Interview with Rachid M. Rachid, Minister of Trade and Industry of Egypt

You will host a meeting of Euro-Mediterranean ministers at the World Economic Forum on the Middle East. Is Egypt's economy at risk from a slowdown in Western economies? What will be the impact of a European slowdown on local companies?
I believe that the current unprecedented strength and diversity of the Egyptian economy and our wide range of economic partners will help Egypt weather such a slow down. Egypt expects another strong year in 2008 despite a more challenging global environment. GDP growth was 7.2% in 2007, up from less than 3% a few years ago.

Annual foreign direct investment into Egypt has grown from less than US$ 1 billion a few years ago to US$ 11 billion last year, and we expect to exceed that figure again in 2008.

Investment is coming in from Mediterranean countries such as Italy, Spain, France and Turkey, while Gulf States accounted for US$ 6 billion last year. This investment into Egypt is very diversified, with investors taking stakes in a wide range of sectors such as industry, services such as tourism and real estate, agriculture and oil and gas.

We see exports growing by one fifth despite a slowdown in our largest trading partners in the West. The United States and Europe account for some 60% of total Egyptian exports, so, of course, the economic slowdown there was bound to have an impact. Export growth will slow from last year’s 45% increase in non-oil export, but we believe export growth can still come in at over 20%.

In short, we believe that through the continued competitiveness of our economy and our attractive strategic location, we can maintain healthy levels of exports and investments. The real challenge for our economy is rising food prices which, driven by the current global crisis, is contributing to a leap in Egypt’s subsidy bill from around LE 20 billion in 2003 to LE 125 billion in 2008.

All this comes at a time when the new powers of the East are taking an increasingly assertive role in world affairs. In an increasingly bipolar world, how do you see the Middle East positioning itself vis-a-vis Asia?
An increasingly bi-polar world offers clear advantages for competitive companies from our region looking for growth opportunities beyond their national borders. In Egypt, we recognise the huge potential for our local businesses and, as a Government, are actively looking ‘eastwards’.

We are targeting countries that have longstanding political ties with Egypt but where economic links have been weak. This policy of complementing our traditional Western partnerships with new, emerging market opportunities, has so far proved successful. In 2007 alone we increased trade links with China and signed an agreement with China to establish the first Chinese industrial zone, ever to be built outside of China; we began importing wheat from Kazakhstan, pursued negotiations with Russia around an FTA with Egypt and signed an MOU to begin preparations for the first Russian industrial zone in Egypt. I have just returned from a visit to India at the head of the largest Egyptian trade mission to visit the country in more than a decade. We are discussing the possibility of a Free Trade agreement between India and Egypt, or a similar economic arrangement – one that would more accurately reflect the huge untapped economic potential that exists between our two countries.

How can businesses in the Middle East change their strategies to take advantage of the growth of Asia?
I think this shift is already underway and will only increase with time. All the government agreements in the world cannot, by themselves, boost trade and investment between Asia and the Middle East.

In the end, it is the individual companies from our region, with the appetite and the capital to head East, that will make these links a reality. As a government, we can help by creating a facilitating environment through match making, trade missions and so forth – in other words, it is concrete business opportunities, on both sides, that will determine the Middle East’s appetite for ‘Asia strategies’.

What are countries, like Egypt, doing to meet the employment and training challenge, one of the most serious issues to be facing the region at the moment?

You are right. Employment and human resource development is the number one challenge facing the Middle East today. In Egypt, we are working hard to turn our vast population into a competitive advantage. Egypt has a total population of 80 million and a workforce of 22 million. More than 275,000 graduates leave our universities each year. This gives Egypt the largest resources of skilled labour in region. Our challenge is not just to create jobs for these citizens but to ensure that Egypt's workforce is trained, competitive, and exposed to international standards and technologies. In other words, employment and training are two inseparable sides of the same coin.

In Egypt, we are working hard to address the employment/training challenges. A good example of our approach is the National Industrial Training Council created in 2006 to match the skills of Egypt’s large industrial workforce to the specific human resource gaps experienced by companies in Egypt. For the first time, vocational training in Egypt has been linked to specific jobs. In only its first year of operation, the ITC has trained 125,000 Egyptian citizens for jobs within 3,146 companies in Egypt.

Under the programme, vocational training is offered both to workers already in jobs, as well as a wide range of unemployed citizens who were trained for new jobs within industry. In fact, the programme proved so successful that we have now extended it to cover Egypt’s construction, tourism and transportation sectors.

You are engaging in some interesting projects to encourage entrepreneurship in Egypt and the wider region. What is the importance of entrepreneurship in Egypt at the moment and what are the challenges for encouraging young entrepreneurs?
Last year, the Ministry of Trade and Industry launched the very first Business Plan Competition ever to target Egyptian industry. The aim of "Make your project a Reality" was to generate a flow of innovative projects and ideas into Egypt’s traditional industrial sectors and create broad awareness of what it takes to be an entrepreneur and why the role of entrepreneurs is so essential to the competitiveness of Egyptian industry.

The Competition attracted more than 2,000 applicants from across Egypt, and produced a surprising range of innovative project ideas at various stages of the production cycle. We invited applicants to come forward who were looking for seed capital ranging from LE 100,000 to LE 5 million – in other words, high growth entrepreneurs who recognised a need for financing but also required business planning, mentoring and advisory support. Our hope is that the great ideas generated by the competition will translate into reality that, as a result of this competition, we will create a string of successful start-ups in Egypt that go on to become suppliers for larger enterprises and fill important supply gaps in Egyptian industry.

In fact, through "Make Your Project a Reality" we have sought to tackle central contradiction that exists in Egypt today around entrepreneurship: On the one hand, Egypt has a strong and deep rooted tradition for entrepreneurship: more than 70% of our GDP, and 75% of jobs in Egypt, are created by the private sector. Of Egypt’s top 100 exporters, the majority are first and second generation entrepreneurs. But at the same time, the environment in Egypt has traditionally been a challenging one for start ups, with problems ranging from access to finance and land, training staff, to access to state of the art technologies.

Significant government efforts are underway to address these challenges, but many of these are focussed mainly around helping large scale industrial firms and wide base of micro-entrepreneurs for the purpose of poverty reduction. Our aim was to use the Competition to bridge this gap between large scale and micro entrepreneurship, by targeting entrepreneurs with real potential to grow and employ and ultimately to export.

We hope to make our Business Plan Competition an annual event on the national calendar. After all, the stakes around entrepreneurship are high for a country like Egypt. Approximately 94% of Egyptian companies employ four people or less. If we manage to assist a percentage of these companies into the SME bracket employing more than 5, this will have significant impact on the Egyptian industry and economy at large.