Executive Summary Egypt today can be a viable market for the foreign investor, especially the investor who has the ability to see the rewards of in investing in the region for the long haul. The world and Egypt both realize that the region is the gateway to the Middle East. Egypt is leading the way for Arabic countries to embrace a new way of doing business and opening their borders to the 'global village' concept. Size of Market The Arab Republic of Egypt is located in Northern Africa and borders Libya, Sudan and the Gaza Strip, as well as the Mediterranean and Red Seas. Less than one-tenth of Egypt is settled.
Egypt's population of 68 million lives mostly in the Nile valley and Delta. The Western Desert Highway and the Delta Road connect Egypt's two largest cities, Alexandria and Cairo. Egypt is three times the size of New Mexico and is a desert climate with long dry, hot summers and short moderate winters. This region is also known for severe droughts, flash floods and sandstorms.
Prime agricultural land is being lost to urban sprawl along the delta. With the completion of the Aswan High Dam in 1971 and the development of Lake Nasser soil salination and the changing ecology along the Nile is an ever-present problem. A rapidly growing population will continue to stress the resources. Egypt is the largest Arab county by population with 68 million people. Arabic is the common language with 94% of the population being Muslim and the other 6% being Coptic Christian.
Islam is the state religion and the Egyptian Pound is the official currency. Socio-Cultural Acceptance Of Product The socio-cultural acceptance of a product in this region can be achieved if the company has a broad knowledge of the Islamic people. A businessperson must take the time to learn the culture, develop an appreciation for the Islamic faith and Egypt's long and rich culture. The Egyptian people view business as a personal transaction, not simply an exchange of money. One must embrace their culture in order to succeed in this marketplace. A businessperson cannot simply walk into a meeting, shake hands and expect to immediately discuss the business at hand.
One has to be pleasant and willing to get to know their customer; which many times include their family members. All private business leaders and most high-level government officials have a good command of English. Therefore a foreigner would be more accepted if they were able to speak Arabic. Another major key to success in this market is to remain flexible; the Egyptian market, like anywhere in the Middle East, is a changing one. Contracts rarely stay the same, they are constantly changing and the successful businessperson has to be flexible in order to succeed. Competition in Market The Egyptian market is a complex and highly competitive one.
Egyptians are often trilingual (English-French-Arabic), well-traveled individuals who pride themselves on searching out good deals. Negotiations for a sale, whether with a government agency or a private individual, will be bound by certain unspoken Egyptian cultural requirements. One is that there is no final best price that cannot be reduced further by negotiating. The result is that only a fool would offer one's best price, or anything close to it, early in negotiations. Government employees are judged on their ability to squeeze the final penny from the lowest bidder. This happens at every level of decision-making.
This is the Egyptian version of the 'Dutch auction,' called in Arabic '.' A marketing problem in Cairo is that it is often difficult to establish who offers what for sale, and where to find them. Yellow pages and the like are not available to the average consumer. Legal/Bureaucratic Environment The ruling National Democratic Party (NDP) has been in power since it's founding in 1978. The NDP controls local and national government, the government-owned media, and state owned enterprises.
Within its ranks are both members who favor greater economic and political reform as well as members who oppose reforms. There are more than a dozen recognized opposition parties, all of them small. Some of these parties have members in the People's Assembly. The Egyptian Constitution provides for a strong President empowered to appoint one or more Vice Presidents, the Prime Minister, the Cabinet, and Egypt's 26 provincial governors. President Hosni Mubarak was reelected in September 1999 to a fourth 6-year term. The bicameral legislature includes the law-making, elected People's Assembly and a consultative upper house, the Shura Council.
Peoples Assembly elections were held in late 2000 for a five-year term and elections for one-third of the Shura Council seats were held in May 2001. Bureaucracy still remains a business obstacle for doing business in Egypt with its wide array of regulations and regulatory agencies. Delays in clearing goods through customs, random decision-making, and a generally unresponsive commercial court system fuel the bureaucracy. Senior officials in the government have shown a willingness to intervene in private sector concerns and are modifying the burdensome regulations as they are brought to their attention. Knowledge of the current Egyptian laws on imports is a must for doing business in this country. Foreign firms can sell directly within Egypt if they are registered to make direct sales.
Most foreign firms rely on Egyptian companies for wholesale and retail distribution. Egyptian law requires that all commercial agents and importers have Egyptian nationality. Economic And Political Climate For Foreign Business Egypt's economy has been traditionally associated with agriculture but has expanded over the past 20 years. Its ancient monuments and breathtaking coral reefs have made tourism its single largest economic growth market. Egypt is also a major oil and gas manufacturer, with natural gas production expected to increase rapidly. The clothing and textile sector is the largest industrial employer.
Agriculture, although shrinking as a percentage of Gross Domestic Product (GDP), still employs approximately 30% of the population. There are chronic shortages of dollars in the banking system and the Egyptian Government recently revised its official figure for the GDP growth in 1990, with a reduction of 1%. Concerns center around certain sectors of the economy; construction and industry are in a recession and consumer demand is weak. Interest rates and concerns about bad loans have limited the banks ability to give credit to the private industry. In the 1970 s the government introduced economic liberalization policies known as the open door. These policies greatly expanded the numbers of middle-class professionals (importers, financiers, commercial agents, and various kinds of middlemen) with connections to foreign capital and foreign culture.
