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Up from Down Under

Business Today Egypt

September 2006

Up From Down Under

Australia’s regional trade commissioner says his country is serious about doing business with Egypt. Does that mean they’ll sell us live cattle again?

By Fatima El-Saadani

As Egypt continues to grow at a near-unprecedented rate, Australia is looking to claim its share of the most vibrant and diverse economy in the region. Relations between the two countries go back decades, but Australian trade officials admit ties still need work as they eye opportunities in Egypt’s strategic location, large local market and lucrative free-trade agreements (FTAs) - including the EU-Egypt Association Agreement - that open the door to even larger markets.

Business Today Egypt sat down with Australia’s Dubai-based Consul General and Senior Trade Commissioner Peter Linford, and Cairo-based Senior Trade Commissioner Aminur Rahman to learn more about the Land Down Under’s interest in Egypt.

Business Today Egypt: How would you describe Australian-Egyptian trade relations? What sectors do they focus on - are there any joint ventures, or are relations purely export-based?

Peter Linford: I think it would be fair to say there has been a steady increase from a very low base. Traditionally, business from Australia to Egypt has been more commodity-based - particularly in food, grains and live animals. These days, we are getting more sophisticated, value-added products and entering new industry sectors that we hadn’t touched on before. We’re happy that the numbers of companies that are coming here are multiplying on a year-to-year basis.

Our success is measured by the number of Australian companies that we assist. Last year, the Cairo office was recognized to have assisted 58 companies in new industry sectors from consumer goods to health products and mining. The number might not seem like a lot, but compared to 10 companies four years ago, we’ve made a great advance.

Australian companies are now making the effort and seeing the benefit of establishing a presence in Egypt, along with the potential for growth, and [learning] to use Egypt as a hub through its free-trade zones to link us into other markets.

There is very good potential for Australian companies in this part of the world.

In 2004, Australian Trade Minister Mark Vaile announced that Australia would negotiate a Trade and Investment Framework Agreement with Egypt. What is the status on that today?

PL: I think we could say it’s on a wish-list rather than in any status of negotiation. We’re keen to get a higher-level business delegation and preferably a ministerial-led delegation to go to Australia, because that gives us a platform to take concepts and ideas that have been discussed and put them into real projects on the ground.

That type of cooperative agreement would be one that would be worthy to pursue.

Egypt has had several ministerial visits to the US, and the Canadian Chamber of Commerce just opened in Cairo. It seems Australia is lagging behind in promoting high-level trade discussions.

PL: We have to take responsibility that we have not put in the resources and effort to Egypt that we had put into other countries. If you look at the list of countries that Australia exports to, Egypt is not at the top of the list. Our proximity to Asia and our major markets like Japan, China, Korea, India and Southeast Asian markets make it closer, cheaper and easier for us to export to those markets than it is to go to more distant markets.

However, Australia is a country that must export to grow; we don’t have a population large enough to grow our economy domestically. If you compare Australia to the United States, we’re the same in terms of land area, excluding Alaska. The US population is about 250 million, whereas Australia’s is only 20 million.

If we want to have a serious international economy, we have to utilize international markets to sell the wealth of natural resources that has been bestowed on Australia. So we have to look for new markets and grow them.

What is the status of Egyptian exports targeting the Australian market?

PL: We have to admit that our role is to generate exports out of Australia, investments into Australia and to generate income for the Australian government. But we also assist Egyptian companies that inquire about exporting to Australia, because from exports, bilateral relationships develop.

So when we get inquiries from Egyptian companies looking to invest in or export to Australia, we offer assistance, especially when there’s potential for two-way trade.

(Editor’s Note: Next month, we profile Yazeed & More, a unique Australian-Egyptian business consultancy helping Egyptian firms looking to penetrate the Australian market.)

How would you rate the recent reforms that have taken place in Egypt?

PL: Spectacular. Four years ago, not only were our results very low, but I didn’t necessarily see great potential for them to improve. If you had asked me then if we would have increased the number of companies [we assist], I would have said “probably not.”

