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Food Processing Export Strategy Preliminary Review

Working Document Not for Circulation

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: March 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 - Review

Paul Baker 26-Nov-07 i

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 (EFP) sector. The report concerns Task 4 of the assignment, which has as its objective:

Check the FP Export Strategy and draft an Export Plan listing and prioritizing objectives, activities and suggesting stakeholders’ contributions.

Under the terms of reference (ToR) for the assignment, the activities for Task 4 include:

Overview the sector situation (markets, used technologies, human resources, financial data, etc.)

Check the coherence and consistency of the policies set out in the Export Strategy and designed to improve the FP sector’s export performance (e.g. marketing, investment, training and skill development needs etc.)

Outline recommendations for improvement Propose a matrix with priorities, objectives, activities, needed resources, expected

results, and actions to be undertaken by the public and/or private sectors to achieve export development goals

Suggest organisational structure (role and responsibilities) to ensure adequate implementation of activities

Identify a set of activities to be undertaken by the FPEC Draft a specific action plan for the FPEC activities with time table, with needed

resources, and key performance indicators Propose a control mechanism to verify operational advancement

On the basis of the above ToR, the consultant undertook a review of the Food Processing Export Strategy1, and the main findings are documented in Section 1 of this report. On the basis of the findings from the review of the Food Processing Export Strategy, and in consultation with the beneficiary (i.e. FPEC), a revised programme of support activities were agreed. These are outlined in Section 2 of this report.

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


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Table of Contents

1. Summary of the Food Processing Export Strategy................................................ 1 1.1. Overview of export strategy development.............................................................. 1 1.2. General approach of strategy development studies .............................................. 1 1.3. Overall assessment of current situation and future export potential...................... 2 1.4. SWOT analysis ....................................................................................................... 2 1.5. Main conclusions and strategy recommendations ................................................. 7 1.6. Main identified ‘action areas’ .................................................................................. 8 1.7. Outline action plans .............................................................................................. 10 1.8. Comments and conclusions ................................................................................. 11 1.8.1. Structure and focus of the Food Export Strategy Report............................... 11 1.8.2. Overall evaluation and identified key issues .................................................. 11 1.8.3. Final remarks .................................................................................................. 15 2. Outline revised programme of support activities.................................................. 17 2.1. Overview ............................................................................................................... 17 2.2. Detailed sub-sector action plan: ‘olive oil’ ............................................................ 17 2.3. New product development action plan: ‘dried fruits’ ............................................ 18 2.4. FDI attraction for the food processing sector ....................................................... 18 2.5. Relationship between revised support programme and assignment activities.... 19

Appendix 1 EFPS Export Strategy – Action Plans ...................................................... 21 Appendix 2 Strategy development framework............................................................. 23 Appendix 3 Extracts from Business Today Egypt ....................................................... 26


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Index of Tables Table 1 Identified EFPS ‘strengths’ and recent changes ............................................ 4 Table 2 Identified EFPS ‘weaknesses’ and recent changes ....................................... 5 Table 3 Identified EFPS export ‘opportunities’ ............................................................ 6 Table 4 Identified EFPS export ‘threats’ ...................................................................... 7 Table 5 Export Strategy: general policy and ‘multi-sector’ action areas..................... 9 Table 6 Export Strategy: sector orientated and intra-industry action areas.............. 10 Table 7 Overview of correspondence between activities.......................................... 20 Index of Figures Figure 1 Strategy development framework................................................................. 25


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List of Acronyms CAP Common Agricultural Policy (European Union)

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)

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)

GCC Gulf Cooperation Council

IMC Industrial Modernisation Centre

MTI Ministry of Trade and Industry

SWOT Strengths, Weaknesses, Opportunities, Threats

TEP-A Trade Enhancement Programme A

ToR Terms of Reference


Paul Baker 26-Nov-07

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1. Summary of the Food Processing Export Strategy

This section provides a brief summary of the current status of the Egyptian Food Processing Sector (EFPS) Export Strategy, its development and methodological approach, together with main conclusions and recommendations.

1.1. Overview of export strategy development

The most recent attempt to define an export strategy for the food processing sector is set out in a report for IMC: “Food Export Strategy Report” (May 2006)2. This study built upon an earlier report for IMC: “Egyptian Processed Food Sector Review” (May 2005)3, which had a somewhat broader scope but that, nonetheless, gave particular emphasis to enhancing export performance4. These two documents provide the basis for articulating the ‘current’ export strategy for the food processing sector5. It should be noted, however, that the two studies/documents are consultants’ reports rather than a strategy for enhancing export performance developed and adopted by the national government or the industry itself. Notwithstanding the support that may exist among the relevant stakeholders and authorities for the objectives and recommendations set out in these reports, it would be inaccurate to describe them representing the ‘official’ export strategy for the food processing sector.

1.2. General approach of strategy development studies

The two aforementioned reports are broadly similar in their approach and overall structures, with each providing:

Global assessment: demand-side and supply-side factors shaping development, global trade environment, and regulatory environment;

Local assessment: production and trade (export) performance, demand-side and supply-side factors shaping development, trade environment, regulatory environment;

Benchmarking analysis: with comparisons of Egyptian situation for key performance indicators, and for key product categories against important competitor and sector ‘best performer’ countries;

SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis and conclusions; Strategy recommendations: for enhancing (export) performance.

The reports provide a considerable volume of analysis of both global developments in the food processing sector and of the current situation of the sector in Egypt. In fact, one major contribution of the studies is to bring together information from disparate source in

2 “Food Export Strategy Study – PS137 – Final Report”, STEM-VCR, May 2006 3 “Egyptian Processed Food Sector Review – Final Report” ECORYS-NEI, May 2005. 4 For sake of objectivity, the reader should not that the author of this current report was also a principal consultant/author of the ECORYS-NEI study. 5 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.



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order to provide a relatively coherent and comprehensive picture of the local food processing sector, something which had been previously missing.

1.3. Overall assessment of current situation and future export potential

The ‘consensus’ view of the current situation of the Egyptian Food Processing Sector (EFPS) sector is that the general framework conditions (e.g. business and administrative environment and transparency, international openness, etc.) and market access (e.g. regional and bi-lateral trade agreements) have improved considerably6. Together with the effects of the devaluation of the Egyptian Pound (EGP), the export ‘rebate’7 and the efforts of exporters themselves (e.g. enhanced price and quality competitiveness), these improvements have contributed to a significant boost in exports. This is not a justification for complacency, however. There are many remaining ‘structural’ impediments and the EFPS sector as a whole still lacks a clear and coherent vision for achieving sustained (medium to long-term) export growth in the face of mounting international competition. From a negative perspective, an assessment of the food processing industry’s current approach to export development can be paraphrased as: no defined positioning, no geographical or product dominance, prevalence of export products in slow or no growth segments, and limited or inconsistent export successes. Taking a more positive perspective, it is increasingly evident that there is a growing consensus of the need to address the strategic shortcomings that characterise the sector and greater willingness within the industry and government to take the necessary steps to bring about change. Despite the general impression that the EFPS has underperformed in the past, both the ‘Sector Review’ and ‘Export Strategy Report’ lead to the conclusion that if appropriate actions are implemented by the various stakeholders then the EFPS can become a strong, competitive and dynamic industry, integrated into the global economy and a source of sustained export growth and job creation.

1.4. SWOT analysis

The sector-level SWOT analysis8 of the ‘Sector Review’ and ‘Export Strategy Report’ provide a basis for identifying, in general terms, issues and challenges for the EFP sector. These factors are shown in Table 1 to Table 4; the tables list items identified in the ‘Sector Review’ together with comments and observed changes from the ‘Export Strategy Report’. Overall, there is fairly high degree of consensus on the key factors that need to be integrated into the development of the EFPS export strategy.

6 See Appendix 3 for some recent developments. 7 In 2003 the Egyptian Government introduced a tax rebate of 8-9% on the FOB cost of certain exports. This rebate is available for a large range agri-food exports (in 2005 some 70% - in value terms of exports from the agri-food sector benefited from this support). The purpose of the rebate is to offset the indirect costs of import taxes and tariffs on ingredients and packaging components. Source: ESR. 8 The reports also contain sub-sector / product-level SWOT assessments.



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Briefly, the recent changes to the identified strengths and weaknesses indicate:

Reinforcement of sector ‘strengths’: by and large these appear to reflect a combination of positive outcomes from institutionally supported ‘modernisation’ efforts and pro-industry policies (e.g. administrative/regulatory reforms, export subsidies, unified food law). In turn, these have encouraged and facilitated rapid recent growth in exports.

Standstill on sector ‘weaknesses’: this relates mainly to slow progress to address ‘structural’ problems within the EFPS itself (firm size, technological/innovation and management capacity etc.) and lack of strengthening of essential inter-industry linkages (e.g. transport/logistics, packaging, banking/finance)

In terms of ‘opportunities’ and ‘threats’, the following points may be made:

There appears to be a number of generally agreed factors that offer potential ‘opportunities’ for sustainable expansion of processed food exports. What is missing, however, is to build these into a coherent and prioritised set of actions and activities.

The identified ‘threats’ in the Export Strategy Report relate mainly to failures to address the identified structural weaknesses. What is missing is a broader, more externally orientated, and forward-looking analysis of potential ‘threats’.



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Table 1 Identified EFPS ‘strengths’ and recent changes

Factors identified in Food Sector Review Change 2004/5 to

2006

Comments based on Export Strategy Report

Capability of Egyptian agriculture to produce different varieties of fruits and vegetables in different seasons all year round.

=

The ability to utilize indigenous inputs in order to produce innovative speciality products for local and regional markets.

=

Industry has had a proven track record of export performance, especially the fruit and vegetable sub-sector. ↑↑ Very strong export performance in key

product segments.

Low labour cost compared to regional and developed counties, and increased availability of skilled labour. ↑↑ Currency devaluation has entrenched low

labour cost advantage.

Access to packaging materials at competitive prices domestically.

↑

Situation improving but capacity lacking in some segments (especially glass)

[Bar-coding utilisation improving among food processors]

Key geographical location; proximity to Gulf Arab countries and Europe; two to three days and less than a week to reach the Gulf and European sea ports respectively.

Direct sea and air shipping services to Europe for enhanced export performance.

↕

Improving refer logistics to EU, and USA, in particular ‘green corridor’ project with Italy.

High costs to GCC countries are a problem.

Improved quality and HACCP system in the food industries in the last four years; reduced trade barriers in the trade of fruit and vegetables while some improvement is required in the dairy, meat and fish sector.

