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Rachid strikes trade deal with Turkey

Business Today, Egypt

Rachid Strikes Trade Deal with Turkey

Trade between the two countries is expected to rise to $1 billion

January 2006

A high-powered Turkish delegation, headed by President Ahmed Necdet Sezer, arrived in Cairo last month to sign a free-trade deal with Egypt in what an editorial in the Turkish Daily News said could be a “turning point in relations between two regional powers.”

Analysts expect trade between the two sides to surge to $1 billion per year within 12 months of the deal coming into force. Turkey is the nation’s sixth-largest trading partner, selling Egypt some $572 million in goods in the first nine months of last year, up 46% over the same period in 2004. Egyptian exports grew 31% in 9M04 to $146 million. Total trade between the two nations for the first nine months of 2005 stood at $718 million, up from $550 million in the same period in 2004.

Egypt and Turkey have a combined market of 145 million people.

“This FTA will strengthen our ability to compete in Europe and attract investment from around the world,” Rachid said after signing the agreement. “By allowing for the cumulation of origin between our two countries, the agreement gives both our economies a deeper source of inputs. It means that a factory in Egypt can import inputs from Turkey, incorporate these into its own products and export these duty free to Europe under Egypt’s partnership agreement with the EU. The same applies to Turkish companies and this will create all-important avenues for cross investment.”

Rachid’s office said the deal will “strengthen trade and investment ties between the two countries and further the Barcelona process, that seeks to create a free-trade area between the Euro-Mediterranean Basin nations by 2010.”

The two sides took six rounds of talks to reach the pact, which is modeled on the EU-Egypt Association agreement, allowing for a “phased liberalization of bilateral trade in agriculture, industrial products and services.”

Egyptian industrial goods will be immediately exempt from customs duties as soon as the two countries’ parliaments sign off on its terms, while Egypt will phase out its duties on Turkish industrial goods over a 12-year period, following four lists: raw materials and machinery; intermediary goods; finished goods, and luxury vehicles.

The two sides will also take down barriers to each other’s agrifoods and fisheries industries and will ease quotas on commodities including hazelnuts and edible oils (at Turkey’s request) and rice, fish, vegetables and fruits (at Egypt’s). Both Ankara and Cairo agreed to liberalize their services markets in the coming years, although services are not a key component of the FTA. Rachid’s office mentioned particular interest in seeing Turkey liberalize its tourism and construction sectors.

“I believe we will now see a wave of investments, both ways, which is good for us,” Rachid said. “There is potential for trade between Egypt and Turkey to reach $3-4 billion over the next few years. We have already experienced a surge in trade and investment in anticipation of this trade agreement. The business communities in both countries are extremely bullish on the prospects.

“We believe that Egypt’s integration into the global economy will be driven by enterprises seeking market opportunities,” the minister continued. “We want to push Egyptian corporations that have the capacity to move across national borders and compete in the region. As for Turkish investors coming to Egypt, they will gain access to Egypt’s large domestic market as well as its many favorable trading agreements.”

The news came just months after Turkey won admission to the European Union’s waiting room as it became an official candidate for membership.

Egypt’s primary exports to Turkey include rice, cotton, crude oil, iron, cement and steel, while it imports Turkish dried vegetables, dried and fresh fruits, marble, granite, automobiles and auto parts, electrical goods and ready-made garments.

Turkey’s economy grew at a stunning 8.2% clip in 2004 as GDP climbed to $508.7 billion, but the country still faces massive debt and deficits and relatively low levels of foreign direct investment. In comparison, Egypt’s GDP growth rate clocked in at an estimated 5% last year.

Turkish investment in Egypt continues to grow. A leading Turkish contractor has a $350 million project to build the third terminal at Cairo International Airport. The Turkish government hopes the new terminal, which is expected to increase capacity from 9.5 million to 21 million a year, will help boost tourism between the two countries when work on it is completed in mid-2007. Other major investments in Egypt include Istikbal, the giant Turkish furniture company, which has a showroom at Heliopolis’ CityStars complex (among other locations) and the recently opened Beymen luxury goods outlet at the Four Seasons Nile Plaza.