The government’s reforms, level of energy, the introduction of new and young ministers and the level of inquiry from Egyptian companies make us quite bullish for the future.

Principally, we operate in two ways: The push, which is when we help Australian companies that would like to export to Egypt find potential buyers and contact them. When we find a level of interest, we then bring the two together and try to facilitate business. The pull is when Egyptian companies inquire about buying a product from Australia and need help finding a supplier. We then go to Australia to look for a company that has the capability to supply that product and, again, we do the introduction and the business facilitation.

I think it’s indicative of the growing Egyptian economy that we are seeing an increase in the number of inquiries from Egyptian companies wanting to know more about Australia and its capability and what we can supply.

What sectors are the hottest?

PL: In terms of numbers of companies rather than value of exports, the major industry sector where we’ve seen growth is education services - that is, the recruitment of students who would like to study in Australia, [as well as] the delivery of curriculum by Australian institutions.

The second-largest is the food and agribusiness sector. Some of that is in traditional commodities, but more so in value-added products aimed at food services and the hotel industry, meaning that instead of exporting live cattle, we are exporting higher-value-added products such as processed cuts, cheeses and wines.

You mentioned live cattle exports from Australia to Egypt - those exports were suspended based on charges Egypt mistreated live cattle. Where does that stand right now?

PL: Progress is being made, and it’s close to coming to an agreement on a protocol where the trade can re-commence. There is no announcement on resumption at this stage, and there are still some issues to finalize between the two governments. It is largely a commodity area of trade that has a history to it on the relationship side. I don’t think there’s any issue with people wanting to import or export; the hurdle is just a matter of government protocols in the middle. But I speak about it as something that has historically linked our two countries.

Aminur Rahman: Four years ago, Egypt was the second-largest market for live [Australian] cattle, valuing around AUD 130 million [LE 342 million at the time]. Then, the Egyptian pound was devalued and the economy slowed down, and at the same time our currency appreciated. That reduced trade from AUD 130 million to about AUD 4 to 8 million [LE 18 to 35 million today].

Over the last 18 months, with the Egyptian economy on the rise again, there’s a lot more interest in increasing imports, not only in live cattle, but in frozen meats as well.

PL: Overall, it’s been a good education process for Australian companies to be more aware about the specific needs of the Egyptian market and Egyptian buyers, and not necessarily assume that live-cattle trade is exactly the same to every country.

What obstacles do you find in exporting to Egypt?

PL: The number-one obstacle I find - and it runs both ways - is the perceptions and lack of awareness between the two countries. If I ask the average Egyptian on the street what they know about Australia, it’s probably only one or two things, maximum. So they just don’t understand the products, the services, the capabilities, let alone the manufacturing sophistication that we may or may not have.

And vice versa: The perceptions of Egypt in Australia are small, too. Australians perceive that the Middle East is one big market, and it’s all exactly the same. The situation in Lebanon is [deterring] people from coming to Egypt, or anywhere in the region, because they [perceive] a security issue. We probably have more work to do on this area than anything, and it’s about raising awareness.

We want the Egyptian business community to think of Australia first when they consider buying a product or a service from the international market; if not as number one then at least in the top five or top ten - and not at the lower end of 20 where we might be at the moment.

Now, whether the perceptions are real or not, they govern decisions in both Egypt and Australia, and I see those perceptions and lack of awareness of the reality of the situation in both countries as our biggest challenge, and perhaps also our biggest threat.

Are there any obstacles that you meet from the government - bureaucracy or customs?

PL: Yes, but as long as I see those taxes and bureaucracy equally applied to all countries, then it’s a level playing field [for a] competitive market, and it just takes perseverance and persistence to gather a position.

I also see that if you’re prepared to spend one or two years to get that registration, it actually gives you a stronger competitive advantage against anyone else who tries to come up to you.

