Egypt's economy won't escape stagnation unless the nation dramatically increases exports: Political and business leaders could not be more aware of that. So it seemed a little odd that in February leaders were invited to the Cairo International Fairgrounds to learn about the benefits of importing from Spain rather than exporting. But in fact, the ExpoSpain 2002 business exhibition wasn't as tough a sell as the timing might suggest. From biscuits to heavy equipment, the exhibitors had a message customized for cash-strapped Egyptian businesses: Spain is cheaper.

"Spanish products are not so expensive as American, German or Italian products. They're not as high in quality," says Angel Borruel, foreign trade advisor with the Madrid Chamber of Commerce, one of four Spanish chambers that organized the expo in Nasr City. "But in Egypt, they don't need the highest quality at the most expensive price. They need something that works and which is of medium-to-high quality."

While the expo may have caught Egypt in lean times, it showed a confident Spain looking to increase its presence in the Euro-Mediterranean region. Spanish business advocates chose to hold their annual trade fair in Egypt because they want to woo Egyptian customers who previously bought specialized products from other highly industrialized European countries. They also see Egypt as an entry point to attract customers in neighboring Middle Eastern and North African countries.

Moreover, the trade push comes at a time when Spain is asserting itself as a political leader on both sides of the Mediterranean. Spain took over the rotating, six-month presidency of the European Union on 1 January. Meanwhile, Madrid has taken on the task of mending the rift between European and Muslim nations with a EuroMed summit slated for April in the eastern port city of Valencia. And supporters of a Palestinian state are expressing hope that Madrid, which hosted groundbreaking peace talks in 1991, will again exert influence in the Israeli-Palestinian deadlock.

Ascending to regional leadership is part of a natural evolution in the view of Jordi Pujol, the president of Spain's Catalonia region. From the late 1970s until just recently, Spain was inward-looking as it tackled the challenge of transition from an authoritarian government to democracy. The country was then preoccupied with rehabilitating its economy to qualify for membership in the European Union's common currency, the euro, which began circulating on 1 January.

"After this aim was accomplished, Spain made major investments in Latin America. And now we must intensify our presence in Maghreb and the eastern Mediterranean countries," says Pujol. "Spain as a whole, and the government of Catalonia in particular, will do everything possible to help solve the problems of the Mediterranean economies."

Egypt could benefit from studying a country that in many ways will be a counterpart further down the road of economic liberalization. The achievements of Spain are something Egypt should aspire to. Spain, for instance, has managed privatization without increasing unemployment and has built up its infrastructure while incubating a high-tech industry.

"Spain has passed from an autocratic regime to one of complete liberalization and economic development," Egyptian Foreign Trade Minister Youssef Boutros Ghali said in a speech at the opening of the Nasr City event. "We have much to learn from this process, but also from that of Spanish industrialization."

Neglect spurs action

Spanish businesses say they feel left out of Egypt's trade priorities. "Trade between Spain and Egypt is very low compared with the other European countries," says Jaume Almirall, a foreign-trade officer with the Barcelona Chamber of Commerce. "We think we can really be more present in the Egyptian market."

In 2000, about $625 million (LE 2.88 billion) worth of goods moved between the countries, with Egypt importing $393 million (LE 1.8 billion) in goods from Spain and exporting $231 million (LE 1.07 billion). The gap has steadily narrowed since 1998 as Egypt began to boost its exports to the Iberian peninsula.

Egypt primarily buys machinery and electrical supplies from Spain, as well as supplies for the local leather industry such as dyes. Plastics, metal, paper and wood are the next largest categories of imports from Spain, followed by animal fats and ceramics. (Only Italy produces a higher volume of ceramic floor tiles.)

In the other direction, Egypt sells Spain a steadily rising volume of raw materials including fossil fuels, iron, steel, aluminum and untreated leather. Exports of raw cotton have decreased in recent years to $12.74 million (LE 58.8 million) in 2000, but sales of synthetic fiber rose sharply in that time to $10.1 million (LE 46.5 million) the same year. Chemical products flow in both directions.

But Spanish analysts consider their presence in Egypt to be underdeveloped. The level of trade between Egypt and Italy is, by comparison, some 33% higher. Spain is offering itself as a discount alternative in some of the same categories in which Italy excels, such as specialized industrial machinery and leather products.

"Italy is selling a lot here. That's the goal, to take some of the market from Italy," Borruel of the Madrid chamber says. "In quality and prices, Spain is quite dangerous to Italy."

Browsing the booths at the expo, one family of Egyptian importers bought into the value-for-money argument. Omar Ismail and his father Mohammed import decorative supplies including wallpaper, marble and carpets from Italy, England and France through their Cairo business, the Medecor Group. At ExpoSpain, a Spanish wallpaper company caught their attention. "It's less expensive than England, and it's similar in design," Omar says.

Different agendas

Representatives of many of the 50 firms that raised booths at ExpoSpain say they are unsure whether they can win a foothold in the Egyptian marketplace. Some, like brass bolt maker Munne Alsina of Cornella, are looking for local distributors or agents. A number of exhibitors say they would be interested in making Egypt a pass-through point, a base from which they could sell their products to neighboring countries. "Egypt will serve us as a platform for the penetration of other Arab countries," says Nuria Ventimilla, manager of the José Blay, a fan factory in Valencia.