↑

Continued improvement in quality management (HACCP, ISO certification, etc.)

Increasingly improving business environment such as tax incentives to exporters and investors, improved customs regulations etc. ↑

Government policies focused on improving business environment and enhancing integration into global economy.

Issuance of the new unified food law will facilitate and clarify the misunderstanding between traders, processors and food law enforcement agencies; also the establishment of a new National Food Authority.

↑

Unified food law adopted but enforcement needs to be strengthened and unified authority put in place

A growing tourism industry. ? Not assessed

= ↑↑ ↑ ↕ ↓ ↓↓ ?

Situation unchanged Situation improved significantly Situation improved Situation mixed Situation worsened Situation worsened significantly Uncertain / information not available



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Table 2 Identified EFPS ‘weaknesses’ and recent changes

Factors identified in Food Sector Review Change 2004/5 to

2006


The agriculture system is underdeveloped, fragmented and the use of local raw materials on a commercial scale is hampered by an inconsistent supply of raw material to the industries, of contract farming a very weak relation between the growers and processors.

↕ Increasing competition for agricultural land from fresh produce exporters.

Inconsistent supply remains a problem.

Poor logistics such as cold store chains, refrigerated transport system, and air cargo space, lack of knowledge of the post harvest handling of perishable products from the farm to factory to ports, and consequently high post harvest losses.

=

Minimal change.

The majority of the companies operating in the sector are classified as micro, small and medium sized, these industries are not organized and therefore can not benefit from economies of scale and export marketing.

= Minimal change.

Traditional management system in many of small and medium food industries inhibits new products and new market requirements.

= Minimal change.

Due to the inability of the majority of companies to invest in research and development, there is a low level of innovation with in the sector and therefore a lack of new products.

=

Minimal change.

Some increased presence of multinationals and international investment / investment financing.

Slow technological development due to difficult to access and high cost of capital; also poor relations with R & D Centres. ↑

Situation improving with increased investments in new plants and production capacities BUT access and cost of finance remains a problem.

Weak domestic market and under developed distribution channels, such as supermarkets and hypermarkets. ↑

Slow progress but some signs of improvement (e.g. Carrefor) BUT logistics not adapted to needs of large retailers

Administrative and bureaucratic burdens (especially lack of transparency in the customs regulations in imported items) and a very long clearing time required due to bureaucracy has made the industries relying on the imported inputs uncompetitive.

↑ Situation improving with new Export and Import Law

= ↑↑ ↑ ↕ ↓ ↓↓ ?

Situation unchanged Situation improved significantly Situation improved Situation mixed Situation worsened Situation worsened significantly Uncertain / information not available



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Table 3 Identified EFPS export ‘opportunities’9

Factors identified in Food Sector Review ESR ‘opinion’


High potential to attract foreign direct investments in food processing sector and to become a regional hub for multinationals for their regional offices in marketing, R&D and operation in the Middle East.

√ ESR assigns an important role to investments by multinational food companies as a vehicle for ‘branded’ products

Increased marketing opportunities through the new preferential access agreements with the Arab countries and other regional markets.

√

ESR assigns an important role to GCC countries as markets with fast growing demand. Also, Iraq may provide a further market with fast growing demand.

ESR points to need to look to other fast growing markets (e.g. ex-Soviet Union) and to adjust focus of trade policy and trade negotiations accordingly.

In fruit and vegetable sector, there is an evident demand for frozen, pureed and canned products.

√ ESR emphasises these types of product categories, where they have high labour intensity in production and/or processing and for which low Egyptian labour costs provide a competitive advantage.

There is a huge and expanding market in Europe for organic products that creates opportunities for Egyptian producers. √

ESR is unclear on the importance of organic products in the overall export strategy. There are clear possibilities to develop organic products but this may be limited to ‘niche’ markets.

There is a considerable potential for the increased product development by complementing the range of products already established. ?

ESR is unclear on the role of expanding the existing product range but, nonetheless, emphasises the need for improved local brand development.

A massive growth in supermarket “own” label market segment - estimated at present to be 20% of the super market trade in Europe - provides an opportunity for the Egyptian processors (especially those in fruit and vegetable sector).

?

ESR is unclear on the role that Egypt can play as a supplier of “own” label products to retailers. More generally, the ESR is sceptical about the overall potential of the EU market as a route to expanding EFP exports.

Scope for the introduction of enabling structures, such as cooperatives and contract farming, which could allow the small scale farmers to serve the European markets (especially on the fruit and vegetable sector).

Not assessed

A huge potential derived from the growing distribution channels, such as local supermarkets chains, which can serve in the marketing of speciality products from small and medium scale factories for niche products and ready to cook food.

Not assessed

9 There are a number of other ‘opportunities’ identified in the Export Strategy Report but the present author is unable to understand either their meaning or whether they can actually or correctly be categorized as opportunities.



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Table 4 Identified EFPS export ‘threats’10

Factors identified in Food Sector Review ESR ‘opinion’


In the long run, there will be an erosion of the Egyptian domestic and export markets by multinationals who possess large economies of scale and the ability to support expensive advertising (promotion) campaigns.

√ ESR treats this threat in a more generic way, as a failure to accelerate competitiveness improvements.

Delay in the implementation of international specifications and requirements in food safety and traceability, such as HACCP and EurepGap, will hamper the export performance of the food-processing industries.

√

Regional instability may affect FDI and the export performance of Egyptian FPI in the region

Not assessed

Factors identified in Export Strategy Report ESR ‘opinion’


Slow improvements in customs clearance procedure and failure to reduce port handling fees etc.

Failure to invest in required infrastructure improvements necessary for enhanced access to GCC countries’ markets.

1.5. Main conclusions and strategy recommendations

The ‘Export Strategy Report’ indicates the following ‘topics’ as being among the key issues that need to be addressed by the sector in order to develop a successful export strategy 11:

Geographical export focus: in addition to neighbouring countries, the ‘conventional wisdom’ has been that the focus for expansion of Egyptian processed food exports should be the EU (now expanded to 27 members) and the USA markets. However, the analysis suggests that these markets are characterised by slow demand growth and increasingly difficult market conditions. By contrast, the Export Strategy Report recommends increased attention on faster growing markets such as the GCC States, Russia and the ex-Soviet Republics where there may be more promising opportunities for Egyptian exports.

Strategic product focus: the analysis of international export performance strongly suggests that countries which have been able to successfully expand their processed food exports, have achieved this by utilising specific products / industry segments as a means to enter new markets. These products/segments, which the Export Strategy Report labels ‘blockbusters’, provide a means for penetrating markets and then rapidly expanding the volume (market share) of exports. Accordingly the Report recommends the integration within the overall export strategy of a selective approach for targeted export market development that is focussed on specific product(s) with high volume export growth potential. The Report identifies olive oil as a product that could fulfil this role for Egyptian exports of processed foods.

10 There are a number of other ‘opportunities’ identified in the Export Strategy Report but the present author is unable to understand either their meaning or whether they can actually or correctly be categorized as opportunities. 11 The Export Strategy Report also suggests that Egypt should adopt a more aggressive approach in challenging the dominant market share of some key regional competitors (Tunisia in dates, Turkey in dry fruits).



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Competitive advantage and competitive positioning: the Export Strategy Report identifies the key competitive advantage of EPFS as being in labour intensive food products for which Egypt can exploit its low labour costs; particularly if the exchange rate of the EGP remains reasonable stable and close to currents levels against the Euro and US dollar. The Report recommends that products with high levels of labour input in production processes (labour intensive) should be targeted for export development. These would be products such as: frozen strawberries, tomato derivatives, artichokes (frozen and canned), dried vegetables, and dried fruits.

Marketing ‘made in Egypt’ and ‘local’ branded product development: although several brand-orientated multinational food companies already have production and export capacity in Egypt (see next point), the Export Strategy Report suggests that local brands are on the whole relatively weak; this applies both to the general ‘image’ of Egyptian processed food products – i.e. the generic ‘made in Egypt’ branding – and the portfolio of individual branded export products. While strengthening the latter is primarily an issue for individual companies, strengthening the ‘generic’ Egyptian brand cuts across the sector and product segments. In this respect, the Report recommends focussed strengthening of the ‘brand image’ of specific products with export potential, such as Domiati cheese.

Foreign investment attraction and ‘international’ branded product development: attracting foreign investments can facilitate numerous aspects of the development of the food processing sector (e.g. access to technology, market access, integration in global supply and distribution chain, etc.) and, in turn, its export potential. The Export Strategy Report emphasises, in particular, the potential role that can be played by brand-orientated multinational food companies in boosting exports. The Report recommends that in an increasing brand conscious marketplace, foreign direct investment (FDI) attraction efforts should be focussed on brand-orientated multinational that can be persuaded to locate their regional (MENA) production hub in Egypt.

1.6. Main identified ‘action areas’

The ‘Export Strategy Report’ proposes a number of key ‘action areas’ that are viewed as critical for the development and implementation of a successful export strategy for the EPF sector. These key action areas are shown in Table 5 and Table 6. To assist the presentation of these action areas, Table 5 shows action areas that concern policy areas and issues that can be considered relevant to a broad cross section of industrial sectors, not only the food processing sector; the Table indicates, nonetheless, where there are sector specific dimensions relevant to enhancing the export performance of the EFPS. By contrast, Table 6 is concerned with ‘action areas’ that should be addressed primarily at the level of the EFP sector or at the level of specific sub-segments/product categories within the sector.



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Table 5 Export Strategy: general policy and ‘multi-sector’ action areas

Action area General Sector Comments & Recommendations

Macroeconomic Environment

Macroeconomic, fiscal and currency policy √

Implementation of policies for maintaining stable macroeconomic, fiscal and currency exchange rate conditions.

Labour cost competitiveness

√ Implementation of economic, labour/employment and social policies consistent with ensuring that labour costs are internationally competitive and reflect relative (international) labour productivity levels.

Trade environment

Trade policy development

√ √

Continuation of efforts to enhance Egyptian integration in global markets through bilateral, regional and multilateral trade negotiations and agreements.

Re-evaluation of trade negotiation and trade agreement priorities to incorporate enhancing market access for processed food exports to markets with growth potential.

Trade facilitation √

Continuation of efforts to enhance efficiency and streamline customs procedures and reduce administrative costs and delays so as to facilitate export (and import) movements.

Export incentives √

Implementation of incentive packages to support exports, which are consistent with obligations under existing and potential future trade agreements.