Some Australian companies export more than just commodities to Egypt. For example, some wheat exporters will also give Egypt technical assistance on storage and how to get maximum benefit from the wheat. Is that a general strategy that Australian companies are embarking on, or is it rather a personal initiative per company?

PL: The wheat industry is probably unique in that area, where some of the aid that has come into Egypt has allowed Australia to partner with a third country as well as Egyptian buyers to put [added value] on the product. However, as Egypt develops free trade zones and ports such as the [Ain] Sokhna port, I think the attractiveness for Australian companies to invest in a facility that will add value on the ground here increases, and not only targets Egypt’s market, but also into the Mediterranean and across to Europe.

We’re not a member of the European Union and we don’t have the number of FTAs that Egypt has with parts of Europe, and distance-wise, the freight rates make us uncompetitive to some of those markets.

However, if we ship into Egypt, use its large [and increasingly skilled] employment resource we will be able to add value to products and gain access into some of these countries through [Egypt’s] FTA that we wouldn’t have otherwise been able to get.

I find that the value of those free-trade zones is ideal for us to expand our business throughout Europe, North Africa and the Mediterranean basin. That said, the Jebel Ali port in Dubai is already a hub for Australian companies to export to the rest of the Gulf.

If Jebel Ali is already up-and-running, and that could be used as a regional re-exporting hub, why consider expanding in Egypt?

PL: Because the geographic location and cost of labor in Jebel Ali still doesn’t make it efficient enough for what we want to develop.

If you ship all the way into the Gulf and then all the way out, your costs are higher compared to Egypt, which has proximity and access to North Africa, Africa, Europe and the Mediterranean.

Are you considering similar examples elsewhere in North Africa?

PL: Algeria is another market we’re interested in because it also has access to the European Union and significant varieties of agricultural business. So, for a country like Australia that has the world’s leading dry-land farming expertise, it’s better for us to bring expertise to help develop products in these markets. We not only gain from that transaction, but it also positions us to be able to partner with those countries to sell into the EU.

How is gold-mining company Centamin setting a precedent for Australian firms aiming to operate in Egypt?

PL: Centamin is exciting because of the nature of the product. All mining products generate money, but the fact that it’s gold brings the whole world’s attention to Egypt. If the reserves are as big as they say they are, it will raise a lot of profile for Egypt, and certainly Australia’s major mining companies will eventually want to be a part of that. The project’s success in its own right will be great, but more so if it expands the ability of Australian companies to be part of the Egyptian market in the mining industry.

AR: We’re still watching to see what will happen in terms of the outcome for the Centamin mining; I’m sure it will tell us the feasibility of what Egypt has to offer.

What we’re looking forward to now is the prospective change to be made to the mining law. The Ministry [of Petroleum] is in discussions and looking at the mining laws in Western Australia, which has one of the leading mining laws in the world - as does South Africa - so we’re all watching with a lot of interest.

PL: We want to be positioned to move quickly when the laws are changed [in Egypt], to allow us to move into the industry.

(For more on Centamin and mining in Egypt, see Close Up, page 88.)

Going back to perceptions, what’s the response from Australians concerning the current situation in the Middle East?

PL: We’ve gotten inquiries from companies asking us if they should travel to Dubai or Egypt, given the situation in Lebanon. The inquiries demonstrate a lack of awareness of what’s going on, even though Australia has received an enhanced level of publicity about the situation because of the vast number of Lebanese living in Australia. Overall, we have about one million Arabs in Australia.

You look at the public voice of dissatisfaction with what’s happening in the region and the politics that come into play. The story tends to come out as a negative one of the region, which diminishes what we’re trying to say in terms of opportunities for business and trade.

But you think you will be able to change public opinion in Australia?

PL: That is what we’re tasked to do, and we will certainly do that. I remain very positive, and I think our numbers this year will increase at the same level of growth. I don’t think we’ve come anywhere near saturation yet. There’s a long way to go in this part of the world for Australia and Australian products before that becomes the case.

 source: bt Egypt