Egypt braces for a surge of economic activity with Turkey, as the Free Trade Agreement between the two countries comes into effect, writes Pierre Loza Turkey's Minister of State for Foreign Trade Kursad Tuzmen headed a delegation of more than 100 Turkish investors to Cairo on 10 January, in order to explore investment opportunities, and coordinate matchmaking efforts between the two sides. During Tuzmen's visit, a memorandum of understanding on the creation of a Turkish industrial area in the 6th of October City was signed last week in the presence of Minister of Trade and Industry Rachid Mohamed Rachid. Construction is due to begin next month, on a Two million square metre complex that will house some 150 Turkish and Egyptian factories, but this is not the first time Turkey underakes such a colossal task. "We have created many industrial clusters around the world, including Romania, Bulgaria, Kazakhistan," Tuzmen told Al-Ahram Weekly. "We have experience in this sort of thing and I think in the coming period you will see this on the ground." The Turkish minister predicted that investments by his countrymen in Egypt could reach $1 billion during 2007. Last year's trade volume between the two countries grew to more than $1.1 billion for the first time, a figure which Rachid hopes will increase to $5 billion in the coming period. Tuzmen said that while it seems that most Turkish companies are interested in the textiles and garment industries due to the Qualifying Industrial Zones (QIZ) protocol, -- which abolishes tariffs on Egyptian garments going to the US if they use a percentage of Israeli component -- "I think now we are starting to see interest in the automotive industry, electric appliances and machinery." Yet, it was Turkish- made underwear engraved with Tuzmen's name which made front page news in Turkey, when he was presented with boxer shorts while visiting a Turkish underwear elastic factory based in Nasr City's Free Zone. The surge in economic activity is largely attributed to the Free Trade Agreement (FTA) which was signed and ratified last year by the two countries; this will come into effect 1 March, 2007. "This trade agreement will open a market of 160 million people which is very dynamic in terms of growth, therefore increasing the competitive advantage within Turkey and Egypt," noted Rachid. "This compatibility will definitely affect our ability to compete with China and the rest of the world." It is no secret that Turkish interest is a result of Egypt's preferential trade agreements with the US, as well as European, Middle East and African nations. With Turkish worldwide exports valued at $100 billion, Rachid believes Egypt can be a launching pad for more exports as a result of its attractive preferential trade agreements. "We are also in the process of completing an FTA with Norway, Iceland and Switzerland next month," declared Rachid. Mohamed Fathi, deputy chairman of the Damietta-based Marine Company for the Export and Import of Industrial Raw Materials, attended a seminar for Egyptian and Turkish businessmen last week in the hope of benefiting from the latest economic activity. After learning of the event from the Ministry of Trade and Industry, Fathi was given a list of Turkish businesses which could potentially partner with him. "We hope to meet a number of Turkish companies that use raw materials like sand glass," stated Fathi, who also hoped to invite a number of Turkish companies to his factory to see if he can fulfil any of their business needs. He is particularly optimistic due to the improvements made at the port of Damietta which is located close to his factory. Ahmed Sagun is president of Group Sagun, one of Turkey's most prominent tuna fish production companies. Sagun plans to invest $10 million in Alexandria, where he wants to establish a tuna processing factory and perhaps fisheries in the future. "I chose to come to Egypt because it is a politically stable, fast- growing, emerging market where there seems to be support for foreign direct investment," he told the Weekly. "I also like the fact that it has a population size of around 80 million, so labour costs are quite low." Aiming to cater for the domestic Egyptian market as well as exporting, Sagun hopes to employ an estimated 100 workers. The FTA will allow producers like Sagun to manufacture at lower costs in Egypt and export to Turkey, where they have already established a market niche. Based on bilateral concessions similar to those stipulated in the Euro-Mediterranean Partnership Agreement, Turkish industrial goods will be granted duty-free access into Egypt after a 15 year transitional period. Egyptian industrial goods, on the other hand, will be allowed duty-free access immediately following implementation. Negotiations for the FTA took eight years to hammer out due to fears by the Egyptians of competition from Turkey's heavy industries, especially in the textile and garment sector. "I think the qualms of Egyptian industries were understandable," asserted Emre Oztelli, Turkey's commercial counselor to Cairo. "Unlike many of its surrounding neighbours, Egypt does have an industry to protect." Some economists point out that the FTA limits the export of Egyptian agricultural goods to Turkey, but Oztelli argued that this is accounted for in the accord. "Agriculture is a sensitive subject when it comes to any FTA, but in the Egyptian-Turkish example you will find some bilateral concessions," he said. "Some 24 products that are important to Egyptian agricultural exports like potatoes, rice and fresh fruits will be granted duty free access when the agreement goes into force." Currently, there are 62 Turkish companies operating in Egypt with investments worth $100 million. After Egypt signed the QIZ agreement in December 2004, currently 150 new Turkish companies are conducting feasibility studies for investing in Egypt. Ferocious competition from Southeast Asian countries, coupled with higher labour costs in Turkey, has added to the impetus fueling Turkish interest in the Egyptian market. Turkish textile producers chose Egypt over industrial powerhouses such as China, according to Ortzelli, because of convenience and vicinity. "China is not cheap; it has almost the same production costs as Egypt, but it is 20 hours away from Turkey," he said. Ortzelli added that Turkish investors in Egypt can export to Europe based on the EU-Egypt Association agreement; sell to the US because of QIZ; tap Arab countries according to the Greater Arab Free Trade Agreement (GAFTA); and target African markets under the umbrella of the Common Market for Eastern and Southern African (COMESA). Nonetheless, the Turkish diplomat complained that despite increasing interest, perennial Egyptian bureaucracy continues to hinder investment. Basic requirements such as work permits and residency documentation for non-Egyptian employees constitute a tortuous task, and there is little coordination between the government bodies involved. Three Turkish companies operating in Egypt have complained of this problem, which contradicts QIZ stipulations since it allows for 25 per cent of workers to be foreign. The highly-publicised 72-hour period for the establishment of a new company appears to be another myth, as reported by nine Turkish businesses which waited three months for a permit from the Ministry of Interior. Despite these and other setbacks, however, Oztelli believes that the investment climate in Egypt is moving in the right direction. "I think that in the past, the person on top seemed to be the only one who is sincere in helping investors," he asserted. "Today, we are starting to see lower level officials who are also willing to help."
