Brief No. 1 China in Egypt (China in Middle East & Africa Series)

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This report examines the state of Chinese trade and investment in Egypt in various sectors including stone material processing, textiles, manufacturing, infrastructure, and energy. The report draws on data collected from interviews with 20+ Chinese business leaders in the country in June 2017.

Egypt is a difficult business environment for Chinese enterprises. Top challenges reported by Chinese companies include business registration and licenses, access to finance, customs and trade control as well as access to land. However, despite currency shocks and political risk challenges that have driven away other investments, Egypt remains a promising new market for Chinese companies attempting to establish a foothold in the MENA/Sub-Saharan Africa region.

Chinese activity in the Egyptian economy first emerged through investments in the stone-processing sector during the 1990s. Today, the sector remains dominated by Chinese firms, which produce 70% of Egypt’s stone material exports and employ over 3,000 Egyptian workers. The China in Egypt Stone Material Association, launched by the Chinese embassy, now plays an instrumental role in unifying the business community, facilitating dispute resolution, and establishing industrial codes. Chinese companies in the stone material sector are well-integrated in the local labor market and procurement system, and work closely with the Bedouin community to ensure security.

Between 2000 and 2010, the number of Chinese companies investing in the Egyptian textile sector increased as demand for textile products from socks to shoes and clothes increased. However, due to the political turmoil of the Arab Spring in 2011, textile exports shrank and many Chinese-owned textile shuttered their operations. As the Egyptian state stabilizes today, several Chinese businesses have returned to the area or entered the market due to the reduction in competition.

Manufacturing companies such as Jushi, a leading supplier of fibreglass and reinforcements, and New Hope, an animal feed producer occupying a vast area of 29,000 square meters in Beheira province north of the Egyptian capital Cairo, have achieved remarkable growth in Egypt and introduced the “Made in Egypt” brand internationally.

The manufacturing industry has witnessed a flurry of interest from Chinese multinationals. China’s SAIC Motor Corporation Limited, a Chinese state-owned automotive design and manufacturing company headquartered in Shanghai, is now planning to construct a factory in Egypt in order to supply the Egyptian market as well as markets in the Middle East and Africa with active free trade agreements with Egypt.

Similarly, China’s Guangzhou Goodsense Decorative Building Materials Co. Ltd. is constructing a new factory in a 16,000 square-metre area located in the Suez Governorate Ataqa industrial zone under a USD $100 million Egyptian-Saudi- Chinese joint venture.

While Egypt urgently needs more infrastructure projects, poor availability of foreign exchange renders such initiatives difficult. Several projects have been announced, but have experienced delays in negotiation and implementation. Nevertheless, some notable successes do exist. Sinopec, China’s second-largest oil group by market capitalisation, for example, has joined American company Apache as a junior partner in an oil and gas exploration project located in Egypt’s Western Desert. By spending $3.1bn on a 33 per cent stake in the project, Sinopec is deepening its commitments in Egypt having previously embarked on another joint venture there in concert with Tharwa Petroleum, an Egyptian company, in 2005.

China is now the largest investor in the Suez Canal Economic Zone with a Tianjin-based state-owned company as the major developer of the Teda Industrial Zone in Ain Sokhna, which lies on the western shore of the Gulf of Suez. Teda currently hosts several successful companies in Egypt and is ready to launch its second phase of development.

As Egypt emerges as a promising production center, investments by Chinese companies are likely to continue to grow.

These briefs are informal notes for stakeholders on the implications of shifts in development and trade between China and various countries across the Middle East and Africa. They highlight emerging trends or topical issues, and are issued every quarter. Contributions are welcome.