Sainsbury's: a 'special case'

Egyptian-British economic relations are increasing in value all the time. Speaking with British Ambassador to Egypt and officials in London, Gamal Essam El-Din discovers that there is plenty of enthusiasm for additional trade and investment
Sainsbury's: a 'special case'
The Egyptian business market has recently received mixed signals about British investments in Egypt. The first was sent when the Egyptian British Bank decided one month ago to change its name to HSBC-Egypt, following its investment of $139 million in the bank to increase its stake from 40 per cent to more than 90 per cent.
HSBC's decision was roundly welcomed as a vote of confidence for the Egyptian banking sector during the difficulties stemming from the liquidity crisis which began in 1999.
The second signal came just one week ago when the UK-based supermarket of Sainsbury's decided to phase out a $143 million investment only after two years of operations into Egypt. This was followed by fears that Sainsbury's withdrawal, which was presented as a possibility last November, could send negative signals about investment in Egypt to foreign investors.
In an exclusive interview with Al-Ahram Weekly, , the British ambassador to Egypt since 1999, answers questions about Sainsbury's withdrawal, the growing business and commercial relations between Egypt and Britain, and other issues ranging from the foot-and-mouth disease crisis, trade and support for human rights organisations.
How do you explain Sainsbury's recent decision to withdraw from Egypt?
We are very keen to say that Sainsbury's withdrawal should not be seen as a negative development for British investment in Egypt. When Sainsbury's came here, they were planning to develop the Egyptian market and then go on to expand into the region as well.
As a matter of fact, Sainsbury's should be viewed as a very special case, and its decision to pull out of Egypt was based on what was happening to its operations in the UK. Of late, they have been suffering from domestic problems in the form of declining profitability. This hastened their decision not only to depart from Egypt, but also to review their operations globally.
Sainsbury's business in Egypt was its first foray outside the US and UK markets. If they had not had any problems in the UK, then they would not have decided to conduct this global review. This is evidenced by the fact that the London stock market was happy to hear about their decision and the price of their shares quickly went up [by two per cent] when they announced they would pull out of Egypt.
Sainsbury's withdrawal was preceded by an uproar in the Egyptian health care sector about an attempt by a UK-based Anglo-Egyptian corporation to buy seven of Cairo's leading hospitals and health centres. What are your comments on this matter?
Egypt has to allow private investment in the public sector to make it work efficiently. At the same time, I think you also have the right to check out the people who come to invest here. This is utterly fair. However, in general, I think foreign investment is absolutely critical for Egypt to create jobs in the future because the government certainly does not have the revenue flow to guarantee jobs for all the young people coming into the market. These jobs have to be created by the private sector -- be it domestic or foreign.
If people insist on ideologically opposing foreign investment, they will, in this way, be opposing the creation of jobs in Egypt. And you have to think about this very seriously.
You have been here for two years. What is your assessment of the progress of business and commercial relations between Egypt and Britain during this period?
In the last period, Sainsbury's, British Gas and Vodafone are the very big names that decided to come to Egypt. Egypt has also managed to attract a lot of smaller British investments and many more joint ventures.
As a rule, one big British name now comes to Egypt every two years. For example, British Petroleum (BP) and Shell have recently decided to make major investments in the next year or so in the gas sector. I think the same thing applies to British Gas. So, there will be huge amount of investment from the UK in these sectors in the next year or so.
To keep this momentum, however, Egypt has to do more to sell the advantages of investing in its land to foreign companies. In particular, you have to improve the speed of decisions taken on investment and to make the environment more transparent so that people know exactly what to expect when they come in here.
In terms of trade and economic relations, I'm very optimistic about their future. The overall trade between our two countries is continuing to grow. Egyptian exports to Britain are increasing quickly. We had a campaign three years ago talking about Egypt as a potential market ["Connect Egypt"] and we continue to see Egypt as a one of Britain's top ten investment markets in the medium and long term.
Most consumers in Egypt and the Arab world have recently become extremely worried about food imports from England due to the outbreak of foot and mouth disease. To what extent do you think this outbreak could impact trade between Britain and the Arab world?
Putting this problem in perspective, let me say that agriculture forms just one per cent of the British economy. This is even in spite of the fact that we have so far paid more than 200 million sterling pounds in compensation to farmers. In the agricultural sector, we have also so far slaughtered about 1,200 animals which have been affected by the disease. But in an effort to control the spread of the disease, we have slaughtered more than 600,000 healthy animals because whenever we find one case of the disease, we slaughter all the animals within three kilometres. The reason for this is that the virus can travel in a number of different ways -- it can be carried by the feet or the dust in the air.
In any case, we are doing everything we can to control the disease. I think Prime Minister [Tony Blair] has decided to delay the general elections to give the first priority to controlling the disease. We do not see any financial crisis resulting from this disease which has had its most grave impact on the tourism industry. As for trade relations with the Arab world, the disease did not cause any negative effects. In particular, there is no meat trade between Egypt and the UK while the number of visitors between Egypt and the UK remains unchanged.
