Strong trade ties secure access of Egyptian goods to diverse export markets

 

Despite the instability that has rocked the MENA region in recent years, the Egyptian government has pursued a consistent diplomatic programme to strengthen ties with major Gulf players and improve border security. While these policies have been successful, the challenges that still face Egypt and the region will take time to disappear. Therefore, while Egypt continues to have strategic and economic ties with the Gulf – a long-time source of expatriate remittances and tourism revenue as well as aid and investment – the country is navigating a new regional reality. Egypt has relied heavily on the US for aid and support in the past but is now building a broader network of international partnerships, including with Russia and China, both of which have entered African markets aggressively during the past decade and have continued to strengthen ties with Egypt through investments in several mega-projects.

China

With 10,000 Chinese businesses now operating in Africa, China has become a major source of capital and expertise in Egypt’s government-led construction drive and is playing a significant role in the development of the New Administrative Capital through the China State Construction Engineering Corporation. The country is already Egypt’s largest trade partner by value, with trade volumes reaching $11bn in 2017 and cumulative foreign direct investment from China has reached around $3bn. This is in addition to another $20bn tied to the New Administrative Capital, which has been announced, but is currently yet to be realised.

Since becoming president, El Sisi has visited China five times and Chinese President Xi Jinping has visited Egypt once, highlighting the importance of Sino-Egyptian relations. In turn, Egypt has been a vocal supporter of China’s $1.4trn Belt and Road Initiative, which seeks to build a new Silk Road trading network through investment in roads, rail, energy production, transit and other transport infrastructure across 60 countries.

Russia

Russia, which is working to revitalise relationships developed during the Soviet Union’s engagement with Africa when as many as 250,000 Africans received their education or training abroad there, is also becoming an increasingly important partner for Egypt. At the core of the renewed Egyptian-Russian relationship that was reset following Russian President Vladimir Putin’s visit to the country in December 2017 are the creation of a Russian Industrial Zone in the Suez Canal Special Economic Zone and the construction of a $30bn nuclear plant in Egypt is supported by a $25bn Russian loan. The plant is anticipated to be supplied with Russian nuclear fuel. In addition, the diplomatic and security relationship is also being strengthened through the bilateral agreement signed by Russian Prime Minister Dmitry Medvedev, over the use of airspace and airports that could result in new Russian military bases in Egypt.

US

Nevertheless, the diminishing influence of the US should not be overstated. Egypt-US trade takes place within the framework of the US Generalised System of Preferences, a preferential treatment programme where certain products are eligible for duty-free entry to the US and the Qualifying Industrial Zones, a oneway free trade agreement that combines Egyptian and Israeli components in manufactured goods from designated industrial zones which enter the US duty-free.

These initiatives are therefore designed to increase Egypt’s exports to the US which reached $1.5bn in the first 11 months of 2018, up 20% year-on-year from 2017. The US is likely to remain a significant trading partner as well as a critical source of aid and support for the foreseeable future despite equivocation from the current US administration in its stance on Cairo. The recent trend, despite opposing statements by Mike Pompeo, US secretary of state in his January 2019 speech at the American University in Cairo, has been a movement towards greater US disengagement, while a number of legislators and career diplomats are questioning the current nature of the relationship. Egypt, though, continues to strategically hedge its bets by developing lasting ties with historic and emerging global powers.

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The Report: Egypt 2019

Country Profile chapter from The Report: Egypt 2019

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