With the 'open door' policy still in affect today, the anti-West climate is changing more rapidly then ever before. Implementation of the recent reform measures has been limited. Privatization is not moving as well as excepted. Western investors still have great cultural obstacles to overcome, but with patience and maturity a foreign company can be profitable in this market. Methods for Marketing and Distribution Foreign firms can sell directly within Egypt if they are registered with the government to make direct sales. A few foreign firms use free zones or bonded warehouses to store goods and hire their own employees to sell door-to-door consumer products.
Most foreign firms rely on Egyptian companies for wholesale and retail distribution. Although the concept of 'marketing,' as compared to simply selling, or waiting for the customer to find and come to you, is new to Egypt and not widely practiced. Egyptian commercial agents are required for foreign firms to bid on most civilian contracts; but commercial agents cannot be used to bid on military contracts, although use of Egyptian 'consultants' may be allowed if previously approved through the government. Egyptian law requires that all commercial agents and importers have Egyptian nationality. Agents also must have resided continuously in Egypt for at least five years Managerial and Labor Climate One person or a handful of top managers generally makes all the business decisions for a company. Middle managers play an equally important part, they are effective, educated, intelligent, and are easily offended if overlooked.
Foreign investors should heed the fact that the middle managers may not make the final decisions but are extremely important in reaching the individuals that do. Over the past 20 years, the Egyptian government has placed a major emphasis on education. Its leaders believe that the entire population should have access to education and that the spread of education will facilitate economic and political development. Nevertheless, illiteracy remains a serious problem and is currently at 49%; but the county still has a well-educated labor force by Arabian standards. We are now seeing how the Egyptians are embracing western philosophy in today's society with more women working outside the home.
In the past, women from peasant and poor urban families worked in the fields or in the shops of their families, while women from the elite and the middle class remained at home as a symbol that the male head of the household was wealthy enough to support the family without its women working outside the home. Today maintaining a middle-class lifestyle usually requires married women to work for wages. Many wear headscarves as a way of asserting that they remain good Muslim women despite working outside the home. Financial Viability Economic legislation introduced in 2001 should strengthen protection of intellectual property, further develop the banking and capitals markets, and modernize real estate ownership.
Egypt has the largest communication system by Third World standards but inadequate for present requirements and is currently undergoing extensive upgrading. Egypt's economy was bolstered in the 1990 s with a series of IMF arrangements and debt forgiveness from other countries due in part to Egypt's participation in the Gulf war. These factors have improved the economic performance of Egypt; although the pace of reforms, such as privatization and new business legislation, has been slower than the IMF had hoped the steps that Egypt's have taken have increased foreign investment. The economic performance over the past year for has been mixed. Egypt has seen an improvement in their economy led by higher oil prices, record tourism earnings, textile exports, and a slowdown in import growth. Egyptians working overseas and sending money home to their families has shown a steady increase.
Inflation, at around 3% annually, remains under control. The outlook for tourism and gas is very bright. Tourism has rebounded sharply since suffering a decline after the 1997 terrorist attack in Luxor. The Egyptian government established an effective counter-terrorist campaign and tourism is now Egypt's largest growth market.
Anticipated earnings are expected to exceed $4 billion dollars in 2001. Beach tourism now rivals the historical tourism. The area is host to the world's finest coral reefs. The leaders of Egypt have seen the amount of revenue that tourism can bring to their country and they are responding by building their infrastructure (airports and roads) to better serve the new resorts. Foreign investors should be focusing on financing all aspects of construction; hotel construction, building manufacturing facilities to service Egypt as well as export, restaurants, shopping centers, airports and roads. Conclusion While Egypt is still a developing country with a long way to go in the global economy, it is however making progress.
Egypt, today, has more opportunities for foreign investment than ever before, especially with the government implementing economic reforms over the past twenty years. Individuals who are familiar with the culture, business climate and bureaucratic system can stand to gain considerable profits in assisting foreign investors in this arena. Foreigners doing business in Egypt must realize early on that business is very personal and one must have patience. Bureaucratic procedures can make business somewhat slow in Egypt. Don't expect to arrive one week and leave with a contract in hand the next. Only a company that plans on putting down roots should even think about investing in the region.
Most contacts, take over a year or so to cultivate. One can make a profit, but it will be a long haul. The Egyptians are a proud people who trace their civilization back 5, 000 years. Their culture and Islamic faith are very important in their daily life. When doing business in Egypt, be prepared to play it in the Egyptian tradition, or you may waste your time. A few foreign firms come to Egypt and give up after a short stay.
But most foreign companies, once established with a base here, find the Egyptian market a worthwhile and profitable place to do business. To create a business opportunity for an American consumer product in Egypt would be extremely challenging. A better approach would be to invest in an existing, established company to assist in the humanitarian aspects for the region. A company searching to make short-term profits should not invest in the Egyptian economy; Egypt is a developing country that will take years of nurturing to be a truly thriving marketplace. Bibliography It's a people problem... Business Today (Egypt), 09-09-1998 Lois Beck, Feminists, Islam and Nation: Gender and the Making of Modern Egypt, 1997 Ge had Aud a, Political-Military Relations in Egypt, 1990 P.
J. Vatikiotis, The History of Modern Egypt (1991) Egypt, Encyclopedia Americana Online Grolier, Inc. web 2001 Egypt, Microsoft Encarta Online Encyclopedia, 2001 web 2001.