According to HSBC’s autumn Trade Confidence Index (TCI), Egypt, Bangladesh and Saudi Arabia show the biggest increase in optimism, with most companies expecting trade volumes to grow. Companies in Egypt have shown a huge increase in confidence around trade volumes compared to the last TCI.
As the country starts its move forwards, social and transport infrastructure are the priorities for development. Planned major projects include increasing the capacity and reach of Cairo’s metro system, modernising and expanding the rail network, building new port facilities and, in the largest single project, widening the Suez Canal and creating an industrial zone in the surrounding area.
Iffco Egypt, North Africa’s largest oil and fat producer, is based at Suez and is an example of a company that saw the potential of the Egyptian market at the end of the ‘90s, bore the brunt of the country’s upheavals and is now preparing for renewed success.
The company, part of the family-owned Allana Group, manufactures a wide range of value-added vegetable fats and oils for consumers and for industrial and institutional applications in foods, animal feed, cosmetics and textiles. Clients include Nestlé, Kraft, Unilever and Pepsico, as well as international chains such as KFC, Burger King and McDonalds.
“Allana operates out of India and the UAE and we had always wanted to better serve the Middle East and North Africa,” says Iffco Executive Director Aliraza Merchant. “Back in 1998, we had no facility outside the UAE but could see a real need for our products in Egypt.”
The population was growing and today is over 80 million, so Egypt was a strategic choice that promised a market far larger than the GCC. However, Iffco was aware that to sell to the country, they needed a base there. They invested in a purpose-built state-of-the-art, integrated refinery, and fat processing, packaging and storage facilities.
“Although we could have benefited from the trade agreements between the UAE and Egypt, we knew we needed to be close to the market, explains Iffco MD Naeem Khokhar. “Our product is relatively bulky and consumer tastes are slightly different, so being in Egypt made sense for logistical and product development reasons. When we first established ourselves, labour costs and energy costs were also very favourable. However, this has changed over the period especially in the last three turbulent years.”
Those years also brought practical issues around safety, transportation and uncertain power and water supplies.
Mona El Sayed, Head of Commercial Banking at HSBC Bank Egypt, believes there is now great potential in the Egyptian market.
“Egypt is a very exciting economy and once the completion of the political roadmap and the necessary economic reforms are in place, we will witness sustainable growth in the economy,” she says. “Egypt continues to feature strongly as one of the HSBC Group’s 19 global priority markets. We will continue to invest in our people, systems and technology to ensure that our customers benefit from a seamless and efficient banking experience.”
El Sayed sees the new investment law as a significant step to encouraging foreign direct investment. Rebuilding confidence in the market, as well as clarity on current fiscal and economic reforms, are also key to attracting foreign direct investment.
According to HSBC’s latest Purchasing Managers’ Index (PMI) report for Egypt, issued in October 2014, the recent upturn in Egypt’s non-oil private sector seems to be continuing. Output and new orders continued to rise, albeit at weaker rates, and companies increased their workforce numbers for the second month running.
“Times have been difficult,” says Merchant, “Alongside the very visible problems around law and order, Egypt lost a lot of its skilled workforce. The new government has brought stability, however, and we can see the situation continually improving over the next two years.”
Since the original refinery went into production in 1999, Iffco Egypt has had a three-phase expansion, each time supported by term loans from HSBC. The company built new packaging facilities, new process lines, increased capacity of fats and margarine, added a new refinery and a fractionation facility, plus more storage. In 2006, they acquired the Fern brand from the New Zealand Dairy Board, adding to their roster of brands, many of which have become household names in Egypt.
“We plan to expand further over the next two years,” says Khokhar. “We can foresee our capacity being completely utilised over this time. Up to 20 per cent of our production is exported throughout North Africa and the Levant countries, and we are now looking at Europe too.”
Even with a new government and a commitment to economic development, Egypt is not without its challenges. Merchant cites availability of foreign exchange as a major obstacle, alongside a drop in the spending power of Egyptian customers.
“Costs have gone up and there is a lot of unemployment,” says Merchant. “When people have less to spend, they look for the cheapest product. While we’re now the market leader as far as business-to-business is concerned, we're up against strong competition for retail sales. We have the ability to manufacture the specialised products that are more in-demand – trans-fat free and GMO-free, for example. We also take pride in our quality and strong health and safety standards with accreditation like HACCP, BRC, ISO 9001 and 22000, which makes us better, but more expensive, than our competitors.”
While the whole industry has suffered, Iffco are continuously looking for ways to reduce costs and offer better value with new products and features.
“We’ve had excellent support for our investment in Egypt from HSBC, but we always expect more,” laughs Khokhar. “HSBC have helped us fund our expansion through term loans for machinery and equipment, as well as providing cash management services.”
Internationally, the Iffco Group has worked with HSBC for 25 years and, says Khokhar, the bank has supported the group during its expansions, acquisitions and new ventures in countries such as Egypt, Malaysia, Saudi Arabia, China, Indonesia and Turkey,
“Here in Egypt, the senior management of the bank were very helpful from the time we acquired the land in Suez till the time of completion of our edible oil refinery,” adds Merchant. “We benefited from their advice as well as the finance we needed for the project.”
So would Merchant and Khokhar recommend Egypt to other would-be investors from the GCC countries?
“It’s a big market with a growing population, the local market is large and the location is excellent for reaching further,” says Merchant. “There are definitely opportunities, but you have to balance that with the shortage of high-level skills and the need to adjust your way of working to fit the culture here. We’d also stress the need to have strong management experience for working with the unions, which are very strong in Egypt. One also needs to learn to deal with regulatory authorities. The economic situation is improving all the time and there are duty advantages for GCC and COMESA countries wanting to do business here.”
Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.