But the Egyptian business community had a different agenda at ExpoSpain. When they accompanied the delegation to a luncheon, domestic business leaders were urging Spanish officials to encourage their business people to invest in Egypt's economy by building facilities and taking ownership stakes in domestic companies.

"If we talk about the potential for increasing Egyptian exports to Spain, I can't name any specific areas. About FDI, foreign direct investment, I will talk wholeheartedly," says Mostafa Waly, general manager of the Federation of Egyptian Industries. "We were trying to convince our friends during their visit that we have the chance and potential for joint ventures in Egypt."

President Hosni Mubarak made a similarly blunt appeal in a speech before the Spanish parliament during a May 2000 visit, saying, "We look forward to welcoming more Spanish investors in Egypt, as may be commensurate with the close cooperation between the two countries in many fields."

Spanish officials, though, were noncommittal. "You can't tell exactly if they're interested. This is a free decision. Nobody can force anybody," Waly notes. But even if Spanish investors don't pour cash into the economy, Waly is optimistic that Egypt can benefit from Spain's intellectual capital. Spanish expertise would be valuable for Egyptian business involved in leather production, cotton spinning and automotive component manufacturing. "FDI or joint venture, it doesn't always mean money. It could be know-how; it could be technical assistance," Waly says.

Egypt is already calling on Spain's expertise in agriculture. In the Fayoum, a Spanish aid program is planting some of Spain's legendary olive trees to spur domestic olive oil production. In 34 villages from Beni Sueif to Luxor, another Spanish project is teaching cow farmers the basics of artificial insemination aimed at dramatically improving animal husbandry. The cow project has also seen 25 Egyptian veterinarians visit Spain for training. "Now in Upper Egypt, Spain is much more known than before. Now they know that Spanish livestock is very good," says project manager Gregorio Velasco. "If some private company can reap benefits from that some day, I will be happy."

Late bloomers

Almirall of the Barcelona chamber believes Spain lags behind some European countries because Spanish companies turned to export activities only in recent decades. Proportionately, fewer Spanish companies are involved in exporting than their German and Italian counterparts.

In fact, many analysts see Spain as being near the bottom of top-tier European nations: Spain's gross domestic product is 20% less as a measure of its population than the average GDP of the four largest Western European economies. Its unemployment is the highest in the European Union, although the rate has decreased steadily under Prime Minister José María Aznar. Aznar also gets good marks for having implemented deregulation and privatization programs. Spain takes pride in not having been left behind in the European Community's move to a shared currency, but analysts say it must continue economic reforms to compete effectively in the Eurozone.

Leaders in the private sector have kept established industries competitive by introducing new technology. The country is becoming a significant producer of consumer electronics, telecommunications products and computers: The Spanish electronics industry was ¤65 billion (LE 260 billion)-strong in 2000, an almost 25% jump over the previous year. The Basque and Catalonia regions have become leaders in the production of valves, pumps and other fluid-handling equipment, and Spain's steel industry is also healthy, with 6 million tons of exports in 2000. Overall, the Spanish economy is growing faster than the European Union average.

Political leadership

At the same time, Spain has reached out as a political facilitator across the region. The 1991 Madrid peace conference rejuvenated Israeli-Palestinian dialogue; Egypt's ambassador to Spain, Hussein Haridi, recently expressed hope that Spain will reassert itself in that crisis by pressuring Israel to recognize Yasser Arafat's legitimacy as Palestine's leader.

Spain has also encouraged pan-Mediterranean understanding through Euro-Mediterranean Cooperation, an organization established at a 1995 conference in Barcelona. Spanish officials say the organization is more important than ever after the 11 September attacks widened the gulf of distrust and misunderstanding between Europe and the Arab world. They hope the upcoming April meeting of the EuroMed group will repair some of the damage.

Taking the same effort further into the future, Catalonia's Pujol announced in February that the Spanish government will launch an "Initiative for Cultural Dialogue in the Mediterranean," presenting the results at an international conference scheduled for 2004.

Predictably, the aftershocks of 11 September have dampened commerce between Egypt and Spain. Spanish airline Iberia previously ran four flights a week from Cairo to Barcelona and Madrid in the winter and up to seven in the summer. After the attack on America, Iberia cut back to two flights a week on a smaller plane. Exporters in both countries saw available cargo space plummet. "This is not business. This is catastrophe," says Tarek Leheta, co-owner of Iberia's local agent, Avia Trans, though he is optimistic that Iberia will add a third weekly flight at the end of this month.

Still, Spain's bond with Egypt has strengthened in the last decade. Under trade agreements between the two countries, Spain waives custom duties on many industrial and agricultural imports from Egypt. The two countries signed pacts in 1991 and 1992 pledging economic cooperation and favorable tariff treatment. A 1997 visit to Egypt by King Juan Carlos I spawned a number of investment and business seminars. Then, in 1998, Spain put its money where its mouth was, offering $310 million (LE 1.4 billion) in grants and loans for public works projects ranging from drinking water plants to new train locomotives.

