Flourishing QIZ

The deteriorating political atmosphere in the Middle East barely affected the voluminous flow of trade between Egypt, the US and Israel. Gamal Essam El-Din uncovers the reasons

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Ricciardone visiting a carpet factory in the 10th of Ramadan City

When the Israeli-Lebanese war flared up in July, many in Egypt pressed for severing economic relations with Israel and imposing "a popular boycott" of American products. Several MPs, mostly of leftist and Islamist backgrounds, described Israel and America as "enemies" that should not be rewarded for their war against Lebanon. Three months later, however, it is obvious that the calls for boycott went unheeded, and in fact an uninterrupted trade boom between Egypt and the US and Israel is evident in the recent nine months.

During a visit to the industrial 10th of Ramadan City on 5 October, US Ambassador to Cairo Francis Ricciardone indicated that the US- brokered Qualified Industrial Zones (QIZ) agreement between Egypt and Israel has dramatically boosted the volume of trade between Egypt and the US. The QIZ agreement was signed in December 2004 to enable Egyptian exports to enter the US market tariff-free, as long as 11.7 per cent of the product's components -- material, dyes, packaging, etc -- are made in Israel.

As a result of the QIZ agreement, over 500 textile companies have registered in 13 QIZs, according to Ricciardone. Out of these, 100 Egyptian textile companies have already begun exporting goods to the US. This caused Egypt's textile exports to the US to rise by more than 30 per cent, from $192 million to $252 million during the first four months of 2006.

The US-Egypt trade boom took place against a political background that was distorted by hostilities between Israel and Lebanon last July. "There is no question that the bad political atmosphere in the Middle East is by no means helpful in creating a better environment for business and trade," said Chairman of Parliament's Economic Affairs Committee Mustafa El-Said. Nonetheless, El-Said continued, the fact that Egypt enjoys a good degree of stability helps business flourish with the US, and even with Israel. "The existing generation of Egyptian businessmen and politicians in the [the ruling] National Democratic Party [NDP] no longer accept that business be governed by politics, even if it involves a war between an Arab country and Israel," he opined.

The committee chairman explained that the ideology of these businessmen and young politicians -- led by the president's son Gamal Mubarak, is that Egypt's economic and business interests should be paramount, even above all Arab considerations. "They say that while Egypt was at war with Israel, none of the Arab countries -- especially the oil-rich Gulf ones -- hesitated in doing business with any other country," noted El-Said. "This rule, they say, should apply now; and no Arab country should blame Egypt for doing business with Israel."

Statistics show that there is an unofficial trade worth $400 million a year between Israel and Arab Gulf countries, which is about two and a half times the volume between Israel and its official Arab peace partners -- Egypt and Jordan -- in 2004.

Contrary to earlier expectations, Israel's onslaught on Lebanon did nothing to stem the current high flow of trade between Egypt and Israel. Although the ministers of tourism, agriculture and oil said at that time that they would freeze relations with Israel, this did not happen. Previous crises in the region did not prevent the two countries concluding hefty deals on natural gas and agricultural products.

Last May, Israel's Export Institute said Israel's exports to Egypt rose sharply in March, as compared to the same month in 2005. Exports jumped by 123.5 per cent to a total of $11.4 million. Israeli figures even show that Egypt's trade with Israel is expected to rise by 130 per cent by the end of 2006 -- largely thanks to the current boom in QIZ deals.

Even more significantly for long-term growth, the textile sector is witnessing fast-increasing foreign investment as a direct result of the QIZ agreement. At the end of his 10th of Ramadan city visit, Ricciardone revealed that he would be leaving for the US to participate in a conference which will include more than 200 American companies. He will address participants at next week's conference in Washington, New York, Los Angeles and Chicago about the unique investment opportunities in Egypt. In his address, Ricciardone promised to highlight the lucrative benefits of joining the QIZ agreement and investing in Egypt.

US statistics show that at the end of 2005, the US was again the top investor in Egypt. US investments of $2 billion accounted for more than half of the $3.8 billion total foreign investment in Egypt in fiscal year 2004/2005.

According to Ministry of Trade and Industry statistics, the volume of trade between Egypt and the US has jumped to more than $5 billion -- with a $1 billion increase in one year. More significantly, statistics show that for the first time in history, the balance of trade between Egypt and the US has registered a surplus of $395 million in favour of Egypt over the last nine months.

US Department of Commerce statistics also confirm the QIZ-driven growth in trade between Egypt and the US. They indicate that the 2004 QIZ agreement made Egypt's exports to the US climb by 57.2 per cent in one year, from $1.32 billion in 2004 to $2.09 billion in 2005. Out of this dramatic increase, 18 per cent is attributable to the QIZ agreement. The same statistics, however, show that the US's exports to Egypt also increased but by a mere 2.1 per cent, from $3.10 billion in 2004 to $3.16 billion in 2005. At the same time, the US's surplus in trade with Egypt dropped by 32.2 per cent.

The QIZ has proven to be so popular that Egyptian businessmen and workers have successfully managed to expand the QIZ tariff-free zones to the whole of Greater Cairo, the Suez Canal cities of Ismailia and Suez, and four Nile Delta provinces. Ricciardone vowed that these zones would eventually include North Sinai.

Altogether the US ambassador was upbeat about US-Egypt trade relations in the future, expecting the two countries to launch serious negotiations of a Free Trade Agreement (FTA) once congressional elections are over in November. "The file of an FTA with Egypt is not closed altogether, and hopes are high that it would be opened following the mid-term congressional elections next month," asserted Ricciardone. Last year, the US Congress strongly objected to concluding an FTA with Egypt, citing Cairo's slow move towards democratisation as the main reason.

On another note, Ricciardone revealed that a number of US nuclear power experts are due to visit Cairo soon, to explore the possibility of establishing a new generation of nuclear power stations in Egypt. During her visit to Egypt last week, US Secretary of State Condoleezza Rice noted America's support for Egypt's nuclear power programme. Cooperation between Egypt and the US in the crucial area of nuclear power could boost business relations to unprecedented heights.