Imported capital investment goods and production inputs

√

Adoption of trade (customs) rules and duties that support industrial modernisation and specifically export-orientated production processes (i.e. imports of production capital and technology goods).

Adoption of trade (customs) rules and duties that do not discriminate against - or unnecessarily raise the costs of - production inputs that are destined for re-export.

Business and Investment Environment

Environment for starting and operating businesses / regulatory and administrative environment √ √

Maintained focus on market liberalisation, deregulation (and re-regulation), administrative reform, and combating corruption etc. so as to create a more business orientated and business friendly economic and investment environment.

Strengthen the enforcement of the new Unified Food Law.

FDI attraction (general)

√ Development of a more ‘competitive’ package of policies, support and incentives for attraction of FDI and enhancement of positive ‘spillovers’ from foreign investments into the local economy (e.g. technology transfer).

FDI attraction (export-orientated FDI)

√ √

Development of specific investment packages designed to encourage attraction of export orientated FDI.

Development of tailored packages of incentives and business regulations and support designed to attract multinational companies in the food processing sector and related industries.

Informal economy

√ √

Development and implementation of strategies and policies for encouraging informal production activities to shift into the formal sector.

Evaluation and development of appropriate policies to reduce the impact of informal activities on export performance of the formal food processing export sector.



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Action area General Sector Comments & Recommendations

Transport infrastructure and logistics

√ √

Support continued investment in transport infrastructure (particularly port facilities) and policies to encourage development of more competitive (efficient and effective) logistics services sector.

Enhance container handling capacity and systems at Egyptian ports.

Support the development of competitive logistics solutions to facilitate exports to countries/regions identified as priorities for expansion of processed food exports.

Support institutions and services

√ √

Upgrade support institutions to levels compatible with integration into the global economy and the requirements of an export orientated development strategy. This should cover inter alia certification and technical compliance, technology development and integration, and research and development.

Table 6 Export Strategy: sector orientated and intra-industry action areas

Action area Sector Sub-sector

Comments & Recommendations

Sector development

Sub-sector / product category representative associations

√

Development of sub-sector / product associations (e.g. olive oils, confectionary, etc.) or specific working groups to spearhead export orientated development activities. These would cover sub-sectors identified as having high export potential. Their roles would include inter alia advocacy and ‘lobbying’ on behalf of their members; support for entering new markets; technology transfer; and, more generally, encouraging and supporting policies/activities to enhance competitiveness of their sub-sectors.

Market research and intelligence systems √ √ Development of sector-level and sub-sector research and

market intelligence support services

Intra-industry linkages

√ √

Development of strategies and approaches to strengthen intra-industry linkages and networks (‘cluster’ based approach). The purpose of which should be to encourage greater knowledge sharing and a more knowledge intensive environment.

Specific ‘ad hoc’ issues

Agriculture development

√ √

Assessment and policy development to address issues of the availability, allocation and cost of agricultural land. Within this, to give specific attention to the feasibility of allocating available agricultural land resources to export orientated crop production.

1.7. Outline action plans

The Export Strategy Report provides only very vague indications of how to translate the strategy recommendations into specific actions. Nominally referred to as ‘action plans’, the Strategy Report provides a series of points for specific product segment but arguably these are a long way short of providing effective guidance on the necessary steps, priorities, sequencing of activities, and overall logic and coherence; for reference, these ‘action plans’ are provided in Appendix 1.



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1.8. Comments and conclusions

The preceding sections have attempted to provide an overview of the Egyptian Food Processing Sector (EFPS) Export Strategy. In this section some comments and conclusions are provided on the overall coherence and consistency of the policies set out in the Export Strategy.

1.8.1. Structure and focus of the Food Export Strategy Report

The “Food Export Strategy Report” assembles a very substantial quantity of background information and analysis12, relatively little of the Report is actually dedicated to the clear outlining of strategy recommendations and (as noted in Section 1.7) there is almost a complete absence of any presentation of appropriate ‘action plans’ necessary to implement the strategy. Moreover, no attention is given to the institutional roles and responsibilities necessary for adequate and effective implementation of the strategy. The Report is further handicapped by the fact that the logical structure and progression from information and analysis to strategy recommendations is often poorly articulated. This weakness makes it very difficult to establish the relative priority that should be given to individual recommendations, actions and activities. In fact, the lack of a clear and sequenced analytical approach and presentation of findings means that it is difficult to evaluate the overall coherence, consistency and feasibility of the proposed strategy. Further, it appears that little attention has been given to assessing the extent and contribution of different strategy options and/or elements to maximizing the overall potential gains to the EFPS or, more broadly the Egyptian economy and society (e.g. export earning, value-added and profits, employment creation etc.) In part, this lacunae appears to be an outcome of a product-by-product orientated approach whereby individual product strategies have not been effectively brought together under an overall ‘sector umbrella’. Clearly, there is an issue here relating to the actual requirements and outputs for the study set by IMC and, subsequent to these, the degree of ‘quality control’ exercised by IMC. The shortcomings in the Report, in the personal opinion of the present author, significantly diminish the overall usefulness of the Export Strategy as the basis for developing appropriate policies and approaches for implementing the Report’s recommendations. In this respect, notwithstanding the possible merits of the recommendations, the Strategy Report falls short of providing a ‘blue-print’ upon which policy-makers, the food processing sector, and other stakeholders can develop activities and actions to strengthen the export performance of the EFPS.

1.8.2. Overall evaluation and identified key issues

Looking at the overall analysis and recommendations of the ‘Export Strategy Report’ (i.e. as far as they concern the sector as a whole as opposed to specific sub-sectors / product categories), although it would be easily possible to take issue with many specific points and conclusions within Report, this would not be particularly constructive given the perceived needs of EFPS, government and other stakeholders. If we take a broader

12 Unfortunately the source of much of the quantitative information in the FESR is not specified and cannot, therefore be verified.



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view, then we can see that the ESR provides the basis for setting some important guidelines for future enhancement of the export performance of the EFPS. Certainly, the ESR identifies and makes worthwhile recommendation on a number of key ‘action areas’ that need to be addressed by policy-makers and/or the EFPS. Notwithstanding recent and expected changes that may be made to address these ‘action areas’, continued vigilance is required to ensure and reinforce efforts to improve the current situation and maintain improvements in the future. The rather confusing overall structure of the ESR does, however, lead to possible misinterpretation of some of the key strategy recommendations and there are, some critical points that – in the opinion of this author – need to be addressed and/or clarified. These are as follows: Overall positioning of the EFPS

There is a general perception in both in the ESR and within the segments of EFPS itself that the sector’s competitive position is as a low cost supplier of basic processed food products. This conclusion is based upon the possibility for the sector to utilise its low labour costs – and those in the agricultural sector - as the basis for its competitive advantage. Even though this may well reflect the realities of the general situation and capacities (technical, managerial, marketing etc.) of many firms within the sector, it is a potentially dangerous basis on which to formulate a medium to longer term strategic vision for the EFPS unless the implications of the this strategic positioning are properly thought through. In this respect, the following considerations may be taken into account: - Firstly, Egypt has limited agricultural resources (particularly related to population

size) and, therefore, there is a high opportunity cost to utilising these scarce resources in the cultivation of raw products to serve as inputs into the production of low value added export goods. Although, from the perspective of companies within the sector, such a ‘positioning’ may – at least in the short term – be profitable, this does not mean that it is the preferred allocation of scarce resources from the perspective of the economy as a whole.

- Secondly, with growing global competition and ‘commoditisation’ of basic processed food products, production of low value-added exports exposes Egypt to ‘the push to the bottom’ whereby Egyptian exports will always be susceptible to the potential expansion of the global (or even regional) positions of other low cost or more efficient suppliers (e.g. India, China, ex-Soviet Union, Latin America, etc.). Under such conditions, competition in the global market will inevitably put downward pressure on international market prices, thereby reducing profitability and removing any possibilities for increasing wages/incomes. Ultimately, if Egyptian producers are unable to achieve greater efficiency or economies of scale and scope, then they will simply not be able to compete in this market segment.

For some product-market combinations Egypt has a role to play as a supplier that can offer low labour costs in cultivation and food processing; for example in those segments (product categories) for which producers in high cost locations (e.g. EU Member States)13 are looking for alternative sources of supply of primary and basic processed inputs or, even, to the eventual re-localisation of more ‘sophisticated’ food processing activities. For this type of product-market combination Egypt should be able to position itself – at least in the short-term - as a relatively low-cost supplier of labour intensive food products. In fact, if the limited capacities (actual or as perceived by potential customers) of many firms in the EFPS and the lack of awareness in global markets of the Egypt’s supply potential are taken into account, such a positioning may represent the only realistic entry point for Egyptian export products.

13 The ESR notes that “Europe is also becoming less and less competitive and increasingly dependent on imports in “labour intensive crops” such as artichokes, asparagus, olives, tomatoes, dried tomatoes, strawberries, dried figs and apricots, raisin, raspberries and syrup fruit. Morocco and Turkey have displaced traditional producers as Spain, Greece, Italy and Portugal, but also Egypt could play an important role with its low cost labour, provided that logistic costs are lowered and product specification matched.”



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There is, however, a risk attached to Egypt being identified in the medium to longer-term as primarily a low cost supplier of low value added products. With such a positioning, firms will be led to trying to increase revenues through achieving high (export) volumes of ‘low-value added’ / ‘low margin’ products; which may result in a situation that falls some way short of maximising returns on available resources. At the same time, the EFPS would remain vulnerable to the ‘commoditisation’ of basic processed food products and attack by even lower cost suppliers.

Geographical focus

The ESR indicates that greater attention should be given to faster growing markets such as the GCC States, Russia and the ex-Soviet Republics. There is little to fault in the notion that exporters should monitor market developments and look for opportunities in those markets where demand is growing rapidly. Unfortunately, however, the Report itself then directs virtually all of its relevant attention to issues and proposals related to increasing market access and raising exports to the EU. This inconsistency in the analysis and recommendations means that the issue of ‘where and how’ the EFPS should focus its geographical attention is not clear; we have a ‘where’ in the GCC States and other mentioned countries, and a partial ‘how’ in the EU. To add to this confusion, there is also increasing public questioning of the importance of the Chinese market14; and if China, why not India?15

Taking the case of China as an example of a market that could potentially offer enormous export opportunities for the EFPS, it is highly questionable whether Egypt should position itself as a low-cost supplier of labour intensive food products. Potentially, Egypt could sell all its production of oranges to China16 but the real question is whether such exports would be profitable and sustainable over time. Although China is undergoing an economic boom, the majority of its consumers are neither wealthy nor sophisticated. This means that although the overall market is extremely large, the share of ‘target’ consumers for processed food exports remains small. Furthermore, recognising that Egypt is a relatively small producer of (fresh and) processed foods, it would face competition from other producers with greater volumes and greater scope for economies of scale (not only in production but also in terms of getting their products to market). Egypt would also face competition from local producers with far lower costs, many of whom are already competing successfully with Egyptian products in global markets (e.g. tomato derivatives, dried fruit, onions and vegetables, etc.) In short, for processed food products for which China can (now or in the future) source its raw materials from domestic agricultural production, China is ideally placed to position itself as the global supplier of low-value added commodity-type products. Where this is the case, ‘advertising’ to the Chinese that the EFPS sees its competitive advantage as a low cost supplier could be seen as an open invitation for China to attack Egypt’s export market share(s).

