Egypt as a Regional Hub for Value-Added Production, Services, and Export
Executive Summary

AmCham Egypt has been at the forefront of advancing an initiative to promote Egypt as a manufacturing, trade, and services hub, which directly addresses President Obama's concern in his State of the Union address on January 27th urging the nation to aggressively seek new markets and not to sit on the sidelines while its competitors sign trade deals causing job losses in the U.S. President Obama's goal is for U.S. exports to double over the next five years, "an increase that will support two million jobs in America."

With a near $190 billion GDP, growth potential in a large population, and geopolitical position give Egypt a special weight to work with the U.S. as a strong trade partner in a renewed strategic partnership. Egypt can help enhance the U.S. economy's competitiveness. It offers U.S. manufacturers and investors a young and upward mobile dynamic domestic market. It can offer competitive access to other international markets, it can spread demand for American products across the region and beyond, increase American exports by lowering the associated costs, and ultimately create more jobs for U.S. citizens on U.S. soil. For Egypt, the prospect of becoming a hub for clusters of U.S. businesses in the region expands the possibilities for foreign direct investment (FDI), job creation, skills upgrading, technical assistance and the integration of new and clean technologies into Egyptian industry, notably in the area of green transformation—all priorities inline with U.S. economic priorities and foreign policy.   

Egypt is a natural location to be a hub for U.S. business and is a signatory to a range of preferential trade agreements offering tariff advantages otherwise unavailable to U.S. business and enabling rules of origin. The country has an ample, young, skilled and inexpensive labor force. It can boast a strong local market and a stable environment for investment. In addition it is naturally endowed to be a viable source for new and renewable energy. All of these factors make Egypt a sound base to develop business clusters for industries seeking new opportunities; a win-win proposition available to Egyptian and U.S. businesses to grab.
 
Establishing Egypt as a hub will require focusing on industries with the greatest appeals to foreign investments such as: agro-food, paper, marble, electronic, furniture and automotive industries. These industries have demonstrated great potential for exponential growth. While some major firms have already seized the opportunity to establish Egypt as an operational hub for production, export, and business services, significant untapped potential remains for other investors. AmCham Egypt seeks to encourage U.S. businesses to benefit from these opportunities and consider joint partnerships in Egypt in a range of sectors.

Sector Opportunities
Main Sectors
From a brief review of the various sectors active in AmCham Egypt's Industry & Trade committee, American companies that already benefit from using Egypt as a hub include the automotive, agro-food, paper, marble, training and services centers, green energy technology production, and transportation industries. Note: A further, in-depth study to identify all potential sectors that could make use of Egypt's trade agreements is required at this point.
Agro-food industry
As a result of its partnership with the EU, Egypt faces low or no duties on its agricultural exports. The U.S. agro-industry can benefit from the arrangements; U.S. food processing activity can open export channels by direct investment in Egypt and/or joint ventures in the country. In this context, QIZ has untapped potential in enticing trilateral co-operation between Egypt, U.S. and Israel to capture the EU and other neighboring markets in the food industry.

Value-added marble production
With U.S. technology and expertise, Egypt can add value to its marble industry as it is presently concentrated on raw material export. Joint ventures between Egyptian manufacturers and U.S. firms will enable Egypt and the U.S. to capture a significant share of the value-added stone export market. It is evident that the stone business in Egypt has potential to be a viable product for the U.S. to swap Turkish, Italian and even Chinese marble production with Egyptian competitive and price-worthy marble.

Training centers and support services
American institutions taking part in this project stand to gain significant monetary rewards as well as help Arab and African developing countries to upgrade training and improve the technical qualifications of the labour force, which was one of President Obama's policy priorities as outlined in his address the Arab world from Cairo. Moreover, the political dividends of such an investment cannot be understated as education, training and employment are critical to combating the social marginalization that can lead to extremism.

Green energy technology production and export
Alongside investment in new and renewable energy, there are a myriad of opportunities for American producers of clean energy goods to invest in the Egyptian market. There is potential for U.S. wind turbine producers, for example, to set up factories in Egypt manufacturing turbine towers and blade facilities for the local market, with a view to eventually exporting these products regionally and to Europe.  

