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Omar A. Mohanna: Egypt is open for business more than ever
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8. Novembar 2017.

Omar A. Mohanna: Egypt is open for business more than ever

Chairman of the Suez Cement Group of Companies and Chairman of the Egypt-U.S. Business Council (EUSBC) discusses growing U.S.-Egypt trade and commerce relations, and the importance of regional ties.
Omar A. Mohanna: Egypt is open for business more than ever
Omar A. Mohanna: "Egypt is now open for business more than ever."

Egipat ima značajne energetske resurse, kako u tradicionalnim fosilnim gorivima, tako i u obnovljivoj energiji

Američka direktna ulaganja u Egipat gotovo su se utrostručila tokom druge polovine 2016.

Mohanna will participate at the 5th annual Transatlantic Economic Forum organized by the Center for Transatlantic Relations SAIS at the Johns Hopkins University, in Washington D.C. The forum, to be held from November 13 – 15 this year, is organized in partnership with the U.S. Chamber of Commerce. It will bring together government and business representatives from 18 countries of the Western Balkans, North Africa, the Gulf, and the Middle East.

He has over 25 years of commercial and investment banking experience with Egyptian and international financial institutions as Vice Chairman and Managing Director of Egypt Arab African Bank (EAAB). He also held the position of Managing Director of Accor Hotels Group in Egypt and has been a member of the Board of Directors of diverse companies.

As one of most populous Arab countries with 92 million people, Egypt is an economic leader in the Arab world, and a gateway to the entire Middle East and Africa (MENA) region.

In November 2016, the Egyptian pound was left to a full float, halving in value against the dollar virtually overnight, and opening the country to investment opportunities.

U.S.-Egypt relations have significantly improved since Donald Trump took office. In April, U.S. President Trump met with Egyptian President el-Sisi in the White House, and in June, an Egyptian MP delegation visited Washington for the first time in nine years. Egypt has undergone significant reforms to improve its investment climate, eliminating its black market, and modernizing state institutions.

During this year’s Transatlantic Economic Forum at SAIS in November, Mohanna will be among the select few to receive the “2017 Mediterranean Leadership Award” – a recognition given to individuals who have made significant contributions towards building strong transatlantic relations and have demonstrated leadership in the wider Mediterranean.

This year, U.S. Senator Roger Wicker, Congressman Jeff Fortenberry, Macedonian Prime Minister Zoran Zaev, member of the Board for International Trade of Saudi Arabia Omar A. Bahlaiwa, are among those receiving the award.

U.S.-Egypt relations have deepened significantly over the past thirty years, with multiple agreements, most notably the Trade and Investment Framework Agreement (TIFA) in 1999, the formation of Qualified Industrial Zones (QIZ), and regional trade agreements, such as the 2003 Middle East Free Trade Area initiative (MEFTA). In 2016, the U.S. was the third largest source of FDI inflows (after the U.K. and UAE, respectively). What is your outlook for bilateral relations (and these and other agreements) between the U.S. and Egypt?

We are very optimistic about bilateral relations with the new U.S. administration, as the Egyptian and U.S. presidents have had very positive meetings within the past year. Both parties have come to realize the economic value and strategic importance of the bilateral relationship.

From an economic standpoint, agreements such as the TIFA and the QIZ have been very beneficial for Egyptian and American businesses, but the ultimate objective remains a Free Trade Agreement (FTA) with the United States. Another important component of the relationship is U.S. economic aid to Egypt, which includes the USAID-managed programs supporting public health, education, democracy and governance, and other development goals. It also includes the U.S.-Egyptian Enterprise Fund (EAEF), which uses seed funding from the U.S. government to promote economic development by investing in the private sector. The EAEF seeks investment projects that create jobs, increase access to financial services, and improve the quality of life for Egyptians. Earlier this year, the Fund invested in the startup accelerator “Flat6Labs Cairo” to help support 100 Egyptian startups.

The private sector is a key component of the bilateral relationship as well. The American Chamber of Commerce in Egypt works closely with the U.S. Chamber of Commerce, the Egypt-U.S. Business Council, and the U.S.-Egypt Business Council to host business delegations and fora in Cairo and Washington, D.C. throughout the year. The participating delegates on both sides have responded positively to Egypt’s economic reforms and their impact on the business environment.

How has trade and commerce between Egypt and the U.S. changed over the past few years (considering the several reform processes that have taken place in Egypt)?

There have been short-term fluctuations in trade flows and investment inflows, but these are stabilizing gradually amid the current economic reforms. When President Abdel Fattah al Sisi took office in June 2014, he faced an array of socio-economic challenges that he set out to address with the government. His administration immediately started implementing parallel reforms on the fiscal, legislative and economic fronts, which have gained pace in the second half of 2016 with the signing of the three-year Extended Fund Facility with the International Monetary Fund. Bold steps have been taken to substantially reduce fuel and energy subsidies, free-float the currency and expand the tax base and revenues. Earlier this year, a new investment law was issued, and progress on promising mega projects is accelerating.

The U.S. has been and continues to be a major partner in reforms. The Egyptian and U.S. business communities have strong ties in major sectors, with energy, engineering, food and beverages, ICT, pharmaceuticals and textiles all carrying significant U.S. capital. U.S. direct investment in Egypt almost tripled during the second half of 2016 compared to the first half.

In 2011, you stated that oil is the dominant sector when it comes to U.S. investments into Egypt. Nearly 20% of U.S. exports to Egypt are from Texas, with a close second being Louisiana (also close to 20%), and consist mostly of mineral fuels and oil. With the tectonic changes we have seen in this sector in recent years, how do you expect the situation to change – if at all, and what other sectors have grown in this time?

