(Photo By Aaron T.rose)
United Kingdom Prime Minister David Cameron was the first head of state to visit Egypt following the 25 January revolution in 2011 and pledged the UK’s support for Egypt’s transition.
More than two years and two presidents later Daily News Egypt visited the British embassy in Cairo and sat down with Director of Trade & Investment John Franck to discuss the state of the UK’s business relationship with Egypt.
Franck was optimistic for the future but admits there is still work to be done.
What is the size of the United Kingdom’s investment in Egypt and which sectors does it focus on?
It’s a difficult question in the sense that one thing is initial investment flows and the other is continuing investment of profits. We usually quote around £30bn as being the UK’s investment stock in Egypt, but actually the figure is a lot higher than that because the companies that are here, BP, BG, Vodafone, HSBC, are continually reinvesting the money that they make but we don’t have a way of knowing exactly what that figure would be.
Have investment’s experienced any reductions since the initial eruption of the unrest three years ago and if so, by how much?
Again that is an interesting question because if the question is: are we aware of any UK disinvestment, in other words any companies that were invested here that have actually said ‘no, thank you very much, I’m going to leave Egypt’, then the answer is no. If we have seen a slowdown or a lessening interest in new companies coming to invest in the short term then the answer would be yes.
Overall I would say that UK companies interest in Egypt is undiminished, both from an investment point of view but also from a trading point of view. Quite often we get too focused on investment. Actually a lot of the bilateral commercial relationship between the UK and Egypt is trade, so that is UK companies selling things to Egypt and also Egypt selling things to the UK. Although overall trade volumes have gone down nevertheless there is still serious interest in UK companies procuring from Egypt. This includes some of our major companies, supermarket companies such as Tesco and Marks & Spencer procure here, but also in UK companies wanting to sell products and services to Egypt.
What would the British government’s assessment be of the interim government’s economic performance since they took over on 3 July?
Well I think our job as foreign mission here is to work with whichever government happens to be elected or nominated by Egypt. We work with them and it’s not really for us to comment on whether they are doing a good job or a bad job it is our job to make sure that we continue to try to grow the commercial relationship between the two of us. We very much support Egypt in the actions it is taking to strengthen its economies. There was quite a lot that needs to be done, some of the things are being done some of these things still need to be done.
There have been a lot of challenges to face with the widening budget deficit, the fuel shortages and the increasing debt. Do you think they way they have been approaching it has been effective?
They have made a start. Long-term problems require long term solutions. There are some structural changes needed to the economy, we’re talking about taxation and subsidies, but these things you cant just make happen from one day to the next. You do need to do it from a stable social and political platform and I think that is where the focus of the government is at the moment and I think that’s necessary.
What are the difficulties that British investors face when they look at Egypt and think about doing business here?
If you are talking about someone who is outside at the moment and isn’t actually in the market at the moment. The first thing they are faced with is a perception problem. The perception of Egypt generally in the UK and elsewhere is probably worse than it is in reality; I think that’s a really important point to make. We have spent quite a lot of time trying to paint a picture of the real Egypt, which has its problems but it also has its opportunities and isn’t necessarily the almost ‘failed state’ scenario that you might be tempted to think about when you see some of the reports in the media.
For companies actually working here, some of our companies are doing extremely well indeed, I mean really well. Vodafone for example is the best performer of the Vodafone group. HSBC has made fantastic contributions to group profits as well, so companies are doing very well.
Are there problems? Yes there are problems. I suppose the foreign currency problem is one of the largest because you cannot remit your dividends back to the UK and some companies wanting to purchase from outside the country need to pay hard currency and have had problems getting hold of the hard currency to pay for their imports. That situation has eased a bit now, but it remains an issue on the horizon because of the exchange controls that the government had to impose in order to protect the currency and protect the currency reserves of the country. It’s a fairly typical scenario for a country that is going through some economic and political change.
How does the British government go about informing people of what is happening on the ground?
What we try to do, specifically in the UK Trade and Investment section, is to find opportunities in the market here which British companies might be able to take advantage of. Total win/win situation because Egypt gets what it need and the UK gets business, so that is the fundamental job that we have. We don’t promote investments per say, it is Egypt’s job to promote investment’s into Egypt and it is the UK’s job to promote investment into the UK. However if a British company decided that it wants to come here and build a power plant or set up an office, then we will obviously assist them in doing that.
What sort of measure would you like to see the current government take to a make your job easier, in order to lure more investments and boost trade?
There are some issues that are acting as sort of deterrents to investment at the moment. The currency issue we have already talked about is one, the questioning of the legitimacy of past privatisations is definitely an issue because if you as a country are trying to encourage companies to invest millions and billions in your country then you have to assure them that the country is going to be stable in the long term and that their investments are going to be secure and be able to get a return on those investments. Clearly, if you as a potential investor see previous investments being challenged through the courts and actually being ruled against, that doesn’t give you a lot of confidence. That is a major issue.
