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Browse BTe Archive |
Archive: 2002 > July > Country
ProfilePartners In Tech? writer: Dan Bernard photographer: Mohsen Allam, Omar Mohsen
Massive undertakings like the Suez Canal and the Metro
are symbols of France's historic involvement in Egypt, but the
future of French investment here could be represented by a project
so small it can't be seen with the naked eye.
In Heliopolis, a French company's Egyptian engineers
are driving the evolution of the microchip to the next level. The
chips being developed at MEMScAP Egypt don't just pass electronic
impulses like normal microchips. They hold tiny moving parts that
give the chips superior efficiency and functioning - itty-bitty
switches, pumps, gears and mirrors smaller than a hair's width that
rotate to direct laser beams between fiber-optic
lines.
This month, MEMScAP and its Egyptian subsidiary are
awaiting confirmation that a French multinational cosmetics company
will purchase one of the innovations nurtured in the Heliopolis lab.
Dermatologists currently use their eyes and field experience to
gauge patients' skin condition, but MEMScAP's "skin station" uses
the technology of MEMS (micro-electronic mechanical systems) to
provide precise measurements. As a handheld probe is set on the
patient's body, a microchip with a tiny membrane measures the skin's
elasticity, while other chips with built-in sensors measure water
content, acidity and temperature. If the multi-million-dollar
contract is signed, the skin station will be assembled and refined
in Egypt.
The work in Heliopolis is not only on the verge of
providing a big payback for the French parent company: It also
illustrates that while some French businesses continue to pursue
their traditional strengths in Egypt like large-scale power and
transportation projects, others are seeding a new high-tech
industry.
Why did a hotshot tech firm from France come to Egypt
to build a machine that it will sell back to France? Because it
needed skilled technicians - and fast. "For a startup that wants to
move aggressively and hire tens of qualified engineers, you cannot
do that in a reasonable timeframe in France, or if you wanted to do
that in France in a reasonable timeframe, you'd have to pay them a
lot," says Hisham Haddara, president of MEMScAP Egypt.
"Egypt is not perceived as a high-tech country. But you
can hire and recruit in Egypt high-caliber, top-notch engineers,"
says Haddara, who is also an electronics professor at Ain Shams
University. "You have to train them, for sure, because they are not
experienced. But if you train them, they will do the job, and they
will do it for one-fourth the cost of an engineer in Europe." A
starting engineer in Egypt generally earns LE 2500 per month, while
in France the same worker could command a monthly salary of LE
10,000. Not to mention that a similar operation would require annual
overhead costs of €90,000 in Europe (about LE 390,000) and as much
as €150,000 in the US (LE 645,000) but only €30,000 in Egypt (LE
130,000). Global launching pad The same economy of location is yielding benefits at
the Dokki headquarters of Alcatel, the French telecommunications
network company that built much of Egypt's modern phone
infrastructure.
Alcatel's high-profile work in Egypt includes its
€40-million (LE 172-million) project to extend MobiNil's wireless
telephone coverage, as well as the €300 million contract (LE 1.3
billion) finalized with the Egyptian government in June to add 1.5
million fixed telephone lines in Alexandria and the Delta over the
next five years. Less obvious is that in recent years, Alcatel has
been building a base of telecom network expertise in Cairo whose
activities now span 28 countries.
Alcatel opened its International Service and Software
Center (ISSC) in 1998 for the original purpose of training Egyptian
engineers for work in Egypt. "We realized that our engineers were so
good that we would have an advantage in utilizing them in a lot of
other countries," says Vincenzo Nesci, Alcatel's vice president for
the Middle East. Now the ISSC in Dokki is a base for 100 Egyptian
engineers who travel to client sites in Europe, Africa, the Middle
East and Asia. Alcatel customers send their engineers here to be
trained on cutting-edge equipment.
Recently, Alcatel trainers gave a tour of the ISSC's
mock mobile phone center while trainees from Kenya took a lunch
break. Two microwave transmitter boxes pointed at each other,
pretending they were kilometers apart. Metal cabinets' open doors
revealed stacks of black circuitboards, their green diodes
flickering to communicate the status of the dummy network. One of
the machines, a multisocket functional server (MFS), is an engine
for wireless websurfing via mobile phones, laptops or PDAs. The
server overcomes the usual sluggishness of dialing into the internet
by converting data to "packets" and passing them at a clip of 140
kilobytes per second - breakneck speed compared to the 9.6 kbps of
the typical mobile phone. The MFS server is not in use in Egypt yet,
but Alcatel's clients come to Egypt to learn how to use it.
Alcatel has even more discreetly got into the business
of developing software in Egypt for export, albeit on an embryonic
scale. The ISSC has developed software for its engineers to use when
they travel to assess the performance of telecom networks: Since
last year, engineers have hit the road with Alcatel's proprietary
"Smart" programs in their laptops.