In conclusion, to benefit from these and other untapped opportunities, it is imperative to increase awareness on each side of the potential and real prospects. To that end, the right institutional frameworks and regulatory co-operation have to be put in place through establishing the right venues of dialogue. AmCham Egypt together with the U.S. Chamber of Commerce can become focal points in the two countries for the effective realization of the opportunities that avail themselves within the new strategic partnership.

Case Studies
Heinz
Heinz, which currently exports ketchup from Egypt duty free to the EU. If based only in the US, Heinz would face 14.5% EU tariffs on ketchup. By investing in production facilities in Egypt, Heinz has expanded its market access regionally, thereby increasing its revenues and global market share.

General Motors and Federal Moghul
Federal Mogul produces engine bearings for the global automotive market. Federal Mogul spare parts continue to be manufactured in the United States, the engines are then assembled in Europe, then imported by Egypt and the final automobile is constructed in the General Motors factories for the local and regional markets. GM Egypt is the largest auto production hub in the MENA region and second to South Africa across on the African continent. 

Coca-Cola
Coca-Cola Egypt was the first company to export its goods from the Free Zone area, zones designated by the Egyptian government that offers tax incentives and duty-free exports. The company manufactures 24 different brands from the free zone and exports to 38 countries. The Cairo office oversees a portfolio of 27 countries covering North and West Africa. Coca-Cola Egypt uses 85-88% local content, yet continues to import its corn for the corn syrup in Coke, which it buys from the U.S., and later exports to the region under the various trade agreements.

Johnson & Johnson
Johnson & Johnson (J&J) Egypt manufactures, markets, imports, exports, and distributes Baby and Adult toiletries, Skin Care, Personal healthcare, and Dental products throughout the Middle East and North Africa region and oversees operations in Egypt, Syria, Libya, Sudan, and the Horn of Africa out of the Cairo office. J&J Egypt has grown due to developing and partnering different distribution channels in Libya, Syria, Sudan, and the Horn of Africa helping to substantially grow each market. Today, Egypt is the regional headquarters and operates the only manufacturing plant in the MENA region. Egypt’s geographic location is ideal for exporting to multiple markets, especially under PAFTA where Egyptian exports are exempt from paying duties to other MENA and Gulf countries.

Kraft Foods
Kraft Foods Egypt is a local producer, importer, distributor, and exporter of a wide range of food products including biscuits, cakes, condiments, beverages, cheese and chocolate finished goods. Kraft Foods Egypt Trading imports Kraft cheese products, Toblerone, Milka bars, Maxwell House and Jacobs coffee. It then exports from Egypt various cakes and biscuits to 10 other Arab countries, predominantly to Yemen, Iraq, and Sudan, under the PAFTA agreement making use of the zero tariffs on exported goods.

Proctor and Gamble (P&G)
P&G is the largest exporter of packaged goods, including diapers, detergents, and bar soap to 34 countries in the Middle East, Africa and Europe. P&G Egypt is one of the leading exporters in Egypt following other major industries such as rice, textiles, and oil. By the end of fiscal year 2007/2008, P&G Egypt exported nearly $150 million in goods. In 2000, P&G’s 6th of October factory became the largest production site for Ariel throughout the Middle East. P&G furthermore established its 3rd largest diaper plant in Egypt due to its low-cost and geographic location. P&G uses 30-40% of its raw materials from the Egyptian market and imports several raw and intermediate materials from the United States.

U.S. Water Pumps
Egypt imports water pumps from the U.S.; they are then assembled in workshops using an Egyptian motor and base plate and later re-exported. The value-added through assembly and the use of certain Egyptian parts meets the 40% requirement necessary for U.S. manufacturers to export duty-free throughout COMESA and GAFTA countries. This value-added process increases U.S. export competitiveness enabling the expansion of the U.S. company without costing U.S. jobs since the bulk of production remains in the U.S.