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President Mubarak’s visit to New Delhi last November, after more than 25 years, was heralded as a milestone in the bilateral relationship between Egypt and India.
Speaking at a joint press conference, leaders of both countries agreed to ‘make up for lost time’ and set forth an ambitious trade target of USD 10 billion by 2010. Current bilateral trade between Egypt and India is about USD 3.5 billion. So what is bringing on this renewed interest?
Hoping to leverage India’s pacts with its South East Asian neighbours, Egypt is keen to maintain India as one of its top trading partners.
“India is viewed by Egyptian policy makers as a target country for attracting foreign investment,” reckons A. Gopinathan, Indian ambassador to Egypt who accompanied the delegation to India.
Indian investments, estimated to be USD 750 million currently, could increase to about USD 2 billion by 2011, if Egypt gives the green light to some of the projects under consideration.
Trade History
Egypt’s foreign policy with respect to India goes back to ancient times. A Hindu text from 300 BC mentions Emperor Ashoka’s contact with Ptolemy II Philadelphus of Egypt and the exchange of ambassadors.
A more definitive indication of the ties between the two nations is evident in the letters exchanged between Mostafa El Nahas and Jawaharlal Nehru in the late 1930s, both compatriots in the fight for freedom. The warmth continued till Gamal Abdel Nasser’s time, after which relations remained cordial but distant.
India’s sustained growth
A young and vibrant population, a potential 1 billion people to sell to, the buying power of its rising middle class in addition to the government’s reforms liberalizing the economy opened the market to foreign companies. Even now, as the rest of the world is reeling from the recession, India’s growth is expected to remain stable at 7% from an average 8.5% it was maintaining for the last five years. What made the growth sustainable was that India diversified its industries to include manufacturing, pharmaceuticals, automobile manufacturing or information technology (IT).
There are challenges still facing India, such as the overwhelming majority that live in poverty and the infrastructure and labour market that need to keep pace with the current growth. But the success at home brought about a new breed of entrepreneurs daring to venture beyond India’s borders, braving risks to acquire, invest or partner in joint ventures.
Meanwhile, Egypt’s government launched massive economic reforms in 2004 to promote Egypt as an investor-friendly destination. It seems to have worked. In the last five years or so Indian investments have climbed quite dramatically, notes Ambassador Gopinathan. “By 2011 you will see a billion dollars just by one (Sanmar) group,” he adds.
The Birla Group’s Alexandria Carbon Black was one of India’s first investments in Egypt that started operation in 1994. Today it exports 93% of its products, earning USD 100 million in foreign exchange for Egypt. In 2006, the same group invested another USD 70 million for an acrylic plant in Alexandria that employs 250 people in its factory.
Another sector that saw massive investment from India was the garment and textile industry. Among the leading Indian companies that have set up subsidiaries are Embee, Velocity and Cleopatra employing 500-1000 workers each in factories in Ismailia, Cairo and Alexandria.
Egypt’s investment laws provide a direct import benefit of 10-12% on goods imported, says one Indian garment exporter. Garments exported to US and Europe escape any duties because of the QIZ and EU trade pacts making them very competitive in price. India is the largest importer of raw cotton and cotton yarn from Egypt while the latter’s export of man-made fibres has also grown 30% annually for four years, till 2006.
Across segments
Several companies including Asian Paints and Marico India have made Egypt their success stories.
“I call it the centre of the world,” says Brajesh Bajpai, Regional Head, Middle East and North Africa for Marico, an Indian, fast-moving consumer goods (FMCG) producer. “In Africa, part of Gulf and easy access to southern Europe, which country has such a great advantage?” asks Bajpai. Marico’s hair care products control 60% of the market share in Egypt today.
Egypt currently exports USD 2.1 billion to India of which 95% is oil and gas, while Egypt’s imports from India, a little over USD 1 billion, have traditionally been cotton yarn, rice, meat and tea. When seen in the context of India’s total exports (USD 200 billion), the trade basket with Egypt may seem small. What is interesting is that there is a right product mix in the bilateral trade.
Last year Mahindra & Mahindra flagged off its 4X4 vehicle, Scorpio in Egypt and is believed to be popular among Egyptians for its price. The Egyptian Ministry of Tourism has achieved tremendous success in promoting Egypt as a tourism destination in India attracting 100,000 Indians last year.
Under the direction of Dr Tarek Kamel, Minister for Communications and IT, Egypt, saw merit in attracting Indian software companies like Wipro and Satyam to the country. Companies setting up operations in the Smart Village were offered rental and training subsidies between 85-100%, as well as optimum infrastructure and an inexhaustible pool of Arabic-speaking computer graduates. Indian companies could help stage Egypt in the international market as a popular destination for IT outsourcing and develop the industry in the long term.
But for all the rhetoric, ground realities could be better. Following the signing of COMESA, Egypt levied a 30% duty on Indian tea. Imports fell dramatically until a recent agreement by Egypt was made to reduce the import tariff to 5%. Similarly, it was only after persistent efforts by the Indian consulate that Egypt restarted its import of beef.
Paying closer attention
Obviously it is important for companies to do their homework carefully. “I am struck by the fact that Indian businessmen do not seem to be aware of the requirements and potential of the Egypt business and industry; similarly Egyptian industrialists do not seem to be aware of the capabilities acquired by Indians over the past two decades,” notes Ambassador Gopinathan.
Clearly, one of the ways to understand these ground realities would be for visiting delegations to carry out real time research. The commercial wing of the Indian embassy can assist by putting businessmen in touch with the Egyptian trade and industry associations, as well as businessmen when requested. The good news is that both countries have decided to move from politics to economics.
Germans upbeat on India
Back in 2004, when German chancellor Gerhard Schroeder set a target of EUR 10 billion for 2009 for Indo-German bilateral trade, little did he know it would be achieved three years ahead of schedule. In 2006, not only did German exports to India reach EUR 5.1 billion but the trade surplus of EUR 2 billion has been in Germany’s favour.
Textiles, leather, pharmaceuticals and electro-technical products made up the bulk of India’s exports to Germany while machinery made up one-third of Indian imports from Germany. The Indo-German relations go beyond trade and investment and to the transfer of technology.
Almost 2,500 Indian firms are doing business in Germany, of which two-thirds is in IT, while the rest are engaged in textiles, engineering, pharmaceuticals and automobiles. India’s Tata Consultancy Services entered into an agreement to jointly research and develop telecom products at Nokia-Siemens in Dusseldorf. Biocon, a premier biotechnology company in India acquired a 70% stake in German AxiCorp which will enable it to sell pharmaceutical products in Germany as well as Europe.
In April, 2008, Volkswagen announced it was increasing its investment in India by 40% to EUR 580 million. The addition was to go for the Fabia hatchback model. India’s small-car market is a fast growing sector and automakers hope to take advantage of the opportunities by increasing their investing.
Volkswagen’s premium brand Audi is also assembling the A6 and A4 models in India. Other German automakers invested in India are Daimler and BMW with the latest buzz that Porsche plans to start assembly in India too.
