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Browse BTe Archive |
Archive: 2002 > August >
Country ProfileSwiss Tryst writer: Dan Bernard A Swizterland-Egypt coupling could create
joint business ventures and export assistance
The European solution to Egypt's economic slump will
undergo a final and decisive round of speculation and hand-wringing
in coming months, when the People's Assembly debates ratification of
the EU-Egypt Association Agreement. But the proposal to create a
free-trade zone with the European Union is an incomplete European
solution: The EU agreement will provide no direct relief for Egypt's
trade imbalance with one of its larger economic partners in Europe -
Switzerland.
Switzerland is not a member of the EU, as its voters
decided to stay neutral in the continent's economic merger. For the
wealthy nation in the Alps, there will be no euro coins, no common
trade policy, and no greater access for Egyptian
goods.
Swiss officials have undertaken preliminary talks with
Egypt about implementing a separate free-trade agreement that would
also involve Norway and would parallel the EU agreement. But because
of the complexity of working outside the EU - and because Egyptian
leaders are still nervous about the ramifications of the EU deal -
those talks are stalled.
Swiss officials say they are nevertheless proceeding
with a business stimulus plan for Egypt. The Swiss are readying a
loan plan that would launch joint ventures between Swiss and
Egyptian businesses by the end of the year. And while it is not
ready to lower trade barriers to Egypt, Switzerland is prepared to
provide logistical assistance to Egyptian exporters who want to
crack the Swiss market. Last year, Switzerland created new
promotional channels specifically to assist businesses in developing
countries, says Kamal Rathle, commercial counselor at the Swiss
embassy in Cairo.
"If we see somebody serious about exporting from Egypt
to Switzerland, we can facilitate," Rathle explains.
Splendid isolation Switzerland is famous for its neutrality, staying out
of both world wars and remaining non-aligned during the Cold War
that followed. Even while sharing borders with the loudest
cheerleaders for European unification, France and Germany, the Swiss
electorate has repeatedly declined to enter the continent-wide
federation for economic and administrative matters. In a March 2001
referendum, a resounding 77% of Swiss voters rejected joining the
EU. Swiss leaders extol the potential efficiencies, but the people
are leery of ceding regulatory control to the EU headquarters in
Brussels.
"Swiss are not only proud of their independence and
neutrality. They're also very proud of their political process:
direct democracy - having a say over decisions that touch their
lives. And a lot of that they would have to give up if they joined
the EU," says Peter Nelson, commercial attaché at the Swiss embassy
in Cairo. The Swiss have reason to feel that they're doing well on
their own. The mountainous nation has one of the highest per-capita
incomes in the world. In a 2000 survey by William Mercer Cos. of
cities with the highest quality of living, Switzerland was the only
country with more than one city in the top 10: Zurich (number 2),
Bern (4) and Geneva (6). Unemployment stood at a respectably low
2.5% in May.
On the down side, Switzerland's economic growth has
slipped behind other industrialized nations in recent years, and the
airline industry's troubles after 11 September forced a
multibillion-dollar government bailout of Swissair last
October.
Instead of casting their lot with a United States of
Europe, Switzerland formed a loose confederation with other
countries that were reluctant to join the EU. Called the European
Free Trade Association (EFTA), the alternative club has limited
powers. After some members changed their minds and joined the EU,
EFTA now includes just four countries: Switzerland, Norway, Iceland
and the small nation Liechtenstein.
Even EFTA has acknowledged the realities of a unified
Europe. EFTA signed treaties with the EU effective in June to
harmonize the two blocs' regulations on migration, transportation,
agriculture, research and technical barriers to trade. The EU in
June agreed to negotiate common rules with Switzerland on refugees,
border controls and tariffs on services; talks are already underway
on processed food, customs fraud, the environment and
statistics-keeping.
And although the Swiss declined to become a member of
the United Nations while the UN Security Council was deadlocked by
the US-Soviet rivalry, the thawing of the Cold War changed that.
After intense debate, the Swiss voted this March to join the UN as
of September. In fact, Switzerland had already become a capital of
world government. The Geneva Convention treaty that governs wartime
conduct is updated and monitored from the city of the same name,
which is also headquarters to the International Red Cross, World
Health Organization and international bodies on human rights, labor
and telecommunications. Different rules Egypt spent the 1990s negotiating a plan that, if
ratified, will gradually lower tariffs between Egypt and the 15
EU-member countries. The Euro-Mediterranean Association Agreement
would remove tariffs on industrial goods flowing between Egypt and
EU countries. The EU would raise its quotas for Egyptian
agricultural goods as Egypt lowers duties on selected EU
agricultural goods. Signed by leaders in June 2001, the agreement
still needs approval from each of the countries' parliaments, which
could take up to three years. In Egypt, the PA is expected to take
up ratification late this year or early next and, EU officials hope,
ratify it by spring or summer 2003.
