Interview: Anis Aclimandos
To what extent has the Qualified Industrial Zones (QIZ) Agreement affected the country’s exports?
ANIS ACLIMANDOS: The QIZ Agreement is driven by the fact that products made in Egypt acquire duty free access in the US, provided the Israeli content condition is met. Thus, the key to profitability lies in the Customs duties saved at entry. The QIZ process is now enhanced by the fact that the approved zones have been expanded to cover new geographical areas, such as Upper Egypt, where labour is more available and some agro-industry ingredients are easily accessible. So far, the textile industry has been the main beneficiary of the programme, due to the high tariff imposed by US Customs. Hence, selecting products needs to start by reviewing US tariff rates and choosing industries where Egypt has a competitive advantage, either because of the high labour content or the local availability of raw materials. Yet, the industry’s viability should not rely solely on the exportability of products through the QIZ, as it is a political programme that may not always exist, which could result in the failure of industries that would be totally reliant on exporting via QIZs. As far as development programmes are concerned, investing in market studies in the US and assessment of the local production competitive advantages makes a lot of sense. The availability of a prioritised list of products, the connections with US buyers and marketers, and the adherence to quality standards by Egyptian manufacturers will make, or break, the QIZ programme.
What are the obstacles to attracting investment?
ACLIMANDOS: The potential devaluation of the currency for non-exporting industries is becoming a major impediment. Banking restrictions are slowing, at best, the importation of raw materials and goods. Safety and security for materials and individuals are killing some industries, particularly tourism and all its feeding industries. We must also recognise the fact that the retroactive decisions made by the government, either cancelling old contracts or changing the investment and taxation rules, are major investment deterrents. Investment in general and foreign direct investment, in particular, are functions of stability and safety.
How can Egypt improve its cost competitiveness?
ACLIMANDOS: Cost-competitiveness in labour-intensive industries means productivity, which is a direct function of training and work environment. Factories can have the same equipment and raw materials but huge discrepancies in their bottom lines. When you produce fewer units per hour, your labour is more expensive. However, Egypt needs to focus on vocational training and demand-driven education at all levels, and work diligently to improve health insurance, pension plans, labour transportation and overall working conditions.
How are small firms and new start-ups faring?
ACLIMANDOS: Small firms suffer from a lack of credit, reaffirming the importance of angel investors and small micro-credit programmes. Firms also face administrative problems, from a lack of legal and accounting support to bureaucracy and an absence of transparency. For Egypt to encourage the registration of parallel market firms and promote small business growth, banking, legal and tax frameworks must be improved.
What sort of role do you see for venture capital, angel investors and private equity?
ACLIMANDOS: I strongly believe that venture capital and angel investors have a unique opportunity to enter a market that has hardly been tapped. The main driver of the Egyptian economy over the past two years has been the informal sector, which is handled by low-income businesses, mainly in retail. Small businesses needing to register and grow represent a true gold mine. With new ideas and limited resources, they need angel investors and venture capital, depending on their development stage. Conventional banks in Egypt have little appetite for small businesses, so angel investors and venture capital have to cover most of the market.
Read More from OBG