Oil and gas is one of the most dynamic industries in Egypt, and hydrocarbon production is by far the largest single industrial activity, representing approximately 12% of Egypt’s GDP. Egypt has significant energy resources, both in traditional fossil fuels and in renewable energy. The U.S. is the second-largest direct investor in the sector with Apache being the largest American investor in Egypt. U.S. companies are also entering the renewables sector and showing signs of interest in petrochemicals (e.g., Bechtel).

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Omar Mohanna: "Egypt suffered from a severe foreign exchange shortages, which made it exceedingly difficult for importers to source dollars or other foreign currency to pay for imports."

While the oil sector still dominates U.S. investments in Egypt, it does not dictate overall trade flows between the two countries. Egypt’s import basket from the U.S. is quite diversified with oil imports fluctuating between 7% and 18% of total imports since 2011. They represented 13.7% during January-August 2017 compared to only 8% in the same period of 2016. This surge is due to an increase in imports of petroleum gases (liquified butane, propane, LNG). Over 75% of these imports come from Texas, while the rest are mainly from Louisiana. In the future, however, these imports are likely to decrease as more production comes onstream from Egypt’s oil and gas fields and refineries. The petroleum trade balance should improve in Egypt’s favor.

There are several other sectors besides petroleum that have shown significant increases in imports from the U.S., including transportation equipment and machinery.

Overall U.S. imports fell by 26.2% in 2016 from the previous year. How do you explain this, and do you expect growth in coming years?

For the majority of 2016, Egypt suffered from a severe foreign exchange shortages, which made it exceedingly difficult for importers to source dollars or other foreign currency to pay for imports. The banks prioritized letters of credit for strategically essential goods such as food, fuel, and medicine. Luxury and other non-essential imports fell considerably.

In November 2016, the Egyptian government took the bold step of free-floating the currency, which prompted a steep devaluation of the Egyptian pound against the dollar. Imports became significantly more expensive, which kept demand down through the rest of the year.

Whereas overall imports fell in 2016, some categories have showed significant growth, namely civilian aircrafts and their parts, which rose by 60% and have taken a five-fold leap year-on-year during January-August 2017. In the same period, soybean imports, which come predominantly from Louisiana, showed a four-fold leap. Other significant imports from the U.S. are machinery and chemicals.

The pound’s exchange rate has been stabilizing since the float, but it is still about half its pre-float value against the dollar. This is a prime opportunity for investors to enter Egypt and set up shop, especially in manufacturing products to compete against still-expensive imports.

Exports

When it comes to Egypt’s exports to the United States, oil seems to remain the predominant revenue source. In 2016, oil exports represented 15.8% of all exports, an increase of 2.7% from 2015. The export in non-petroleum goods fell by 8.1% from the previous year. What type of export portfolio do you expect for the remainder of 2017, and in the years to come?

While the share of oil in Egypt’s export basket to the U.S. increased from 2015 to 2016, its 15.8% share is nowhere near its peak point in 2012, when it accounted for nearly 43% of total exports. The mix of non-oil exports has remained consistent in recent years, with textiles and apparel accounting for nearly 60% of total exports. To a much lesser extent, food and kindred products, chemicals, paper and printed products, minerals and metals also have noticeable shares in total exports to the U.S.

The Generalized System of Preferences (GSP) program is the largest and oldest U.S. trade preference program, and was recently renewed with Egypt to include new product categories, including cotton products and specific luggage and travel goods. Textiles and apparel make up nearly 70% of all non-petroleum exports to the U.S. Will GSP be renewed again at the end of this year, and how do you see the textile and apparel sector in this regard?

Egypt’s exports under the GSP program have traditionally accounted for around 5% of its total export basket and mainly comprise preserved and frozen fruits and vegetables, and plastics. The cotton products, luggage and travel goods that made GSP eligible until the end of 2017 are very specific, and most of them are not among Egypt’s current exports to the U.S.

Egypt’s textiles and apparel products are mainly exported to the U.S. from QIZ, which gives unrestricted access to the U.S. market as long as the products satisfy the 10.5% minimum Israeli content requirement. Over half of Egypt’s textiles and apparel exports are under the QIZ protocol, which was recently expanded to include two additional zones.

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Omar A. Mohanna: "From an economic standpoint, agreements such as the TIFA and the QIZ have been very beneficial for Egyptian and American businesses, but the ultimate objective remains a Free Trade Agreement (FTA)."

Currently, the GSP’s renewal is pending approval by the U.S. Congress. It must be remembered that just as the GSP is important to exporters, it is also important to American companies, which were able to save $547 million in import tariffs and provide lower prices to consumers. Once the program is renewed – as we expect it will – Egypt should try to take advantage of duty-free access to the U.S. market with as many GSP-eligible products as possible and where it has a competitive cost advantage.

Transatlantic Economic Forum

In November, you will receive the Center for Transatlantic Relations SAIS “Mediterranean Leadership Award 2017.” Last year, from Egypt, Hisham Fahmy received this recognition. What would you say to the countries of the wider Mediterranean (and beyond) that are attending the Forum?

Egypt is now open for business more than ever. The country is embarking on a rigorous reform program and correcting long-standing imbalances to create a sustainable economy capable of achieving high rates of GDP growth. In this path, it is supported by the IMF, the World Bank and various international and regional financial institutions. As such, opportunities for investment and trade are becoming less risky and more attractive to the private sector. This is an opportune time to enter the market, partner in development, and achieve high rates of return.

Egypt enjoys an array of free-trade agreements with Europe, Asia and Africa, creating the framework for Egypt to become a regional trade and logistics hub. This fact and the relatively low cost of doing business in Egypt greatly enhances investors’ potential for success.