Compared to that timetable, the Swiss were playing
catch-up last year when they met with Egyptian officials to propose
a free-trade agreement via their alternative trading bloc EFTA. EFTA
reps met with Egyptian Foreign Trade Ministry officials in mid-2001
to talk about how such negotiations might proceed. But the idea
never got on the fast track.
Foreign Trade Ministry officials were interested in a
deal that would increase Egyptian agricultural producers' access to
Switzerland and its EFTA partners. In particular, Egypt wanted to
talk to EFTA member Norway about lifting its six-year ban on the
import of Egyptian potatoes.
But EFTA rules are designed to preserve members'
autonomy over many matters that in the EU are handled centrally.
EFTA can negotiate on trade in industrial goods. But agricultural
trade is one of the policy areas that EFTA cannot negotiate on its
own. EFTA representatives told Egyptian officials that they'd have
to negotiate agriculture matters separately with each of the four
EFTA member countries. Having just finished arduous negotiations
over a single pact with the EU, the prospect of starting talks on
four side deals seemed burdensome to Egyptian
officials.
"What will be our possibility with industrial goods to
Switzerland or Norway if they are going to refuse to take our
agricultural goods?" says Amin Sabry Meguid, who represented Egypt
in the EFTA talks as a commercial counselor in the Foreign Trade
Ministry's Commercial Representation Bureau. "We should open our
markets to their electrical appliances if they won't even accept our
potatoes? It's a kind of joke."
The Egyptian officials told EFTA representatives they
should present a common position. EFTA officials say they couldn't
do that.
"The Egyptians would like to have one common front,"
says Rathle, the Swiss commercial counselor in Cairo. "With the
European Union, the Egyptian representatives negotiate with the
European Union representatives, and not with each country. But with
EFTA, it must be a bilateral agreement with each. This is the main
difficulty for the Egyptian parties." Stuck in neutral? A compromise was reached when Egyptian Foreign Trade
Ministry officials visited Geneva in February 2002: Egypt would
negotiate with each of the four members, and the four resulting
agreements would be tacked onto the EFTA pact, which would be
approved as a unit.
But there were other problems. Egypt's agreement with
the EU goes beyond trade matters to offer Egypt broad cooperation in
areas from investment to education and cultural exchanges. EFTA,
with its limited authority, could not offer such added
incentives.
Egyptian officials told EFTA that, if negotiations
proceed, it would expect EFTA to offer tools to promote the export
of Egyptian goods into EFTA countries, agricultural in particular.
And anticipating that lifting barriers to EFTA goods could hurt
Egyptian industry, Egyptian officials also asked EFTA what aid it
could provide to compensate for the potential damage. Sabry Meguid
in particular struck a tough stance.
"Now we are talking about an association agreement with
the EU and a free-trade agreement with the US. Why should we take
less from EFTA than what we got with the association agreement, with
the free trade agreement?" Sabry Meguid says. "It's not just funds.
Either we are talking about being partners or we're not." Rathle,
the Swiss commercial counselor, says all parties now have a "mutual
understanding of the future basis for negotiations." But no date has
been set for those talks, nor is it obvious which side will initiate
the next step. Rathle suspects Switzerland is low on Egypt's
priority list for trade pacts.
"I really can't tell you what are the priorities of the
Egyptian counterparts. I think their priority will be a bilateral
agreement with the United States," Rathle says. "I think that the
Egyptians also are looking a little bit [at] what will come out of
this European Union agreement, and later on they would proceed. So
they are not making difficulties, but they are not really keen on
this until they see."
Egyptian officials counter that it's up to Switzerland
and EFTA to make the next move by proposing incentives. "We are
waiting for the answer from EFTA on some questions regarding the
elements of the agreement," says El-Says Fouad Kassem, first
undersecretary for commercial representation in the Foreign Trade
Ministry and another delegate to previous talks. "It's still under
consideration. We are talking."
Seed money Progress on an Egypt-EFTA deal could turn on personnel
changes. Sabry Meguid was transferred to a position in the Foreign
Trade Ministry's commercial representation office in San Francisco
as of July. If his successor prefers to wait until the EU agreement
takes effect, it could be years before Egypt has a deal with
EFTA.
Meanwhile, there has been progress on aid to
Swiss-Egyptian business ventures. The Swiss government hopes to
start awarding loans for joint ventures by the end of 2002 from the
fund that already holds 20 million Swiss francs (LE 58 million),
Rathle says.