The export rebate scheme

In respect of the above, it is also worth questioning the longer-term effectiveness of providing ‘rebates’ to Egyptian agricultural and food product exporters17. Notwithstanding the validity of trying to offset unrecoverable costs on imported inputs, such ‘rebates’ tend to be much more important for enhancing (artificially) the competitiveness of low value added products since these are more price sensitive than products that differentiate themselves on the basis of ‘quality’18, 19. Such subsidies/rebates can therefore actually

14. See the article “If every Chinese bought one orange”, reproduced in Appendix 3 15 India is closer and easier to reach – why was the Suez Canal built in the first place? It also has the second largest Muslim population in the world (after Indonesia) with many of the same requirements on food processing as in the Arab world. And, Indian companies are on a foreign direct investment spending spree. 16 Ibid (footnote 16). 17 This is even more so the case for proposals to introduce an even higher rebate for exports to China; an idea that is apparently being suggested in some quarters. Such a proposal may even go so far as to jeopardize the entire subsidy scheme since there is no apparent reason why the indirect costs of import taxes and tariffs on ingredients and packaging components – the underlying justification for the rebate – should be higher on products destined for China than for any other export market. This being the case, the ‘rebate’ can simply be viewed as a manipulation of the price/cost of Egyptian exports – and, ironically, an indirect subsidy from Egypt to Chinese consumers – and would most probably bring the whole scheme into question as being in contravention of multilateral (WTO) trade rules. 18 Quality, in this context, covers not only the quality of the products themselves, but also other characteristics such as ‘brand image’, technical complexity, specialization etc. 19 The fact that Egyptian processed food exports have recently increased dramatically, following from devaluation and the implementation of the rebate scheme, is indicative of the low value-added positioning of Egyptian processed food exports.



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be harmful, in that they perpetuate the focus of the EFPS on low value added exports. Furthermore, if the underlying unrecoverable costs (i.e. indirect costs of import taxes and tariffs on ingredients and packaging components) are in fact proportionately less important for low (as opposed to high) value added products then a unified rate of rebate adds a further distortion in favour of low value added export products. All in all, however much the current system has helped Egyptian exports in the short-run, neither the government nor the food processing industry should see such types of measure as providing - in the medium to long-term - a positive contribution to the sustainable enhancement of the ‘strategic export positioning’ of the EFPS. Instead, the policy focus should be on removing the underlying causes of the need for the rebate scheme, namely the inability to quantify the import (tax) component in exported goods.

Labour inputs in food processing

Finally, it needs to be made clear that a focus on high value added products does not mean that the EFPS should necessarily move away from products with a high labour input. On the contrary, the labour input into a product is an essential part of its value-added20. Therefore, one way forward for Egypt – so long as productivity adjusted labour costs remain competitive – is to increase the share of the labour input in the final value of its export products provided, of course, that the ‘premium’ that can be charged for more processed goods offsets the cost of the additional labour inputs21. Raising the labour input may actually provide a basis for differentiating Egyptian products from those of competitors and, at the same time, create additional employment opportunities. This approach pre-supposes, however, that the type of ‘additional’ labour input is not easily substitutable by (more efficient) mechanised processes. It also requires that attention is given to the potential ease with which potential – even lower labour cost - competitors can copy these high-labour input production processes. In this respect, what is probably important is the ‘package’ of inputs used in production, which include not only labour but also, for example, specialised raw materials, packaging, marketing and other ‘soft’ aspects of the product.

Strategic product focus: ‘multi-blockbusters’

The ESR indicates that Egypt needs to develop a ‘blockbuster’ product as a means of penetrating new markets. This is presented in the report as conventional wisdom reflecting the past experience of other mentioned countries. However, if we look at some of the mentioned products (pistachios for Iran, dates for Tunisia), these are not high value added products22 and it is not evident that gaining market share for these products has resulted in subsequent increases in value added. Once again we can see the volume against value question raised above in reference to Egypt’s geographical focus. It is also questionable – but this is a personal view of the situation by the current author – whether following ‘conventional wisdom is actually the right way to proceed. In the current global environment, successful strategies appear more likely to be based on approaches that build on innovation, rapid introduction of new and diversified products and ‘niche’ specialisations. This is not to say that traditional factors such as production efficiency, cost and quality, etc. are not important. Rather, that the speed at which industries (and the firms therein) need to adapt to remain successful is increasing rapidly. Thus, flexibility to change is essential to avoid being trapped by the commoditisation process by which even ‘new’ products quickly become commodities. If we are taking a medium to longer term perspective, a single ‘blockbuster’ may not be sufficient, and Egypt may need to look

20 On an accounting basis, the value added in the final processing stage of a product is the difference between selling price and the cost of material inputs (intermediate goods and services, energy etc.) and the cost of capital. Thus the value added is basically equivalent to the share of profits and wages (and taxes) in the final output price. 21 It should be noted that there is, in any case, an underlying economic rationale for low labour cost countries (adjusted for productivity differences) to utilise a higher labour to capital ratio, since in relative terms the cost of labour is lower than the cost of capital. The point being made, however, is that in the Egyptian case it may make sense to actually look for possibilities to make incremental increases in the labour input in the processing stage. 22 The ESR also makes reference to wine from Italy. More pertinent, perhaps, is the example of Australian wine, which has taken very significant market share in some European markets and had such an impact that even French wine producers are now producing ‘New World’ style wines. This success was built on sustained and sophisticated marketing of a high quality product combined with a refreshing image that went directly against the staid and snobbish ‘appeal’ of traditional producers. It combined a preliminary stage based on ‘generic’ Australian wine to build awareness, and a second phase based on promoting specific wine labels. The preliminary stage provided market entry and initial market share, the second stage provided product differentiation and also split the market share into separate components making it the product less susceptible to attack from ‘counter’ marketing strategies.



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to a package of sequenced ‘blockbusters’ and start planning already.

Brand development and FDI attraction

The other key recommendations in the ERS, which relate to ‘Marketing and branded product development’ and ‘Foreign Investment Attraction’, are both implicit recognitions of the various points raised above. On the one hand, the development of ‘product identity’ for Egyptian exports is an important route to differentiation, and a partial antidote to commoditisation. However, the return to such efforts requires, at the same time, that poor ‘quality’ does not compromise the efforts to ‘promote’ Egyptian products. The potential role assigned to investments by brand-orientated multinational food companies within Egypt goes hand-in-hand with the marketing and branding approach. On the one hand, these companies can facilitate aspects of the development of the food processing sector such as access to technology, market access, integration in global supply and distribution chain, etc. One the other hand, if these companies use Egypt as a location for production for export it is a signal to the market of the ‘quality’ of Egypt products and there can be learning ‘spillovers’ to local companies from directly being able to observe the processes and business strategies of these multi-national companies.

1.8.3. Final remarks

If we attempt to put all the various elements together of the export strategy together, the ‘action areas’ identified in the ERS are all about getting the right ‘framework conditions’23 for the EFPS and strengthening ‘internal’ capacities and developing inter and intra-industry linkages. The more difficult aspects to determine are those that relate to the medium term ‘strategic positioning’ of the sector. Whether in China (and other low cost producer countries/regions) or in more wealthy (high cost) countries/regions, the EFPS needs to take great care in how it enters and seeks to compete in ‘new’ markets. In short, choosing which geographical markets and which products to focus upon is not just a question of looking at the rate of growth of demand – although this is undoubtedly an important indicator – but also on the trade-offs between export volumes and export values (price/quality-segment) both in the short and medium to long-term. Overall, the main conclusions from the assessment of the Export Strategy can be summarised as follows:

Recommendations are loosely coherent and consistent, but need more development; Short-term considerations outweigh medium term ‘vision’ and objectives; ‘Action areas’ are sensible, but linkages between different areas and main priorities

are not clear; ‘Action plans’ are absent, either at sector or sub-sector/product level; Overall presentation is confusing, without logical structure making it difficult to use

the strategy as a ‘blue-print’ for the industry and/or government; For a country like Egypt, a sustainable export strategy means offering more than low prices, and the main medium to long term issue for Egypt is to increase the share of

23 ‘Framework conditions’ is a broad ranging concept and it may need to be defined more precisely when applied in an operational context. Essentially it covers those factors that influence the overall environment in which a sector operates and thereby have an impact (directly or indirectly) on the competitiveness of the sector or companies therein. It may cover, for example, legal and regulatory conditions (e.g. labour market regulation, knowledge, competition policy, standards, energy & environment), labour force and skills, market access (e.g. trade policy, trade facilitation, foreign direct investment), knowledge based development, physical aspects and infrastructure, energy and environment, access to finance, geographic cohesion, etc.



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value added in its exports of processed food. From this perspective, it is apparent that a new forward-looking vision of the EFPS is needed that removes the assumption of a competitive advantage based on (relative) low labour costs and the production of processed food ‘commodities’24. The question to be posed by the EFPS and by policy-makers is: ‘how in the future can Egypt enhance its competitiveness while moving away from reliance upon the export of low value added commodity-type goods? The ERS provides a starting point for creating a ‘vision’ for the export strategy for EFPS but there is still someway to go. The work to finalise a strategic ‘blueprint’ will need to be undertaken. In the meantime, this should not delay moving forward on the ‘action areas’ identified in the ERS.

