Egypt turning towards to China for investment - African Business Magazine
Egypt turning towards to China for investment

Egypt turning towards to China for investment

The presence of Chad and Senegal at the G20 summit in Hangzhou, China, was a given, as the former is the new chair of the African Union and the latter represents the New Partnership for Africa’s Development. South African President Jacob Zuma attended in his own right, the rainbow nation being the lone African member of the G20.

However, Egyptian President Abdel Fattah al-Sisi’s presence as a special guest was remarkable. It provided the fourth meeting between the presidents of Egypt and China in two years.

According to Egypt’s minister of trade and industry, Tarek Kabil, “it showed how important the relationship [between Egypt and China] is because Egypt is among the very few countries China had invited. It also gives a message to the whole world about Egypt’s stability and readiness for economic growth.”

Egypt’s GDP grew by 4% last year, but the IMF has forecast it will shrink to 3.3% in 2016. Kabil, who was in China to attend the G20 trade ministers’ meeting, said the target for 2017 is 5%. It is an ambitious goal that needs different economic drivers.

Europe, traditionally one of Egypt’s biggest investors, still lies in the shadow of the global financial crisis. Tourism, one of the mainstays of the economy, has been hard-hit after the number of western tourists dropped due to terror attacks both at home and abroad and two major air disasters in 2015–16.

So Egypt is now increasingly turning towards the Chinese government, Chinese private investment and Chinese tourists. “We have a target,” said minister of investment Dalia Khorshid on a trip to China in August.

“We want to ensure that Chinese investment ranks among the top five to 10 investors in Egypt. We are working with our Chinese counterparts to ensure additional investment in logistics, ports and industrial and infrastructure development to ensure we have the investment climate to attract more investments.”

China is only the 23rd largest investor in Egypt, with an investment of about $500m. But Chinese investors are showing interest, especially after the One Belt, One Road initiative announced by Chinese President Xi Jinping.

The plan is to revive and expand the ancient maritime silk trade route that connected China with Europe and Africa. It would be buoyed by a land-based economic belt that would boost connectivity among the countries along the route and their economies.

“Egypt is actually in the centre of that plan,” said Kabil. “It is a gateway to the Middle East, Africa and Europe. The Suez Canal is an integral part of that road and around the Suez we are building a corridor, one of the biggest logistic hubs in the world for trading as well as industry.”

Improving infrastructure

The Chinese government is helping Egypt to improve infrastructure, including transport, housing and power projects. Eight such projects are being implemented with Chinese assistance and Kabil said the power deals alone are worth $10bn. The Export-Import Bank of China and the Chinese private sector are also involved in the projects.

The China State Construction Engineering Corporation is building and financing part of the $45bn new administrative and business capital east of Cairo, which is to be completed in five to seven years. Chinese companies have built an industrial park along the Suez corridor and an Egyptian delegation has visited an industrial park in China to learn how they are run.

Kabil said Egypt also wants to learn from China how to develop small and medium-sized enterprises. In 2012, the Jushi Group in China, the world’s largest fibreglass manufacturer, started operating from the China-Egypt Suez Economic and Trade Cooperation Zone with an investment of $223m. It has since invested an additional $190m and is showcased by Egyptian authorities to drive home Egypt’s attractiveness as an investment destination.

“Egypt is not just a market of 90m people but a gateway to a bigger market of 1.6bn, including Arab countries, Europe, part of Africa, and Turkey, with all of whom we have free trade agreements,” Kabil said. “If [the Jushi Group] produce fibreglass in China and export it to Europe, they will have to pay customs duties. But when they export it out of Egypt, the distance is shorter and the goods are free of customs.”

It seems a new trend is starting, attracted by the perks. A Chinese group has signed a memorandum of understanding with the Egyptian government to establish a textiles city in Minya, a city in Upper Egypt.

Chinese garment makers had been relocating to other developing countries like Vietnam, Bangladesh and Ethiopia as land, power and labour costs began to soar at home. Now Egypt could be the new destination of relocating Chinese companies, attracted by the skilled labour available and high-quality raw material.

The Chinese government has repeatedly announced its intention to help African countries fast-track their industrialisation. At the Forum on China–Africa Cooperation (FOCAC) summit in Johannesburg last year, Xi proposed 10 cooperation plans and a $60bn fund for Africa.

This commitment has been given a boost by China assuming the G20 presidency. The 10 goals outlined by Chinese foreign minister Wang Yi on the eve of the Hangzhou summit included a cooperation initiative to support the industrialisation of Africa and least developed countries.

“China will promote G20 member states to conduct cooperation and help these countries to accelerate industrialisation through capacity building, increasing investment, improving infrastructure and other measures, so as to achieve their poverty alleviation and sustainable development goals,” said Wang.

As the first African and Arab country to establish diplomatic ties with China in 1956, Egypt has a special place in China’s diplomacy and is certain to benefit from the FOCAC as well as G20 initiatives.

Growth of tourism

Chinese tourists are also set to play a key role in reviving Egypt’s economy. Magdi Amer, the Egyptian ambassador to China, said in 2015, that the number of Chinese tourists was around 125,000, almost double the figure in 2014.

“This year, we have already achieved 100,000. So we expect to achieve something like 200,000 this year,” said Amer. “This gives you a good idea that the number of tourists from China is increasing every year.”

The start of additional direct flights between China and Egypt has helped Chinese tourists grow in numbers. Besides Egypt Air, which flies to Beijing and southern Chinese city Guangzhou, a new Egyptian airline, Air Leisure, has started operations encouraged by the growth in Chinese visitors. At present it flies from Beijing and Shanghai to Hurghada in Egypt.

Sudeshna Sarkar/Pic: Greg Baker (AFP Photo)

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Written by African Business Magazine

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