Interview: Hani Berzi
What makes Egypt an attractive base for the production of fast-moving consumer goods (FMCG)?
HANI BERZI: First, Egyptian households spend 40% of their monthly income on food. With 90m people, the market is very large, and the population is young and growing at around 1.8-1.9% per year. As a result, the snack-food market has seen a compound annual growth rate of around 20% over the past few years and is worth approximately LE15bn ($2bn), according to 2014 figures. Second, given its prime location and participation in trade agreements with, for example, the Greater Arab Free Trade Area and the Common Market for Eastern and Southern Africa (COMESA), Egypt is a natural production base – for the 2. 7m3m Egyptians in neighbouring countries, and for the 380m people comprising the greater Arab world. Sub-Saharan Africa also presents a major area of opportunity and is attracting the attention of local producers. Third, labour and energy are relatively cheap. For instance, despite the overdue recent minimum wage hike to LE1200 ($163) per month, workers still command a much lower salary here than they do in Jordan, where the monthly rate is at least double. Electricity prices also remain below the regional average despite increasing 15-20% over the past year. That said, the food industry is not very energy intensive – only 2% of our total costs are energy related.
What can be done to further incentivise exports?
BERZI: We have suffered from a decline in exports for two primary reasons: more than 60% of our food exports go to the Arab world where we have lost a number of markets, such as Syria and Yemen, to instability; and currently there are no effective policies in place to stimulate export industries. We are working to counteract the first issue by expanding into other markets that offer strong opportunities, such as those in sub-Saharan Africa. We are well-positioned to service these markets given our location and the COMESA agreement, but there are still major logistics challenges that need to be solved before we can substantially boost our exports to the region.
To combat the second challenge, the private sector is asking for more targeted subsidies. Currently there is one incentive scheme in place for all exports, which doesn’t make sense. Food exporters should not have the same incentives as cement and steel exporters. Incentive programmes used in neighbouring countries usually have over 150 schemes based on different industries and products. The Egyptian government should address this.
What do you think are the greatest challenges currently facing FMCG producers?
BERZI: The availability of land is a major issue in Egypt today. Before the revolution the government added to industrial land yearly, but since then there has been little investment, resulting in a shortage of suitable sites with the necessary infrastructure for new industrial developments. Now, if you are lucky enough to find land you have to pay a very high premium. Therefore, this issue needs to be addressed immediately, as it is impossible to boost manufacturing and exports – like the government hopes to do – without land on which to build new factories.
A shortage of skilled and unskilled labour is another challenge. Despite Egypt’s large population and high youth unemployment rates, it is hard to attract talent because many people are unwilling to work in regulated industries. A youth, for example, does not want to commute two hours each way to a factory, when they could just as easily make a living working for themselves. In order to counteract this, we need to make traditional factory jobs more attractive by emphasising the skills and career paths open to workers in such roles, as well as by bringing the jobs closer to residential areas, so people can walk or cycle to work rather than sit in traffic for hours every day.
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