The Spanish government is also paying to study the feasibility of building a $1.5 billion (LE 7 billion) high-speed train line between Cairo and Alexandria, along with $10 million (LE 46 million) in loans for small tourism industry projects. Underscoring a sense of collaboration, the Barcelona chamber is making room in its headquarters for use by the Egyptian Trade Representation Office starting this month.

Measured criticism

ExpoSpain's official promotional materials praised Egyptian officials for maintaining healthy economic growth and moving toward a fully open market while controlling inflation and the budget deficit. Individual exhibitors and organizers, however, say the country's protectionist policies are scaring away foreign investors.

Alberto Aceña of SOS Cuétara, a Madrid company that makes sweet and salted biscuits and rice, complains about high import duties. So does Miguel García Pérez, logistics director for Waycont Industries, a Barcelona-based cosmetics company. Catalonia's Pujol more subtly suggests that Egypt should follow Spain on the path to free trade, saying, "Spain was a protectionist country, and thus a weak country. Now the new situation has given us new confidence, and we are competitive. We have an open economy. Spain's presence is increasing worldwide -- including Egypt."

Some Spaniards share the perception that Egypt's sluggish bureaucracy is a hindrance to business. Itziar Otero Areia, director of foreign commerce for Agrymin, a maker of specialized mechanical wheels for industrial applications, has an acquaintance who complains that his business is still not considered legally incorporated in Egypt three years after he submitted the paperwork. Tarek Leheta of Avia Trans says Spanish investors are discouraged by news coverage that suggests the court system does not protect businesses' rights.

Mostafa Waly of the Federation of Egyptian Industries says such criticism is exaggerated. "In such issues, we should not generalize. A lot of international companies are working all over the world. You don't hear about many drastic disputes which are not settled," Waly claims, adding that Mubarak and other top officials are personally making the case for foreign direct investment.

"We are a well-established society when it comes to law and order. And the government is trying to implement favorable, attractive laws for investment to minimize the hassles for people getting into business. It's also acting as a really good host," he notes.

Avia Trans' Leheta says Spanish financiers are also wary of the weakness of the Egyptian pound. Spain has invested heavily in Latin America in recent years and lost heavily when Argentina's government defaulted on its debts. Spanish investors don't wanted to get burned twice, but the president of the Barcelona chamber, Antoni Negre, brushed aside that sort of fear.

"Our argument is clear: When you go to a place that happens to be booming, there is so much competition you can't get in," Negre says. "Foreign trade is an effort of every day, every minute, every second. It requires tremendous devotion, but the results are seen in the medium and long term." -bt

Spanish Connection

Some major Spanish companies with offices in Egypt:

Unión Fenosa: The Madrid-based energy company with an office on Cairo's Corniche is at the forefront of Egypt's natural gas industry. Working on what could be a $1.7 billion (LE 7.8 billion) LNG plant near Damietta expected to begin operations in September 2004. Gas would be shipped to Spain for consumption there and in Europe. Técnicas Reunidas, a Madrid firm with a local office in Mohandiseen, is participating in the project.

Dragados Group: The multinational construction and services firm based in Madrid was already substantial before its recent merger with Dutch firm HBG; merged entity has 70,000 employees and sales of ¤10.8 billion (LE 43.4 billion) in 200 and claims to have more infrastructure projects in the works than any other international firm. Based in Zamalek, Dragados's Egyptian arm is bidding for highway construction projects from Cairo to Port Said and to Alexandria/Mazru. Garbage-collection subsidiary Urbaser is looking to reap rewards as collection is privatized: It's Heliopolis office recently won a 15-year, LE 1.05-billion contract for western Cairo and is bidding for similar deals in south Cairo, Giza, Ismailia, Port Said and Aswan.

NECSO: Another Madrid-based construction firm with a local office in Zamalek, but not as big. Ranks in the top 60 international construction firms, with revenues of $2 billion (LE 9.4 billion) in 2000.

SETA: Builder of water treatment plants based in Madrid; its Heliopolis subsidiary specializes in plants for industrial water treatment, sewage treatment and desalination.

Técnicas Reunidas: A major builder of turnkey industrial and power-generation plants and a strong engineering presence in the domestic oil and gas industry. International projects account for more than 80% of the company's turnover. As of mid-2001, TR had secured three Egyptian projects worth in excess of $250 million (LE 1.1 billion).

Hotels and travel: Sol Melia, based in Plama de Majorca, is one of world's 10 largest hotel chains and specializes in "all-inclusive" luxury resorts; one of its newest properties is in Hurghada. Partner Hotels of Madrid has an office in Dokki, while the airline Iberia has an agency in Tahrir Square.

Others: Troll Lighting specializes in outdoor lighting and street lights; its Mohandiseen office lit Cairo's Le Méridien hotel. Grupo Cuñado has a branch in Alexandria's El Ameryia Free Zone, while Agencia EFE has one in Zamalek; both are based in Madrid.

by Dan Bernard

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