24 This covers many of Egypt’s most important food exports – particularly where they involve limited processing and/or standardised processing technology, or where the product itself is produced in accordance to specified international product norms – such as tomato paste, frozen vegetables, bulk dried goods, bulk/basic fruit juices



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2. Outline revised programme of support activities

2.1. Overview

The ToR for the assignment sets out a series of activities (see Preface) that form the outline for the support to be provided to the FPEC. On the basis of the findings from the review of the Food Processing Export Strategy and following consultation with the beneficiary (i.e. FPEC), it has been agreed to undertake these activities in the context of specific action areas rather than in relation to the strategy as a whole. This decision reflects inter alia:

The lack of specific action plans within the Export Strategy, which it is beyond the resources of the current assignment to develop properly; in turn, this implies that there is limited value to further detailed work/analysis across different product groups.

The intention of the FPEC to, in any case, undertake further development of the Export Strategy at a future date;

The need of the FPEC to develop specific plans to serve as the basis for implementation of ‘concrete’ activities/actions; implying that: outputs should give guidelines for implementation of activities/actions;

outputs should – if possible - be replicable.

Taking into account these factors, together with the understanding that the focus should be on achieving medium to long-term objectives rather than addressing short-term issues, a set of proposals for activities for the assignment were developed by the consultant and discussed with FPEC25. The outcome of these discussions was an agreement to focus on three areas, as described in the following sub-sections.

2.2. Detailed sub-sector action plan: ‘olive oil’

The purpose of this activity will be to develop an outline detailed action plan for a specific product group, namely olive oil. The starting point will be the analysis already undertaken (i.e. ESR and FSR) and the aim will to be carry this work forward to develop a coherent and consistent set of activities and action plan26. The activity will encompass inter alia:

Utilisation of a coherent strategy development framework (see Appendix 2); Analysis and recommendations relating to key issues, such as:

How to position Egypt products (low cost vs. up-market);

How to integrate into the value-chain (i.e. possible strategies in relation to dominant market players such as Spain and Italy);

The importance of innovation, technology and ‘niche’ strategies (marketing);

25 See presentation: “Support for the Food Processing Export Council”, annexed with this document. 26 As can be seen, the existing action plans (see Appendix 1) provide only minimal indications of activities/actions to be undertaken.



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Strengthening intra-industry, institutional, and international linkages;

Evaluation of strategic recommendations and proposed activities (e.g. coherence, feasibility, risk, etc.);

Setting of ‘final’ strategic direction and priorities. The expected outputs from the activity are as follows:

Strategic positioning: where can the sector aim to be in terms of enhanced ‘value-added’;

Strategic matching: Egypt’s capacities (supply) versus market opportunities (demand);

Action plan, covering:

Groundwork – what issues still need to be addressed;

Action plan for implementation (industry level);

Activity plan for FEC support for implementation;

Institutional linkages and network development.

2.3. New product development action plan: ‘dried fruits’

The purpose of this activity will be to develop an outline action plan for development and introduction of a ‘new’ processed food product. For the purposes of developing the approach, a ‘concept’ product will be taken as an example: ‘diverse Egyptian dried fruits’27. The general approach will be as follows:

Treat this as a ‘concept’ product development project; Use the development process as an illustration of main steps to go through and

issues to be addressed; The focus will be on economic and organisational perspective rather than marketing

aspects. The expected outputs from the activity are as follows:

Guidelines for new product development covering: Groundwork – key issues to be addressed;

Outline ‘blue-print’ of sequenced activities

2.4. FDI attraction for the food processing sector

One of the key recommendations of the Export Strategy is that: “Foreign direct investment (FDI) attraction efforts should be focussed on brand-orientated multinational that can be persuaded to locate their regional (MENA) production hub in Egypt”.

27 This choice reflects the possibility to develop a ‘value-added’ product utilising: (i) availability of high quality local raw materials; (ii) high input of (low cost) labour in processing; (iii) marketing of novelty/specialised product; (iv) staged market development approach (e.g. using tourist market as ‘test’ market.



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The purpose of this activity will be to establish a more clear ‘notion’ of the requirements of the food processing sector in terms of attracting foreign investment, the possible approaches that can be utilised and identification of activities/actions to be taken. The activity will encompass inter alia:

Analysis of potential investment opportunities and investment needs in the EFPS. This will take a broad-view approach taking into account potential ‘greenfield’ and ‘brownfield’ investments across a range of different scale/size of investments.

Analysis of potential target investor categories (e.g. strategic investors, private equity investors etc.) and potential investment intermediaries/facilitators.

Analysis of approaches to maximise positive ‘spillovers’ to the EFPS from FDI (e.g. building positive partnerships)

Development of a ‘multi-dimensional’ strategy for targeted FDI attraction activities. Determination of institutional responsibilities and activities (e.g. how can the

EFPS/FEC positively influence and contribute to FDI attraction efforts). The expected outputs from the activity are as follows:

Background report on potential role and scope for FDI attraction in the EFPS; Outline strategy for FDI attraction to serves as a consultation/advocacy document for

the EFPS/FEC and other relevant stakeholders Action plan for FEC.

2.5. Relationship between revised support programme and assignment activities.

Table 7 provides an overview of the correspondence between the review of the export strategy (Section 1 of this report) and the proposed activities to be undertaken, with the activities defined in the ToR for the assignment. In evaluating this information, it should be noted that the total number of man-days available for the entire Task 4 of the assignment is only 40.



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Table 7 Overview of correspondence between activities

Activity ToR Export strategy review

Sub-sector action plan

New product

FDI attraction

Overview the sector situation (markets, used technologies, human resources, financial data, etc.) √ √√ √

Check the coherence and consistency of the policies set out in the Export Strategy and designed to improve the FP sector’s export performance (e.g. marketing, investment, training and skill development needs etc.)

√√ √ √√ √

Outline recommendations for improvement √√ √ √ Propose a matrix with priorities, objectives, activities, needed resources, expected results, and actions to be undertaken by the public and/or private sectors to achieve export development goals

√√ √ √√

Suggest organisational structure (role and responsibilities) to ensure adequate implementation of activities √√ √ √√

Identify a set of activities to be undertaken by the FPEC √√ √ √ Draft a specific action plan for the FPEC activities with time table, with needed resources, and key performance indicators

√√ √ √√

Propose a control mechanism to verify operational advancement √



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Appendix 1 EFPS Export Strategy – Action Plans Olive oil Tomato derivatives

Current assessment (especially varieties and irrigation)

Potential investors attraction and capture Prospect of possible “supply contracts” with Italian

and Spaniards manufacturers

Establish supply linkages with Italian importers-exporters of peeled tomatoes and tomato paste

Market test for targeted productivity (ranging from 60 to 100 tons per ha.)

Specified detailed benchmark cost and value analysis with China, Iran, Greece, Portugal, Spain and Turkey

Frozen strawberries Frozen artichokes

A stronger promotional plan to increase product awareness among European buyers

Negotiations for a separate quota with EU to much higher

Development of logistic alternatives to make the product more competitive in transport costs (vs. Morocco)

Negotiations for a separate quota with EU to much higher

Stronger marketing effort and commercial activities orientated towards in EU25

Frozen potatoes Pickles

Improve refrigerated logistic to GCC Explore potential of private labels in the Gulf States Development of a ‘pringle’ potatoes plan

Feasibility study for different ‘niches’ Market test in EU25 selected distributors and retail

chains

Dried vegetables and onions Dried tomatoes

Market study for Russia and ex-Soviet Union Republics, possibly a full time trade facilitator to explore untapped opportunities

Set-up task force with a chief American Project Leader (within the industry) to draw up proposals for industry relocation or raw material supply

Renegotiate onion quota in EU25

Feasibility study in costs and product specifications as requested by EU25 importers

Raisins Dates

Feasibility study in terms of product specification and costs

Strong product promotional plan among distributors and retail chains in EU25

Development of alternatives to methyl bromide processing

Competitiveness study Development of an ‘organic’ positioning

Dried apricots and figs Table olives

Feasibility study (costs, competitiveness) Market test in EU25 and USA (apricots) in selected

distributors and retail chains

Negotiate with IQZ frame in the USA Negotiations of a free quota in EU25

Canned artichokes Canned fruit

Agricultural plan, with varieties requested by USA importers

Cost analysis

Feasibility study



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Cheese and curd processed cheese Mozzarella di Buffalo

To incentivate (sic) multinational Egypt based export with fiscal incentives, tax rebates

To improve export logistic infrastructure especially to the GCC to lower current disadvantage vs Europe

To maintain input raw material cheap via import tax rebates

To maintain inflation and labour costs under control To actively target Iraq as an export market To pursue branding of the typical (and no typical)

cheese Egyptian export (Domiati) To register Domiati brand and to develop plans of

“brand globalisation” jointly to cheese multinational operating in Egypt

More aggressive promotional plan of Egyptian cheese and curd in all the main retail chains in the Middle East.

Project feasibility study

Herbs and spices Confectionary and sugar confectionary

Development of a more complete range of organic spices and herbs

New more aggressive commercial policy in the USA and key customers with tailor made promotional plans

To develop a confectionary cluster mainly focussed on cheap candies and sweets for children

Investments and fiscal incentives directed to the confectionary industry.



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Appendix 2 Strategy development framework One of the shortcomings of the “Food Export Strategy Report”, is the weakness of its logical structure and progression from information and analysis to strategy recommendations. Accordingly, this appendix sets out an overall framework for the methodological approach to strategy development and assessment. Figure 1 attempts to illustrate schematically a strategy development framework. Basically this framework serves to identify what elements should, in principal be integrated into a ‘proper’ strategy development. Figure 1, identifies 4 phases for the strategy development process:

Information collection: this should cover both the international (global) situation and the local situation. Among the key factors to be identified are: trends in the development of the sector (or product) and supply and

demand conditions; ‘competitiveness drivers’, i.e. key factors affecting (international) competitive

performance; ‘framework conditions’28, i.e. key factors influencing the current and future

operating environment of the sector; and exogenous conditions, i.e. factors that are largely outside the influence of the

sector or, more broadly, the public policy environment (e.g. international political and social upheavals, changes in economic and technological conditions) but are nonetheless important for shaping future development.

Analysis and assessment: the analysis and assessment of the collected information, should result in a positively orientated ‘strategic matching’ between the potential future capacities of domestic industry and the anticipated conditions that will prevail in (domestic and) international markets. This process consists of 2 stages: A SWOT analysis of the EFPS export situation, taking into account the various

factors described above under ‘information collection’ and relative to appropriate benchmark countries (best practice and main actual/potential competitors). This should then be integrated into a strategic positioning of Egypt’s export potential, which also identifies those ‘strengths’ that can be further developed to support export activities, and those weaknesses that need to be addressed in order for export activities to be successful.