The loans would go to job-creating industries such as
manufacturing, not services. Rathle plans to enlist Swiss banks to
find potential partners for the joint ventures. He hopes to involve
Egyptian banks that will increase the loan capacity to SFR 50
million (LE 145 million). Rathle says CIB has agreed in theory to
participate, as has another Egyptian bank not yet ready to be
identified.
An irony is that even though Switzerland is not in the
EU, EU programs might well boost Egyptian trade with
Switzerland.
The EU's Industrial Modernization Center, which in
January began providing business assistance to Egyptian exporters,
chooses companies based on the type of export, not whether the
target country is an EU member. And because Switzerland borders on
three of Egypt's most important trading partners, France, Germany
and Italy, increased trade with those EU members will have spin-off
benefits vis-à-vis Switzerland, as in the example of an Egyptian
exporter who sells strawberries to a distributor in France who
trucks some of it across the Swiss border. Swiss investment While government-to-government relations are in a
holding pattern, the Swiss business community has maintained a high
level of activity in Egypt. Some 120 Swiss firms operate in Egypt,
and another 600 maintain representative offices, employing an
estimated 8400 people in total.
Most prominent are multinationals that operate
manufacturing operations here such as Nestlé foods, Novartis
pharmaceuticals, and ABB electrical components. Several Swiss banks
and chemical firms operate in Egypt, and imports of industrial
machinery are brisk through local agents.
Among non-Arab states, Switzerland was the
third-largest foreign investor in Egypt after the US and Germany
through 1999. France and the UK edged ahead of Switzerland in 2000
as businesses in those countries took new ownership in Egypt's
telecommunications and transportation sectors and Swiss businesses
maintained the status quo.
Like all foreign-based businesses, Swiss corporations
who manufacture here have seen their profits squeezed by the drop in
value of the Egyptian pound. Pharmaceutical companies face the added
challenge of government limits on price increases. Novartis spelled
out the situation in a recent presentation to the Egyptian Ministry
of Health urging the Egyptian government to raise ceilings that
restrict the price of pharmaceuticals.
Novartis says its business is pressured on one side by
price ceilings which have been in place since 1996 and on the other
by inflation and a worsening foreign-exchange situation when it buys
raw materials from abroad for the drugs it makes in
Egypt.
Representatives recounted Novartis' record of good
corporate citizenship, not only bringing expertise to Egypt through
research and training, but also donating leprosy and fasciola
medication to the Red Crescent and contributing to school
refurbishing projects. Novartis representatives asked the government
to raise the ceilings by 17% effective this year. That would make up
for half of the profitability Novartis has lost due to the drop in
currency value, representatives says, and would add a "minimal" 50
or 60 piasters to the average cost of medication for a
patient.
Chasing high rollers Swiss business interests have branched out into a new
field in Egypt in recent months: investment management for
upper-income Egyptians. The giant bank Credit Suisse partnered with
a US asset manager with experience in Egypt, Concord International
Investment, and in May 2001 opened Swiss Egyptian Portfolio
Management Co. in Garden City.
Swiss Egyptian's niche is providing investment
counseling for "high-wealth individuals" - serving as a broker for
publicly traded Egyptian stocks recommended by Concord, as well as
providing asset-management strategies to help clients maintain and
build their family's wealth over generations.
Egypt's recession might seem like an odd time to come
looking for high-rollers, but Swiss Egyptian Portfolio Management
representatives say that only underscores their long-term optimistic
view of the Egyptian economy. While the company won't divulge how
many clients it has signed up, Managing Director René Müller says
Swiss Egyptian met its first-year goal.
Müller says he sees encouraging signs that Egypt's
economy is turning around. Although 78 of the 100 most traded stocks
on the Cairo and Alexandria Stock Exchange decreased in value in
2001, they fell far less than the previous year, 21 of them only by
single-digit percentages.
If that seems like an overly rosy assessment, Müller
argues that most of Egypt's economic doomsayers are contrasting it
with postindustrial economies in the West and far East. Compare
Egypt to its true peers in the developing world, including Eastern
Europe, and it becomes clear the Egypt is doing better than the
majority in managing debt and increasing productivity, Müller
says.
"The market is quite a difficult one nowadays," Müller
says. "Egypt is still an emerging market. You have your ups and
downs, and obviously we are in the down cycle. We don't know if
we've reached the bottom yet. If you set up a company, you don't
just look at the first year or the second year. You look at the long
term. Eventually, the emerging market will pick
up.bt |
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