What we are told by some of our retail companies, (the UKs retail footprint here is quite big, everyone from Marks & Spencer, Debenhams, Body Shop, Monsoon and many others) a lot of them experience problems on importing merchandise through customs due to delays. Inefficient possibly, we don’t know what the problem is, we know the effect not the cause. The effect is that quite often it can take weeks if not months for a product to be allowed into the country and clearly that is a problem if you are a fashion brand. Pharmaceutical companies tell us about problems they sometimes experience; I should say that this is not every company experiencing these things all of the time but some companies experience these things some of the time. Actually what we would like to see is no companies, be they British or form anywhere else, experiencing any of these problems any of the time because that would actually promote trade which would be good for both the country in question but also for Egypt as well.
Much of what pharmaceutical companies import need to be tested from a regulation point of view. Sometimes those tests are not handled quite as efficiently and as effectively as they could be and there have been instances when whole batches of pharmaceutical products have not been able to be used because of the time it has taken.
Looking ahead, do you see a potential increase in British investment arriving in Egypt in the form of new ventures or projects?
There is no doubt in my mind, the embassy’s mind, the British government’s mind or the mind of UK PLC. I do think that Egypt is a fantastic potential commercial partner for the UK as a country but also for individual companies. In the long term we believe Egypt could be one of the major economies of the world and therefore, for us as one of the major trading nations in the world it is very important for us to build strong commercial and political relationships and that’s what we are trying to do.
In the short term there are some challenges, we have talked about some of them. But I think it is hardly surprising that there are some challenges given the amount of political change the country has been through. We have gone from a situation where there was a dictatorship up until 2011, a new party came in and that didn’t work either and now there is a second attempt. As long as this political instability continues it is going to be very difficult for the economy to really pick up. It would be very difficult for people actually in government to take long term decisions because are they going to be there to implement them in the long term? These are some of the problems that are happening at the moment.
Long term, no question but short term it is likely for the road to be a bit bumpy. I would stress, nevertheless we still do have a number of British companies interested in entering the market. Not necessarily investments sometimes trade as well and we have actually had a couple of major UK investments in the country recently. One of them is in the public domain so I can tell you about it and one of them isn’t in the public domain but I can tell you it is in the oil and gas sector.
The one that is in the public domain is a company called Access, a private equity company in the UK that is already a significant investor in Egypt, already the largest single shareholder in CIB for example. They have taken a 30% stake in Edita, the food company.
Are we working with other companies that are interested in looking at the market from a trade point of view? Yes we are. Can we divulge the names in advance? No, of course we can’t because we don’t know, but what I can tell you is there are some plans by British companies to increase their presence here.
Cairo Festival City is a fantastic success story for UK-Egypt commercial relations. The main contractor is a joint venture between a UK company called Carillion and Al-Futtaim from Dubai working in conjunction with Orascom, an Egyptian company, and they are the ones building the site. The infrastructure is being put in as a separate Al-Futtaim-Carillion project and that has been guaranteed by the UK Export Finance Department. Therefore if the project happened to fail then there would be some compensation for the investment that Carillion put into it. Actually, it’s not going to fail it’s all going very well. It shows that the UK is prepared to, willing to and has enough confidence in projects in Egypt to be willing to back them with our export finance operation.
The project managers on the site are a well known British company called Mace, the same company managing the [Kingdom Tower] in Jeddah and they also did the Shard in London. The quantity surveying company that controls costs on the site is another UK company called Gleeds. A Northern Irish contractor did some of the office buildings that are being put up on Festival City site and also build the new KidZania building. To my knowledge there will be at least 15 UK brands in the shopping centre out of 200 units and there could be more. This includes the largest Marks and Spencer in Egypt, the second ever Debenhams in Egypt and the first ever Hamleys. As well as the usual Body Shops and Monsoons that are all over the place, it’s an amazing story really.
There is absolutely no downturn in UK interest in Egypt but unfortunately with the perception of the security situation, travel advice, which advises against all but essential travel, some projects haven’t happened quite as quickly as you would have liked them to, but overall there is quite a lot going on and that just give you an idea that if there were no problems, if there was no concern about political security, economic security and security-security what would it be like?
Not for nothing was Egypt growing at over 7% a year until 2009, and not for nothing was UK trade with Egypt at huge levels.
What is the current size the Egyptian-British trade?
In 2012 total imports to the UK from Egypt was £624 million and UK exports to Egypt were £921million. Not insignificant, but those figures are significantly down on what they were two years previously.
Following the 2011 revolution, obviously the economy suffered quite heavily but there was still a sense of confidence around the world that it would not only recover but get stronger as well. Do you feel these aspirations were slightly exaggerated or do you think this is still the case?
It is still the case; I think it is a question of timing. I think the future is bright; the question is when does the future begin?
What powers does Britain have outside of the European Union framework?
You have to make a distinction between things that are within the gift of the European Union to decide and things that are not within the gift of the EU to decide and that depends on a whole number of factors. Certainly the EU does have the power to control the export licensing activities of member states, that is one of its powers. It is not within its gift to tell member states what diplomatic relationships they should have with other countries.
We very much support Egypt’s development and we are here to help. We genuinely believe that by helping we are going to help the UK as well so it is a total win-win.