An assessment of the different scenarios for future development that identify those critical factors that will determine if a successful matching can be made between supply (in this case, Egyptian processed food exports) and demand (international markets) and the magnitude of the expected outcome (e.g. in terms of export earning, value-added and profits, employment creation etc.)

Evaluation: this phase should provide both a ‘reality check’ on the various identified ‘strategic matches’ from the preceding phases and an examination of trade-offs and complementarities between different general and/or sub-sector/product strategy options. This should, in turn, provide the basis for assessing the coherence of

28 Ibid. (footnote 23)



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strategy options, while taking into account their feasibility (which may be in terms of likely resource requirements and current and future capacities, degree of consensus and ‘ownership’ within the industry and key stakeholders, etc.) and an assessment of relative potential (i.e. expected outcomes) in relation to associated risks.

Strategy articulation: on the basis of the strategy evaluation, the final phase for the strategy development is to articulate a clear and, as far as possible, comprehensive set of recommendations for the strategic direction of policy for future (export) activities and supporting measures, together with indications of the relative priorities and logical sequencing of activities and actions.

Once the strategy has been clearly articulated, it is then possible to begin the process of strategy implementation. The first stage of implementation can be considered to consist of two key elements:

Awareness raising of the strategy within the industry and among key stakeholder with the aim of building support and consensus. Feedback generated through this process may also result in modifications and refinements to the strategy itself;

Planning for strategy implementation covering inter alia the development of a sequenced action plan of activities, together with the development of on operational framework for implementation (e.g. allocation of responsibilities, coordination mechanisms, mechanisms for monitoring and evaluation etc.)



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Figure 1 Strategy development framework

Global Context and Perspectives

Local Context and Perspectives

Situation (competitiveness) of local production

Situation (competitiveness)

of foreign production

Strengths,Weaknesses,Opportunities

Threats

Strategic Positioning

Potential Market Opportunities

(Demand)

Potential Production /

Export Capacity (Supply)

INFORMATION COLLECTION

ANALYSIS & ASSESSMENT

EVALUATIONEvaluation

(Coherence, Feasibility, Potential, Risk etc.)

Setting of Strategic Direction and

Priorities

STRATEGY ARTICULATION

Strategic Matching



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Appendix 3 Extracts from Business Today Egypt29

Trade policy development

Egypt Signs Trade Agreement with EFTA (March 2007)

The European Free Trade Association’s (EFTA) four members signed a free-trade agreement with Egypt on the sidelines of January’s World Economic Forum in Davos. The accord will liberalize trade in industrial products and processed agricultural products and contains provisions for protecting intellectual property rights, competition and technical cooperation. Provisions for services, investments and public procurement will be negotiated at a later date. The agreement on agricultural trade was left to be decided on a bilateral basis. Minister of Trade and Industry Rachid Mohamed Rachid said he hoped the deal would open up business opportunities and cement relations between the EFTA and Egypt.

Link: http://www.businesstodayegypt.com/article.aspx?ArticleID=7234

Talking Trade: Liberalization with EU — Plus the Latest Figures (February 2007)

Minister of Trade and Industry Rachid Mohamed Rachid received a proposal in early January from European Union Commissioner for Agriculture and Rural Development Mariann Fischer Boel to initiate talks on further liberalizing trade between Egypt and the EU. The talks, part of the “Rabat Roadmap” aimed ultimately at creating an EU-Mediterranean free-trade zone by 2010, will focus initially on trade in agricultural, fishery and processed agricultural products. EU states collectively represent Egypt’s largest trade partner, purchasing 42% of Egypt’s exports worth 4.6 billion (LE 34 billion) in 2005. Agricultural products made up over 10% of this trade. The EU is also the source of 37% of Egypt’s imports. Trade between the two countries is currently governed by the nearly six-year-old EU-Egypt Association Agreement.

Meanwhile, Central Bank Governor Farouk El-Okda announced a 15.7% increase in Egypt’s trade deficit for FY05-06, which rose to $12 billion (LE 68.5 billion) from a FY04-05 figure of $10.44 billion (LE 59.56 billion). Total exports surged by 33.4% to $18.4 billion (LE 105 billion) in FY05-06, compared with $13.8 billion (LE 78.75 billion) in FY04-05. The rapid growth was fueled largely by the booming global market for commodities, with ‘traditional’ Egyptian exports of energy, construction materials, textiles and agricultural products all in high demand. However, the value of imports also rose by almost 27% to $30.4 billion (LE 173.5 billion). El-Okda named the US as Egypt’s largest single trade partner, accounting for 23.3% of the country’s foreign trade in FY05-06. Analysts noted encouraging signs of growth in trade with emerging markets including Russia, Turkey, India and China, along with solid growth in the export of services such as information technology.


Lower QIZ Requirements for Israeli Inputs? (February 2007)

Meeting with its American and Israeli counterparts, Egypt’s delegation to the Qualified Industrial Zones committee meeting renewed its request to reduce the percentage of Israeli inputs required by the protocol from 11.7% to 8% to match the percentage dictated in Jordan’s QIZ agreement, local press reports claim. The Egyptian delegation reportedly pointed out the benefits from the increasing growth in numbers and output of QIZ factories, noting these factories are adversely impacted from having to up their imports of Israeli inputs relative to their Jordanian competitors. QIZ manufacturers have complained that the Israeli

29 Articles extracted from Business Today Egypt website (www.businesstodayegypt.com) without reproduction consent of the publisher. Articles are not re-produced in there entirety and sequencing of texts may be altered. Highlighted texts are by the current author.



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components are more expensive than Asian alternatives; there are also complaints about the time it takes to transport them from Israel to Egypt’s QIZs. The committee has reportedly agreed to cut the percentage of the Israeli component to 10.5%.


A True Turkish Delight (February 2007)

After years of talks, Egypt and Turkey ratified last month a bilateral free-trade deal that could see trade between the two regional powerhouses more than triple in the next three years to over $3 billion. Under the agreement, Egyptian industrial exports to Turkey will be exempted from customs duties immediately. According to the Egyptian Ministry of Trade and Industry (MTI), customs duties on Turkish exports to Egypt will be dismantled over a 12-year period according to “the four lists stipulated under the EU-Egypt Association Agreement,” starting with raw materials as well as machinery and equipment before moving to intermediary goods and, finally, finished products and luxury cars.


We’re Still Pals, Right? (December 2006)

On November 7, … US Ambassador to Egypt Francis Ricciardone sat down with a small group of hand-picked reporters to discuss ways in which the US is seeking to enhance its bilateral trade relations with Egypt. Ricciardone, just back from a two-week trade mission to raise awareness in the US about major commercial opportunities in the Middle East, claimed that the $500 billion (LE 2.86 trillion) in annual bilateral trade between Egypt and the US is good but “trivial compared to what could be achieved.” …[A] renewed commitment to promoting US trade with Egypt comes hot on the heels of Egypt’s widely publicized scramble for new trade opportunities in the East, marked by President Hosni Mubarak’s recent visits to China and Russia. Minister of Trade and Industry, Rachid Mohamed Rachid, who may still have a bitter taste in his mouth after free-trade agreement talks with the US fell through earlier this year, even went so far as to declare that China would surpass the United States to become Egypt’s number-one trading partner within a decade.

With the question of a US-Egypt FTA still shoved on the back-burner, the US will more than likely be facing new competition here from the European Union (which has an FTA with Egypt in the form of the EU-Egypt Association Agreement) as well as from countries such as China, who are now offering competitive goods and services at cheaper prices. Ricciardone claims that the issue of the FTA is not dead, and that the US and Egypt may go back to negotiating next year. But with US President George W. Bush soon to win lame-duck status and a Democrat-controlled Senate, pundits suggest a deal is unlikely before 2009.


Trade facilitation

Customs Duties Cut by 25% Administration Goes Online (March 2007)

Minister of Trade and Industry Rachid Mohamed Rachid announced a significant reduction in import duties on a wide range of manufactured goods and raw materials during the first week of February under Presidential Decree 39 of 2007. The decree encompasses white goods and home appliances including refrigerators, televisions and air conditioners; medication and medical equipment; garments; food products; raw plastics; and livestock feed, among other items. … Overall, the average import tariff dropped by around 25% to 6.5%, with almost 90% of the customs tariffs charged on the 1,114 products mentioned in the decree now in the 10%-or-less import duty bracket. … Custom tariffs for the food industry have been reduced on some finished products and eliminated altogether for certain inputs. … While the tariff reduction includes consumer goods, officials said that one of the objectives of reducing tariffs is to spur industrial growth by making intermediary products and raw materials cheaper, thereby improving local producers’ global competitiveness.



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Meanwhile, as part of the Ministry of Finance’s efforts to further restructure its operations, the Customs Authority signed a memorandum of understanding with Information Technology and Services Company (ITSC) to provide electronic manifest exchange services for both inbound and outbound marine and air freight, using EDI and XML technologies. The move will bring Egypt into compliance with UN and World Customs Organization standards, which demand that manifests be submitted and updated electronically, saving both time and money. The Customs Authority aims to implement paperless customs shipping document management procedures within three months. Analysts expect the move to sharply cut customs clearance times for inbound and outbound shipments, but the authority declined to provide estimates on how much the average time should drop.


FDI attraction

Egypt Woos US FDI (February 2007)

Minister of Investment Mahmoud Mohieldin was in Washington, DC, last month to make the case for increased US investment in Egypt. At a luncheon hosted by the National US-Arab Chamber of Commerce, Mohieldin offered business leaders insight into the Nazif cabinet’s efforts to improve the foreign investment climate in Egypt. Among the achievements the minister touted was the new One Stop Shop for foreign investors, a coordinating body between various ministries that allows foreign businesses to be registered and launched within 72 hours — down from an estimated 140 days in 2000. The audience, by accounts, was very impressed. “Dr. Mohieldin had an important message to convey to US investors today,” said David Hamod, president and CEO of NUSACC. “Egypt’s economy is reinventing itself as an investment destination, and the international marketplace is responding very favorably.”