Nesci hopes Alcatel will help make such high-tech
products into a serious export enterprise for Egypt in coming years.
Under a separate program inaugurated last year, Cairo University
students come to the ISSC to design software as graduation projects.
Alcatel's pact signed with the Egyptian government last month
encourages those programs and envisions Alcatel helping establish
software training and development centers around the
country. Importing skills While increasing exports is the mantra for those trying
to steer Egypt out of economic stagnation, importing skills into the
Egyptian workforce is a common feature of recent French-Egyptian
business activity. And it goes to the heart of what Egyptian
government leaders say is their number-one concern, at least as
French officials interpret it: empowering Egyptians to attain a
better standard of living. That goal is more important to the top
layer of Egyptian government than any political issue facing Egypt,
says Hervé Piquet, economic and commercial counselor at the French
embassy.
"The message is clear: The first priority for the
Egyptian government is economic and social. What they're looking for
is the possibility of training for young people and the means to
raise the level of life to global standards," Piquet says. "It's a
very big challenge with the crush of demographics. Each 23.5
seconds, you have a newborn Egyptian. That means that each year you
have half a million young Egyptians coming into the labor market,
and it's unable to deal with that."
Training is a standout feature of French-Egyptian
business activity even in traditional areas such as oil and gas
exploration.
As Egypt taps liquefied natural gas (LNG), a powerful
magnet for foreign currency, Spain is its first partner. Unión
Fenosa of Madrid is spending $1 billion (LE 4.6 billion) to build
Egypt's first plant for liquefying natural gas in Damietta,
scheduled for operation in late 2004.
But Egypt's subsequent deal with France is more
wide-ranging. Under a memorandum of understanding signed last
November with the Egyptian Ministry of Petroleum, state-owned Gaz de
France (GdF) agreed in concept to finance the construction of a new
LNG production plant and to explore for additional natural gas
reserves in the Mediterranean offshore. The locations are under
discussion. (For more on GdF and Egypt's petroleum industry in
general, see this month's Sector Survey, beginning page
73.) Going underground Big projects in Egypt are nothing new for the French.
The Suez Canal was built because Napoleon ordered his engineers to
design it in 1800 and French diplomat Ferdinand de Lesseps persuaded
Egypt to let him oversee the work starting in 1859. In the modern
era, the French government bankrolled the creation of the Metro,
Cairo's urban railway system. The first line of the underground
opened in September 1987 with a handshake between President Hosni
Mubarak and Jacques Chirac, then France's prime minister, now its
president.
Although Japan's Mitsubishi won the contract for the
second Metro line from Giza to Shubra, the French conglomerate
behind the original Helwan-El Marg line has built up a major
presence in Egypt in the intervening years.
Alstom leads the Interinfra consortium that includes
Alcatel and the Vinci Group. Local subsidiary Alstom Egypt employs
nearly 360 Egyptians at its Maadi office, handling power and
transportation projects that generate LE 60 million worth in work
locally and stimulate another €150 million (LE 646 million) in work
for Alstom's foreign properties.
The Metro remains a big source of business. Alstom is
currently rehabilitating cars and signals on Line 1 by virtue of an
€48 million (LE 206 million) low-interest loan from France to Egypt.
The French firm will work on an extension of Line 2 that will add 2
km to the Giza end by late 2004. But the big prize is the
much-heralded Line 3, proposed to extend from central Cairo to
Heliopolis and the airport with a loop around the Nasr City
fairgrounds. Contracts are expected to be awarded next year for the
first section, stretching from Abbassiya to Imbaba. It would be
worth no less than half a billion euros (LE 2.1 billion).
Alstom is hungry for contracts to supply the train cars
and install systems such as signals and power supply, says Alstom
Egypt President Gregor Stinner. Siemens of Germany is expected to
compete aggressively for the systems. Mitsubishi will gun for the
trains; so might Canada's Bombardier. The French bidders will play
up their past experience, but the competition will come down to
price.
Egyptians are more conscious of the need to upgrade the
country's long-distance trains since the 20 February Al-Ayyat
disaster, in which 364 people died and 64 were injured in a fire on
a crowded second-class train. France's own inter-urban railway, the
SNCF, is looking into whether it can at least help Egypt put
together a feasibility study for upgrades, says French economic
counselor Piquet. (For more on plans to rehabilitate Egypt's
National Railway Authority after the Ayyat disaster, see "Runaway
Train," April 2002, page 46.)