There has been a considerable fuss about the British government's donations to the Egyptian Human Rights Organisation. What is your view on this area for the coming period?
The Egyptian government has made a public commitment to human rights. We fund human rights activities in Egypt and we are doing so in line with what the Egyptian government says it wants to do. So, the money which was taken was designed to fund a project to help rural women to learn about their legal rights and this is something which the government is in support of. The cheque which caused the concerned fuss was eventually returned to us. But we are going to continue to look forward to raising awareness of human rights in Egypt and in so doing we will always make sure we are not trying to battle against the government.
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Between the Thames and the Nile
A 1998 initiative by the British Department of Trade and Industry (DTI) designating Egypt as one of the top ten target markets for the United Kingdom (UK) has corresponded to an increase in the volume of trade between the two countries.
Towards facilitating economic activities between the two countries, DTI launched a plan under the rubric "Connect Egypt" through which it is buttressing British investment.
The importance of Britain's economic interest in Egypt was underlined through a message from President Hosny Mubarak publisehd in the first issue of Connect Egypt, a magazine promoting the initiative. Mubarak noted what was then an already impressive level of interaction. "The total value of British investment in Egypt amounts to over half a billion dollars, and UK investment in Egypt ranks second after the USA." The Egyptian president added, "This investment covers some 187 projects... Of these 187 projects, 156 are joint ventures, 128 of them are based inland, while 28 have been established in free zones."
Since Mubarak's remarks in 1998, Connect Egypt has given every appearance of having borne fruit. Three years on, DTI statistics show that British investment in Egypt had increased by last December to 2.3 billion sterling pounds (around $3.2 billion), accounting for 7 per cent of British investments in emerging markets. And, according to Caroline Normand, head of DTI's International Trade Policy Unit, the volume of trade between Egypt and Britain had by last December reached 926.5 million sterling pounds -- a 15 per cent increase on its level in 1999.
Although Britain's share of this trade is higher than Egypt's -- 500 million sterling pounds to 426.5 million sterling pounds -- Egypt has been catching up. This phenomenon is attributed by Normand to a sharp increase in Egyptian exports over the past two years while those from Britain have remained static since 1997.
The recession in Egypt, according to Guy Gantley, Economic Adviser on Middle East and North Africa at the UK Foreign and Commonwealth Office (FCO), is one factor accounting for this trend. But Gantley is encouraging about the direction Egypt's economy appears set to take in the immediate future, suggesting that the initialing of the Egypt-EU partnership agreement last February sent positive signals to Britain that Egypt is serious about opening its economy. "We expect that putting this agreement into effect will lead to the restructuring the Egyptian economy in favor of industrial production and in terms of giving the private sector a greater role in boosting Egyptian exports," said Gantley.
The growing commercial and investment exchange between Egypt and Britain encouraged DTI's Export Credits Guarantee Department (ECGD) to increase insurance, finance and credit facilities for UK exporters and investors interested in doing business in Egypt.
As of 31 March 2000, Egypt accounted for 8.76 million sterling pounds out of ECGD's Overseas Investment Insurance Portfolio comprising 796.83 million sterling pounds. "This amount was used to provide insurance for investments made by UK companies in Egypt including the Cairo waste water project and Bibliotheca Alexandria," said ECGD's annual report.
However, the achievement of which ECGD is most proud is its recent sale of an Egyptian debt of 37 million sterling pounds to the Bahrain-based Arab Banking Corporation (ABC). "This kind of deal helps a lot in settling rescheduled hard currency debts in local currency at a discount, leaving the country's foreign currency reserves unaffected," said ECGD's Assistant Manager Paul Foe. ABC, he added, will reinvest the local funds it has purchased to help finance improvements to Egypt's financial services market through activities such as underwriting, asset management, equity and bond issues.
And the ECGD seems unfazed by one of the major challenges faced by the Egyptian economy recently. Speaking about the liquidity crisis, Jeanette Lancelot Swindon, an official at ECGD's Underwriting Division, said that it caused delays to some payments for UK exports, but these were not on a wide scale.
Nowhere is the UK's enthusiasm for the Egyptian economy as obvious as it among officials of the Corporation of London (COL). COL is a local authority for the city of London dedicated to enhancing its status as a leading international financial centre.
Jeremy Fern, Assistant Director of economic development for COL, said that Cairo's growing economic importance in the Middle East and North Africa, due to the Egyptian government's sweeping economic reforms launched in the early 1990s, is widely recognised in London's financial centre. He also noted Egypt's full membership in the World Trade Organisation as another factor enhancing Britain's interest in the country.
Such a relationship, according to Fern, has been mutually beneficial as the COL played a decisive role convincing Egyptian private sector companies to list their shares on London's stock market. "They [the listed companies], and thousands of Egyptian customers, came to here to obtain advice about doing business in London in areas ranging from privatisation, equity listing, exporting and joint ventures," said Fern.
In recognition of the flourishing relationship between the Thames and the Nile, Fern noted that David Howard, the 673rd Lord Mayor of the City of London will visit Cairo this autumn with the aim of raising UK-Egypt business relations to new levels.
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