During the year 2006, some of the top agriculture and food processing companies has targeted Egypt to establish their food processing and agriculture projects as follow:

‐ Al‐Rajhi Group (KSA) – Agriculture

‐ Al‐Rafedeen Company (IRAQ) – Fish Farms

‐ Kenouz Al‐Sharq (UAE) – Sugar Refining

‐ .Falcon Co (KSA) ‐ Agriculture

‐ Kobe Bussan (JAPAN) – Processing of frozen vegetables, production of pickles, and land reclamation

‐ Aceitunas Colofon (SPAIN) – Olive cultivation and processing of olive oil

The GOE has realized the importance of the private sector role in supporting developmental initiatives, which entailed the activation of the Asset Management Program; in the following, companies under 2007 Asset Management Program will be listed:

‐ North Cairo Flour Mills

‐ South Cairo Flour Mills

‐ Alexandria Flour Mills

‐ Middle Egypt Flour Mills

‐ The General Company for Silos Storage

‐ Misr for Oil and Soap

‐ Champilion Oils

‐ Sila Oils

Moreover, There are several investment opportunities in the filed of food processing as follow:

‐ Establishing technological incubators for the production of agricultural products, for exportation by using the latest technologies.

‐ Integrated complex for slaughtering, freezing & packaging meat and processing animal remains.

‐ Establishing factories for the production of: Powder milk, Preparation & Packaging for Dried Horticultures, Olive Oil Extraction, Preparation & Freezing Vegetables, Food Oil Extraction & Refining (Sunflower, Soya Beans), Food Oil Refining, Tomato Food Paste and Ketchup, and Fodder from Rice Straw.


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Appendix 4 Additional information (Private Equity) M&A Insights – Food Sector 2007 (Price Waterhouse Coopers) http://www.pwc.com/extweb/pwcpublications.nsf/docid/81924F7FB3BB573D852572AA00449BE5 Venture Capital Development in MENA Countries – Taking Advantage of the Current Opportunity, MENA Investment Policy Brief, Issue 1, April 2006 http://www.oecd.org/dataoecd/26/54/37256468.pdf Private equity hot on food (Nutra Ingredients, 05/09/2005) http://www.nutraingredients.com/news/ng.asp?id=62271-private-equity-food Chr Hansen sale: private equity gains leading colour and culture positions (Nutra Ingredients, 20/07/2005) http://www.nutraingredients.com/news/ng.asp?id=61403-chrhansen-new-owner Private equity rumour stalks Britvic (Beverage daily 29/05/2006) http://www.beveragedaily.com/news/ng.asp?id=68028-britvic-private-equity-soft-drinks Private equity houses show real hunger - Food Industry Report - Brief Article (Eurofood, July 18 2002) http://findarticles.com/p/articles/mi_m0DQA/is_2002_July_18/ai_89576929 Advent International and Turkven Private Equity have partnered with Doruk to buy the leading Turkish bakery Unmas from Dogus Holding. 02/05/2003 http://www.turkven.com/investments_uno.html Idia AgriCapital - Credit Agricole http://www.ca-idia.com/en/business/idia/home/index.html http://www.ca-idia.com/en/business/idia/foodindustry/shares/#1