From Mumbai, With Love (February 2007)

“Indian investments in Egypt have been on the rise, and we expect that within the next two years actual Indian investments in Egypt will cross the $1 billion [mark],” says A. Gopinathan, the Indian ambassador to Egypt. “The strategic location of Egypt as the gateway to the Middle East, Africa and Southern Europe is an advantage, as [is its] cheap labor and the stable economic environment that encourages investment.” … India is the twelfth-largest foreign investor in Egypt with total investments of around $400 million in close to 40 projects, including joint ventures such as Alexandria Carbon Black, SCIB Chemicals and Oberoi Hotels and Resorts, as well as wholly owned subsidiaries including Ranbaxy Pharmaceuticals, Nile Tex and Indo-Med Garments. … “Indian-Egyptian relations will further intensify in the coming years,” Gopinathan predicts. “Egypt is a preferred destination, and there are a number of facilities and incentives to investment available in the country. We will hopefully have more business and bilateral cooperation in the coming months not only in fields of investment and trade, but also in education and culture. “The volume of Indian investments in Egypt is likely to more than double in the next two years,” he says.


Informal economy / SME development

Cheap and Legal: Becoming a legally registered business has never been easier — and it just got a lot cheaper (March 2007)

With the Minister of Investment Mahmoud Mohieldin issuing a decree reducing the minimum capital requirement for limited liability companies to just LE 1,000 from a previous LE 50,000, the door has opened for many small and medium-sized enterprises (SMEs) to come enter the mainstream economy and incorporate themselves as legal entities. The decision, announced on January 27 and originally stated to be effective as of February 3-4, aims to encourage SMEs to join the formal sector and become taxpaying



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entities. … “The decision was specific to LLC’s, which are smaller businesses with a less formal type of management and usually less capital. It doesn’t concern bigger or more complicated kinds, such as public companies, for instance,” he [Bahi El-Ibrachy] adds


Public SME Financing Company (February 2007)

Minister of State for Economic Development Othman Mohamed Othman announced the establishment of a company specializing in loans, marketing services and economic feasibility studies for small and micro-enterprises. Often operating unofficially, small and micro-enterprises make up almost 40% of the economy. The new company will not only provide these enterprises with financing, but will also help the government keep track of their operations. This is part of the ministry’s LE 1.2-billion budget earmarked for small-business lending.


Industrial Modernisation

IMC and Siemens Sign Three Agreements(March 2007)

The Ministry of Trade and Industry’s in-dustrial Modernization Center (IMC) and Siemens signed three cooperation agreements at the Egyptian-German Business Forum held in Cairo last month. The agreements are all aimed at upgrading factories and machinery as well as cooperation on training and technical programs. The first agreement is to modernize automation and machines used in industrial development centers and schools backed by the IMC. Siemens will provide equipment for 50 training centers nationwide in a multi-stage program; each stage will last six months and include up to 12 centers. Siemens Group will cover 50% of the cost while Siemens Egypt will cover 30%. The second agreement is to upgrade machine and equipment factories in Egypt, including 30 factories, to increase their exports. The IMC will test all local equipment and help manufacturers to analyze the gap and provide advice on how to improve. The modernization will touch on management skills, electrical solutions and technical know-how transfer. Siemens will provide 400 experts for free. The third agreement is to improve the use of digital technology in 50 factories, through cooperation between Siemens Energy & Automation and the IMC by upgrading electric connections in the production lines using remote control in the furniture, engineering, textile, chemical and pharmaceutical sectors.


Transport infrastructure and logistics

Higher Suez Canal Fees Could Harm Revenues (February 2007)

The Suez Canal Authority has decided to increase passage fees for all ships as of April 2007. The rate hikes vary by ship, ranging from 1.14% for passenger ships to 3.73% for oil tankers and average 2.84% across the board. The SCA’s fee hike has raised claims abroad that ships could divert their routes to the Pacific Ocean rather than through the Canal, with several leading shipping companies claiming the increase is excessive. At this point in FY06-07, the SCA recorded a 2.1% increase in the number of passing ships, a 9.7% increase in cargos and a 10.6% jump in revenues compared to the same period the year before. The authority recorded revenues worth $3.82 billion (LE 21.84 billion) over the last six months with 18,580 ships passing through and carrying some 736.8 million tons of cargo. The SCA last raised its passage fees by 6% across the board two years ago in what was then its first rate hike in eight years. Maritime experts say the SCA should be focusing on increasing the Canal’s depth to more than 62 feet (18.9 meters) to attract larger ships.




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KIPC Builds Container Terminal (February 2007)

Kuwait International Ports Co., a subsidiary of Kuwait and Gulf Link Transport, is preparing to build a new $1 billion (LE 5.7 billion) container terminal in Damietta with a capacity of four million containers. The project is scheduled to begin in March 2007 and should take two years to complete. According to the project’s managing director, KIPC will construct quays on 2,500 square meters for large vessels during the first stage of the project.


Egypt to be Sole Sea Route for Chinese Goods to Europe? (January 2007)

Trade and Industry Minister Rachid Mohamed Rachid has announced Egypt is close to signing a memorandum of understanding with Italy and China to facilitate Sino-European trade. The goal is to send 100% of Chinese naval trade through the Suez Canal, compared with the current 60% which now passes through the waterway. China will receive special tariffs, the minister said, which stipulates the Sicilian port of Gioia Tauro as the main terminal for Chinese exports to Europe.


Product segments

Juices / Dairy / Cheese

Orange with a Twist [extracts from an article on Al-Sakr Foods] (November 2006)

[This article covers packaging developments in juices/dairy sector; security of milk supply; product development; technology; etc.]

Although national cheese consumption has peaked, free-trade agreements have spread Egyptian cheese across the region. Roughly 75,000 of the 85,000 tons of processed cheese made here is [ear]marked for export, and Ahmed Al-Sakr expects Egypt to become the number-one producer in the world in the next three years.


Frozen foods

Japanese Buy In, Food Exports Up (December 2006)

Japan-based Kobi Bosan has announced plans for a $50 million (LE 286 million) frozen-foods factory in Qena. A total area of 7,500 feddans has been earmarked for cultivation and production of vegetables, pickles and jams. The factory will have a production capacity of 1,000 tons per month, all of which will be exported to Japan. Kobi Bosan has factories in China, Mexico, Australia and operates the largest supermarket chain in Japan. The project will create approximately 1,500 jobs and help transfer Japanese agricultural and food processing technology to Egypt. Meanwhile, food exports for the nine months ending September 2006 hit LE 3.7 billion, marking a 23% y-o-y increase, according the latest report from the Export Council for Food Exports. The council aims to push food exports to LE 12 billion by 2010.


Sugar

Savola Plans Egypt Sugar Refinery (March 2007)

Savola Group, Saudi Arabia’s leading food products company, has revealed plans to establish a sugar refinery in Egypt next August. The 750,000-ton-per-year plant — a joint venture with Tate and Lyle, among



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other companies — will be established on the Gulf of Suez coast and will focus on sales to the Egyptian, Jordanian, Lebanese and Syrian markets. Savola hopes to fill a gap created by the absence of European Union sugar from the regional market as Arab demand for sugar is estimated to be growing at about 2.5% per year, spurred by population and economic growth. Egypt’s market alone consumes 2.5 million tons of sugar per year, 1.5 million of which is produced locally. The Egyptian plant will cost Savola an estimated $90 million, with almost half of its output for the local market and the remainder for export. It will be Savola’s second refinery, following its Jeddah plant, which has a 1 million-ton-per-year capacity.


Organic foods / olive oil

Grow Green [extracts from article on Sekem and Wadi Foods] (January 2007)

Organic farms only constitute about 1% of the estimated 8 million acres of farms in Egypt, academics say, though there are signs of a blossoming organic movement. Wadi Foods, one of the biggest producers of olives and olive oils in the country, has launched an organic line that will be in supermarkets by the end of year. Wadi is moving towards selling all of their products under a certified organic label. … “In Egypt, about 90% of production of organic is mainly for export,” says Helmy [Abouleish, Sekem – now IMC]. “It is not spreading [on the local market] simply because normal people cannot buy it. The price is very high in the external market. This is the main point for the farmer to move [to] organic.”

Sekem might be the classic example for organic success, but the Wadi Holdings story is proof of possibilities elsewhere. Starting out as a chicken-farming endeavor, Wadi planted 30 hectares of olive groves south of Alexandria and another 400 north of Cairo in 1986 and 1993, respectively. The company immediately discovered that Egypt’s year-round sun and warm, dry weather was perfect for olive cultivation. Since then Wadi has won several international awards for its extra-virgin olive oil, even when put up against veteran producers in Italy and Spain. Today, Wadi has 930 acres on the Cairo-Alex Desert Road devoted to organic production plus 680 that have recently been planted; about 50% of the production is slated for export. Although its olives and oil have been organic for a few years, the farm had to be monitored as continuously producing organic for a few years before it could receive certification. Also, because demand has been high, Wadi had to import some olives to mix with their own and they could not guarantee they were organic. Eventually, the plan is to produce only organic products and expand it to include new lines such as salad dressing and mayonnaise.


Confectionary

Something in the Oven [extracts from interview with Samir Sabat, Bisco Misr] (March 2007)

The most difficult part of privatizing cookie maker Bisco Misr was eliminating half a century’s worth of public-sector complacency … Today, after almost half a century in the public sector and only two years in the hands of private investors, Bisco Misr has a new management team tasked with turning its brands into regional leaders. …

Upgrading

“As the private sector took over, we found that the existing production lines were outdated and inefficient, the buildings decrepit, maintenance had been non-existent, the machines had been worn out, there had been no investments, production was weak, there were far more employees than we needed and the quality of the product was poor. … “If you bought the product once, you wouldn’t want to buy it again,” Sabet says. The restructuring began with the company’s headquarters in Cairo, the machines and production lines, the product and, last but not least, the staff. Judging from photographs of the old factory floor, Sabet has brought Bisco Misr a long way with a program he began implementing in July 2005. The tiled floors in the hallway tell of a past that has long gone, compared to the parquet flooring in the offices, all equipped with



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the latest desk phones and computers. Young professionals fill the offices — the future of the company rides on their efforts. That part of the restructuring program is now almost complete. On the factory floor, brand new machines are churning out sweet-smelling Dandoosha wafer biscuits. “We bought new machines and production lines,” Sabet recounts. “The old [machinery] was renewed and we’re bringing in new machines from abroad to reduce the percentage of [substandard product] and to be able to produce a high-quality product.”

