Thomthumb84's Blog

Egyptian QIZ revamp for 2010

Posted in Middle East Business by thomthumb84 on March 10, 2010
Money

Image by TW Collins via Flickr

The Ministry of Trade and Industry has announced plans to expand its Qualified Industrial Zones, or QIZs. The move promises significant advantages after a difficult year for the country with international trade.

The announced plans to expand the number of Qualified Industrial Zones (QIZs) within Egypt come at a time of continuing unease among companies operating in the international sector.

Despite optimistic predictions by Rachid Mohamed Rachid, the Trade and Industry Minister, that “by the end of (2010) we’ll have the momentum for 6 per cent growth in Egypt – partially driven by a targeted 10 per cent increase in exports”, there is some expectation that it will be a difficult year.

“All the factors that came clear at the end of the last year will persist,” he said. And with Egypt relying upon income from abroad, whether through Suez Canal revenues, export, foreign investment or remittances, the country has taken a significant hit from the global recession. Demand from the US and EU remains low and unemployment is hovering around 10 per cent.

Under the circumstances the Ministry is searching for any possible avenues that may help push start Egypt’s economy, particularly within international investment and trade. Some effort has been put into exploring new directions of investment.

Rachid cited upcoming meetings with the GCC to negotiate a customs union, a potential agreement to expand the COMESA agreement to include countries in Southern Africa, and strengthening the tie with South America. He added that trade negotiations for a trade agreement with Singapore “should be concluded before the end of the year.”

It is the trade with the Egypt’s traditional partners, the US and EU, however, that the country is keen to keep pursuing. Despite the obvious economic situation within the EU and US the potential for future investment is highly significant. Thus, the latest QIZ proposal and even additional stimulus measures.

Egypt, Israel and the US, first introduced the QIZ agreement in 2005. Under the agreement goods manufactured within the zones can be exported with duty free access to the US – the world’s largest consumer market – provided that they adhere to the rules of origin.

Namely, 35% of the product’s value must be manufactured in Egypt, of which 11.7% must be of Israeli origin. However, to further encourage investment, the Protocol provides flexibility by monitoring the commitment of manufacturers to the agreed upon ratio of their manufactured products on a quarterly basis, not on a single shipment basis, therefore giving them a wider time frame.

The protocol also provides competitive duty free access to several other substantial markets such as the European Union (EU), other Arab Countries, the Common Market of Eastern and Southern Africa (COMESA) countries, and Turkey. As a result, companies operating have competitive access to virtually all major commercial markets.

The scheme is, on the whole, a positive move that has benefited Egypt. In 2005, Egypt’s first full year of QIZ participation, Egypt exported $230 million dollars worth of goods to the United States through the QIZ program. Among the 20 MENA entities, Egypt became the United States’ 7th largest trading partner, with U.S. imports for 2005 at an estimated $2.1 billion and exports at an estimated $3.1 billion for the first 11 months of 2005.

Tariff-free access to US markets from a country with low utility and labour costs has attracted a number of foreign manufacturers to invest in production operations in Egypt, thereby improving the economy as a whole.

And as these companies reap the benefits of growth in their exports, their expanded operations have allowed them to hire additional employees with the added benefit to the economy of reducing unemployment.

These latest proposals would expand the number of QIZs in the north, while introducing QIZs into the country’s south.

“We have a request signed by Israel and Egypt to extend industrial zones to Upper Egypt. The U.S. has given us an approval to Beni Suef and we are still working to go further into the south governorates,” Rachid said.

It is also hoped that the range of products manufactured will expand to include food, chemicals, electronics, and leather products.

Of course the question of whether these proposals will even get off the ground is still in question. And, even more importantly, whether it will give Egypt the economic boost it needs. The Ministry has estimated that the value of exports from QIZs to the US almost exceeded $1 billion in 2009 and if this is the case then the future looks promising, particularly if new plans and incentives are put in place with additional countries as well.

To be published in Issue 5, April 2010, of  The Arab Business Review (A publication for the Arab African International Bank)

– Apologies for grammar, etc- yet to be proof read for third time!

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