In air transport, JV Aeroport de Paris will upgrade the
Luxor Airport under a build, operate and transfer (BOT) deal, and
the French government plans to offer low-interest loans for the
development of an aviation school in
Imbaba. Autos and the EU French carmakers are striving to keep their brands
recognizable on Egypt's roadways even as Egyptians find less money
to buy new cars. Citröen and Peugeot have some cars assembled
domestically to avoid steep import tariffs, but most of their
locally sold cars are imported whole, as are all of
Renault's.
Peugeot literally set off fireworks when it launched
its new model at the new Marriott in Qatameya in late May: The
imported 307 sedan is distinguished by its big windows and interior.
Peugeot's local partner is Wagih Abaza.
Renault suffered an image problem with the Egyptian
car-buying public in recent years because its after-sales service
was lacking and spare parts were scarce. But Renault tackled those
problems and increased its sales in 2001, according to French trade
officials. Renaults are distributed in Egypt by Mohammed Nosseir, a
partner in Vodafone Egypt and Giza Systems computers, among other
ventures.
Citröen is also working to upgrade its image among
Egyptian consumers. Citröen dropped the JAC Group as its local
partner two years ago. Now local assembly is handled by Mohammed
Sabat, also known as the developer of Qatameya Heights, while Azz el
Arab handles distribution. Like Peugeot, Citröen's local assembly is
at the partially government-owned AAV factory. But one of the
pillars of those operations is shaky. Foreign automakers have an
incentive to assemble cars in Egypt to avoid steep tariffs that
apply to importing whole vehicles. Those tariffs would be phased out
over 15 years under the Egypt-European Union Association Agreement
awaiting approval in the People's Assembly.
As Egypt moves toward a tariff-free zone with the EU
starting in 2005, Egyptian auto-parts suppliers hope that carmakers
from the far East will increase local assembly in order to sell to
Europe tariff-free. But the incentive for European firms to assemble
here would be gone. In fact, an imported car fully assembled in a
foreign country will likely be less expensive than the same model
imported in parts and assembled locally.
With that concern in mind, Egypt appealed to the EU to
postpone the tariff removal until 2009. European officials now
speculate that Egypt will seek a second such delay until 2012 or
2013. Selling the fruit The EU will aid Egyptian exports of fruit and
vegetables, and local business promoters are already targeting
France. Egyptian produce has sufficient quality, but the competition
is intense. European neighbors have stronger reputations, while
North African nations Morocco, Algeria and Tunisia are nearer, have
historical ties to France and speak the lingua
franca.
On top of that, Europeans can be picky. Egyptian
wholesalers learned that in 2000 in Rungis, a French hotspot for the
agrifood trade. Some of the Egyptian produce was in packaging
materials that fell below European standards, and the price was a
bit high, according to the Club d'Affaires Franco-Egyptien (CAFÉ), a
bilateral business chamber based in Cairo. The Egyptians were
displaced by European and North African rivals and are still trying
to regain lost ground, as was evident when CAFÉ officials recently
called French buyers to schedule meetings during an upcoming visit
by Egyptian sellers.
"From the French side, they are very hard to convince,"
says Estelle Gillot, CAFÉ's chief of mission for enterprise service
support. "We say we have Egyptian companies that produce very good
products. With French companies, what we now see is that they are
very reluctant with the Egyptian products."
Enhancing Egyptians' marketing acumen is the aim of
existing programs backed by USAID and the EU. CAFÉ plans to assist
that goal by year's end by offering courses for export directors.
The customary complaint Recent reports that the Egyptian government is
streamlining the Customs Authority were well-received by trade
promoters. When observers describe the obstacles preventing greater
French-Egyptian trade, the sluggish customs bureaucracy is the most
commonly cited problem. Everyone has a horror story to recount. Some
are big. Alcatel's Nesci says several major projects for Telecom
Egypt and MobiNil were halted between December and April because a
shipment of telecoms equipment was stuck in customs in a rate
dispute. Others are little: A French firm that makes small
components for circuitbreakers in a Cairo industrial city wants to
export them a dozen in a box, but Customs says the firm must print
its name on each of the parts; embassy officials were negotiating
with the Customs Authority as of June.
Still, French officials feel Egyptian leaders
understand the urgency for reform. Commercial counselor Piquet
pointed to a plan under consideration by Minister of Foreign Trade
Youssef Boutros-Ghalli that would entice investors by promoting
Egypt as a staging ground where goods can be imported, value added,
then re-exported.
"As I say to my Egyptian friends, if you want to
seduire a woman, you have to make an effort," Piquet says. "Egypt
needs to have a clear legal framework, a global environment that's
very friendly for investors, and incentives. The competition is
great now, and Egypt has to prove that it is a country as much
attractive as its neighbor. So what Egypt has to do is to revamp -
to revamp its image and to revamp its capacity."
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