“We have a product-development program in terms of our presentation,” Sabet says, referring to the sneak peek his marketing manager gave Business Today Egypt of the new package designs. “The company didn’t always have a marketing department, and most of its sales depended on wholesalers. Its direct-sales program wasn’t really direct; sales representatives would take the products and sell them to keep the money for themselves — they’d hand in the money to the company at the end of the month.” Using foreign and local brands as a benchmark, Bisco Misr is working its way towards better taste as well as presentation. The face-lift Marie butter cookies are about to get will be baffling consumers as it deviates from its drab look to present a much more colorful and eye-catching package with its innovative use of color

Still, the upgrading of Bisco Misr’s manufacturing infrastructure is far from complete. “We’re not a fully mechanized company,” Sabet admits. “As our production increases, we can absorb that by automation, but you can’t rush into it and just kick out the workers. If I’m getting a new production line, I get one with a higher production capacity than the old ones.” One problem that has Sabet worrying is the skills of his company’s employees and lingering public-sector attitudes. “Not only does automation need investments, but to mechanize [the production process] we need the human resources that will be able to operate these machines.”

The new Bisco Misr management team, handpicked by Sabet, is working hard at improving the company’s image. The simple new logo is far from the socialist era’s wreathed worker’s hand grasping wheat in front of a gear. In addition to working on image, Bisco Misr is investing LE 8.5 million in information technology that will help track all sorts of information, from production and waste levels to seasonal changes in demand, in order to help the team gather statistics and analyze them for planning purposes.

“Even bringing in the newer generations to work with the old is hard; the new can help improve the old or the old can infuse their ways onto the new.” But he’s concerned not just with the employees at his company, but with the need for educational reform in Egypt to be able to produce a work force of high-caliber.

Exports

The cookie-maker has been exporting around the region for decades, even before privatization. Sabet explains that the company exports approximately 10% of its production to 20 countries, with Sudan topping the list, followed by Yemen and several other Arab and African countries including Kenya.

There are plans to tap more markets, including several southern African nations. “The export manager used to have to get four signatures on a form to be able to send a fax,” he exclaims. “He didn’t have his own fax machine, nor did he have an international line.”

With the improvements made in office facilities, the company has the resources to expand both locally and internationally. While it doesn’t regularly export to North America, Bisco Misr does send its bairam kahk [Eid cookies] and biscuits as far afield as Canada and Australia.


Meat Processing

Redefining Quality [extracts from article on EgySwiss] (January 2007)

At first, EgySwiss focused on making processed meats and poultry for five-star hotels, airlines and restaurants, but it soon branched out into the local retail market, establishing itself as a market leader for high-end cold cuts and sausages. “I had no previous experience in the food sector, but I was interested in manufacturing a unique product. We thought that the tourism industry in Egypt held a lot of potential and



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thus the idea to cater primarily to hotels, airlines and restaurants,” says [Mokhtar] El-Gamel. “This is still our major market, but in 2006 we decided that it was time to diversify into retail and export,” he adds. The company made its retail debut just six months ago, showcasing a limited product line of dried salami, grison (Swiss air-dried beef), smoked chicken breasts, sausages, hotdogs and pressed chicken. … “Part of our strategy is actually to limit distribution for the time being. We do not want to go out full-force and we are intentionally staying away from the small discount supermarkets and wholesalers like Mahmal and Awlad Ragab. We do not produce a mass-market product. If we wanted to go that route, we would have had to compromise on quality and reduce prices. Yes, there are other processed meat manufacturers on the market who have huge market shares, but I don’t think our products can be compared to theirs,” says El-Gamel.

EgySwiss’s packaging was a significant contributor to its success, helping boost sales during the launch period when customers were still unfamiliar with the product. “Our packaging is totally Egyptian. All the artwork, photography and printing was done by Egyptians in Egyptian firms under our supervision,” says El-Gamel. “It did, however, cost us a lot,” he admits. “There is this notion that we are incapable of producing superior quality in Egypt, but it’s not true. If you are willing to pay, you will get the quality. This was a strategic decision taken by the company early on. We decided that we wanted to produce a quality product. ‘Quality’ does not only mean the product itself. Quality has to go into everything: product, packaging, factory, distribution and staff. This is how we have built our business.”

Export activities began in 2006 after EgySwiss attended the Gulf Food Fair in Dubai. They have already established a regular supply line to Jordan and have become the first Egyptian processed foods company to supply the Asian Games. “Supplying the Asian Games in Qatar is a very new business for us. In a short period of time we have shipped unusually large amounts of processed meats and poultry to Doha,” says El-Gamel. “There is a high demand for our products in the Gulf, but it’s a very competitive market, you have three major countries that produce competing products: Saudi Arabia, Kuwait and Dubai. But we are definitely up to the challenge.” … “We have also participated in international fairs where we receive many inquiries about our products,” Mokhtar adds. “European importers are interested because a lot of the similar European products are made only from pork. With the growing Muslim populations in some European countries, halal products are in demand.” Despite European interest, EgySwiss has not yet been able to enter that market due to a long-standing European Union (EU) ban on Egyptian meat products. According to El-Gamel, the ban was put in place in the mid-1990s as a precaution against the spread of Foot and Mouth Disease found in some cattle herds in Egypt. The problem has since been rectified, but the ban still remains in place.

Ironically, El-Gamel claims that all the processors in Egypt use meat imported from Latin America and Asia. “The Latin American and Asian countries can export their meat to Europe while we can’t — even if we present documentation proving the origin of the meat. “We have tried to raise this issue with various business associations as well as with the Federation of Egyptian Industries and the Chamber of Food Industries, but nothing has been done,” says El-Gamel. “I think we have not been able to rally a lot of support for the cause because it’s not a crucial issue for the other local producers. The domestic market is huge and their products are better suited to the tastes and needs of that market. We, on the other hand, have a very good opportunity to export to Europe if the ban is lifted. Because we produce under Swiss management, we could easily double our profits by exporting our grison and salami to Switzerland alone.”

There is no ban in place on Egyptian meat exports to North America or Asia, but according to EgySwiss, there is not much of a market in either region. “In the US, the competition from local manufacturers who already have the kosher and halal markets covered with beef- and poultry-based products, would be too stiff. And in Asia, the tastes are very different, there is not much demand for processed meat,” explains El-Gamel. The EU ban isn’t deterring EgySwiss from scoping out other markets, with plans to participate in the upcoming October 2007 Anuga Food Fair in Germany. “The purpose of going there is to interact with the international market and seeing where we fit,” says Mokhtar.




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Miscellaneous

If Every Chinese Bought Just One Orange (October 2006)

Will China become Egypt’s number-one trade partner? After his first official visit to China last month, Minister of Trade and Industry Rachid Mohamed Rachid thinks so.

Tipping the scales of a country’s balance of trade is as easy as selling an orange well, a whole lot of oranges. And the best place to sell a whole lot of oranges — or any product for that matter — is anywhere a very large group of people are hungry for them. With the third largest territory in the world and consumers numbering well over 1.3 billion, Egypt sees China as a thirsting country, the ideal scene to sell lots — billions even — of oranges.

If you’ve got the product and the potential market, all that’s left is making the connection. And if that market’s open to oranges and the pipeline is there to deliver them, it’s also going to be open to other products, right?

Minister of Trade and Industry Rachid Mohamed Rachid is a man with the mission of yoking Egypt and China. On a flight from Shanghai to Beijing last month, five days into a week-long trade mission in China, he enthusiastically contemplated the future of Chinese-Egyptian relations. Clearly enamored with the way China has developed over the years, he is committed towards making a strategic shift that will make China Egypt’s number one trading partner within the next 7–8 years.

“China changes every six months,” says Rachid, whose knowledge of the Chinese economy comes from firsthand experience. While this was his first visit as a senior government official, he has been to China before on several occasions as a businessman. “My last time here was almost three years ago, and there have been tremendous changes — but I’m not surprised because the pace and direction of the change were well-known to me.

“Now that I am here in an official capacity, I can only say that I have more and more admiration for how the Chinese people have been able to transform plans into action. If you look at China 14 years ago and today, it is a completely different nation. The mindset and the ambition are very, very different and it is high time that we begin to engage more actively with the Chinese.”

Rachid’s words were echoed by the 30 businessmen and government officials who accompanied him on the trip. While some members of the delegation had standing business interests in China and were familiar with the country’s dramatic transformation, most were first-time visitors who did not expect the level of development that they witnessed in the showcase cities of Beijing, Shanghai and Qingdao.

The phrase hyper-growth is an understatement when used to describe the rapid development of the Chinese economy, which has enjoyed double-digit growth for the past two years. During the second quarter of 2006 it grew at a phenomenal 11.3% annualized rate. Outbound foreign direct investment was up by a whopping 123% in 2005, and continues to increase in 2006.

China’s voracious appetite for new investment markets has brought it to many non-traditional trading partners, such as Egypt, who are now actively seeking to receive their share of the pie by enhancing trade relations with the Asian giant.

While trade between Egypt and China currently stands at a modest $2.3 billion (LE 13.2 billion), it has grown steadily over the past few years. According to Chinese trade officials, China’s exports to Egypt topped $1.93 billion (LE 11.1 billion) last year, up 39.3%, while imports from Egypt were up 12.3% at $211 million (LE 1.21 billion).

According to Rachid, the modest figures are no indication of what’s in store for the future. “China’s economic growth and energy needs have led it to seek closer ties with countries in the Middle East and Africa, so this is just the beginning,” says Rachid. “Egypt is in a prime position to support China as it engages with the region.”

In a bold statement issued on the first day of his visit to China, Rachid said that in less than a decade he expects trade between China and Egypt to exceed $5 billion (LE 28.8 billion), allowing China to surpass the



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United States as Egypt’s number-one trading partner. While some analysts feel that this new economic relationship with China is filling the void created by the US’s increasingly unpopular foreign policy in the Middle East, Rachid merely attributes the shift to market forces.

“This is all part of an evolution that is taking place simply because China is becoming more competitive,” Rachid later tells me in China. “Actively seeking closer commercial ties with China is not an exclusively Egyptian phenomenon. Every country in the world is after the same thing. The fact that China is set to be our number-one trading partner is a reflection of their ability to penetrate all markets, including the US.

“The Chinese are not only offering much more competitive consumer goods, but they also have capital goods and technology at the same quality or sometimes even better than the West — for much cheaper prices. We run a free economy and I’m not in a position to force my manufacturers to move away from such deals. The direction that we are taking shouldn’t have any political ramifications in Washington, because as I said it is an economic reality rather than a political choice,” he adds.

As Egypt’s imports of assets and capital goods from China grow, it is unlikely that the trade imbalance between the two countries will shift in Egypt’s favor anytime soon — but the government no longer regards the issue as problematic because goods from China are 30–60% cheaper than elsewhere, thus benefiting the country’s overall trade balance in dollar terms.

“The interest is definitely there — we just have to make sure that it is properly channeled
