One year on, the QIZ protocol has yet to take off. Niveen Wahish sees why With the Hebrew and Arabic words shalom, salam, Dani Ruschin, president of Shira International, an Israeli company, began his address to participants at a Cairo conference in a downtown five-star hotel. Such a greeting would in the past have produced audible mutters of disapproval among the audience. But that was then. This week, Ruschin addressed the QIZ conference for business matchmaking and investment. The protocol for Qualified Industrial Zones (QIZ) "is an island of sanity in a sea of daily madness in the Middle East," Ruschin said. Before its signing, the agreement was bogged down by criticism and calls to halt cooperation with Israel. But today, on the first anniversary of the protocol's signing, the controversy appears to have died down. And last week's conference was proof. The meet, designed to open channels of communication between Egyptian manufacturers and Israeli suppliers, was attended by at least 75 Israeli businesses and more than double that number of Egyptian businessmen. The QIZ accord allows for duty free exports to the US provided at least 11.7 per cent of the product originates in Israel. The QIZ scheme is part of an initiative launched in 1996 by the US Congress to encourage regional cooperation. The signing of the agreement came at a critical time, just before the end of the quota system on textiles and clothing in 2004. It would have jeopardised 40 per cent of Egypt's total textiles and garments exports, annually shipped to the US. Starting 1 January 2005, Egypt's exporters were up against tough competition from Indian and Chinese companies aiming to capture larger shares of the US market. The agreement has so far focused on trying to save the niche that Egyptian textile and garment exporters have carved in the US market. "The QIZ is credited for keeping apparel export level around the same as those of last year," said Ali Awni, head of the QIZ unit, at the Ministry of Foreign Trade and Industry. Awni said textiles and apparel manufacturers were dominating Egypt's QIZ exports even though the agreement is not about textiles. In fact they represent over 70 per cent of the companies registered in QIZs. When the pact was signed in December 2004, only three areas were granted QIZ status: Greater Cairo, Greater Alexandria and the Suez Canal. Those who had been left out demanded that their areas be included as well. That has since been realised. QIZ areas have expanded to include most zones where there is significant apparel production. In October, a new area, the Central Delta QIZ, was included and two existing zones, Greater Cairo and the Suez Canal, were expanded. These include important centres of textile and garment production such as Mehalla and Ismailia. Awni hopes that other manufacturers take advantage of what the protocol has to offer. "There are lost opportunities," he said, referring to export possibilities for food and leather, glassware and footwear industries. Average tariffs on such items are 10 per cent and up. But the challenge, according to Awni, is not only to vary QIZ exports but also to enable more factories to export. So far, he said, out of 471 QIZ registered factories, only around one-fifth export. Of those, 10 companies account for 50 per cent of the export volume. "The majority of companies have no prior export experience. That puts pressure on such companies to upgrade themselves" which should reflect in bigger export volumes. He said that during the first quarter of the year, $61 million worth of exports were made, increasing to $116 million in the second quarter. Awni expects further growth. "The numbers are still modest but they show growth." There are other indicators of growth. According to Awni the 20 largest companies are doubling their capacity as big brand names are looking to export from Egypt. Investors from Turkey, Jordan, the Arab Gulf and North Africa are exploring operating out of Egypt. However, Awni said that to facilitate growth, certain factors were needed such as industrial parks where there is available space to rent. Such parks shield investors from local hassle, he said, adding that there are synergies that come from having businesses in the same place. Moreover, he pointed out that to raise export readiness of QIZ companies, human resource development was necessary. While some of the challenges are homegrown, Bassem Sultan, chairman of the QIZ Committee in the American Chambre of Commerce in Cairo, fears there may be a shortage in Israeli supplies as Egypt's QIZ manufacturing grows. Sultan recommended that Israelis get ready to meet the expected demand or lower the Israeli percentage required. But Sima Amir, director of international business development in the Manufacturers' Association of Israel, thinks the concern is unfounded. "We export to Jordan $100 million worth of goods. So far we have only exported $15 million to Egypt." Israeli supplies inputs such as fabrics, chemicals, plastics such as hangers and accessories like zippers. But the price of Israeli inputs have posed a problem for some manufacturers. Douglas Anderson, vice chairman of the National Food Company, said the QIZ scheme may not be suitable for all exports. In the case of food items such as herbs and spices, Anderson said there was no benefit from Israeli packaging unless competitively priced to local inputs. Packaging, he said, constitutes 50 to 80 per cent of the cost of the product. However, he believed the exports of frozen vegetables, as dried products such as onions and garlic tariffs, where duties at US borders are high, thus taking advantage of the QIZ scheme, is viable. Anderson said Israel exports $2.2 billion worth of food annually. "If it can do that given constraints, Egypt can do double that figure." Not everyone sees the price of Israeli inputs as overwhelming. Magdi Tolba, board member of the Egyptian Export Centre, said the 11.7 per cent from Israel increases Free on Board (FOB) price by an average of only five per cent. Tolba said the price of Israeli raw materials was reasonable when compared to US and EU prices.
