Egypt

The Agreement of 15 May 1992 and the Protocol to it of 5 November 1993 were ratified in Russia in December 1993. The Egyptian parliament ratified them on 10 April 1994, and this is the date the Agreement is considered to have come into force.

Trade turnover with Egypt is characterised by the following figures (in million dollars), whereby the trade turnover for the first six months of 1998 exceeded the same figure for 1997 by 13%.

On 9 November 1994, a new intergovernmental Agreement on Economic and Technical Cooperation between Russia and Egypt was signed, which contains a list of spheres and objects of cooperation, particularly in industry, power engineering and irrigation.

In addition to the Agreement on Economic and Technical Cooperation, an Agreement on the Settlement of Mutual Debts between the former Soviet Union and Egypt was signed in 1994 during a visit by aRussian Vice-Premier to Egypt. The signing of this agreement on 10 November 1994 was preceded by a series of bilateral negotiations which had been going on since 1992. The settlement scheme included state loans previously granted to Egypt by the Soviet Union, as well as Russia’s debts to Egypt through clearing. The signed Agreement made it possible to reach a final solution to a problem which for many years had hindered the development of bilateral economic and trade relations.

After 1994, the competent departments of both countries made a painstaking effort to further develop the contractual and legal base of mutual economic relations, which was successfully finalised at the first meeting of the Joint Russian-Egyptian Commission on Trade, Economic, Scientific and Technical Cooperation held in Moscow on 18-22 September 1997.

During the work of the Joint Commission, several memorandums on cooperation between Russian and Egyptian companies and organisations were also signed, as well as an Agreement on Cooperation between the Moscow Region Chamber of Industry and Commerce and the Alexandria Chamber of Industry and Commerce.

A meeting of the Joint Commission was held on the eve of an official visit to Russia by Egyptian President Mubarak, during the course of which intergovernmental agreements were signed on scientific and technical cooperation, encouragement and mutual protection of investments, cooperation in sea transportation, and avoiding double taxation.

Many questions regarding the financing of foreign trade were resolved thanks to the establishment by the Russian Mezhkombank of correspondent relations with seven Egyptian banks, including National, Cairo, Egyptian-English and Mysr. The agreements on mutual recognition of guarantees signed by Mezhkombank enable it to issue guarantees through the above-mentioned Egyptian banks for participation in bids (Bid Bond) and for reliable contract performance (Performance Bond), which do not need the recognition of first-class banks from third countries.

At the end of 1997, consultations between Russian and Egyptian experts were held in Cairo regarding anti-dumping investigations in Egypt with respect to Russian manufacturers of reinforcing bar steel. In March 1998, this investigation, which was a serious hindrance to the development of bilateral trade, was discontinued.

In 1998, negotiations were stepped up on the opening of a direct navigation line between Russia and Egypt using "river-sea" boats, which would make it possible to involve the ports of the Volga-Don water system and the Caspian Basin in transportation operations. The Egyptian Engitrans Company and the Administration of the Nizhny Novgorod Region participated in these negotiations. In 1999, there are plans to complete feasibility studies for freight flows through this navigation line, choosing the optimal site for a river terminal based on the Nizhny Novgorod river port, and looking for a Russian transportation company as partner for the Egyptian company.

Significant progress was achieved in 1998 in negotiations between the Russian Ingosstrakh insurance company and an Egyptian company for guaranteeing export credits and the signing of an agreement on guarantees against commercial risks in foreign trade transactions.

At the beginning of 1999, the Egyptian side studied the draft of a long-term trade, economic, industrial, scientific and technical cooperation development programme, as well as founding documents on the creation of a Russian-Egyptian Council of Business Cooperation.

In 1998, two Egyptian companies were founded in Egypt which entered into negotiations with Russian companies for the formation of joint marketing companies to sell industrial and agricultural products on the markets of Russia, Egypt and third countries, as is set forth in the memorandums of intent signed at the first meeting of the Joint Commission held in Moscow.

Trade. Until the end of the 1980s, Egypt was one of the Soviet Union's largest trade partners among the developing countries. The most important Soviet exports to Egypt were machinery and equipment, which accounted for up to 50% of their cost, as well as dressed timber, cellulose, plywood, cardboard, newsprint and bag paper, chemical fertilisers, coal, pig iron, frozen fish and other goods. Imports mainly consisted of cotton, cotton yarn, fabrics, natural ether oils, perfume and cosmetics, citrus fruit, clothing, household chemicals, and furniture.

Trade was carried out both on the basis of intergovernmental protocols on trade turnover and barter deals, which made it possible to promote Russian machinery and equipment onto the Egyptian market against reciprocal purchases of consumer goods and raw material for their manufacture.

In 1991-93, trade with Egypt drastically decreased.

Due to the collapse in the Soviet Union, most Black Sea ports, to which shipments from Egypt used to be sent, ended up on Ukrainian territory, due to which transportation expenses in Russian-Egyptian trade rose, as well as the degree of risk in shipment safety. The decrease in trade turnover is also explained by transfer of trade payments from clearing to freely convertible currency, resources of which are limited in the government organisations of both countries.

The exporters of Russian machinery and equipment to the defence ministry, their largest Egyptian importer, were forced to place deliveries on a barter basis or with partial payment of goods and services being made with Egyptian goods.

Interest in developing cooperation with Egypt is being shown by many regions of Russia, including Moscow, the Moscow, Nizhny Novgorod and Omsk regions, the Altai and Kransoyarsk territories, the republics of Chuvashia and Tatarstan. Their enterprises frequently participate in the international Cairo fair held every year, as well as in the many specialised exhibitions and fairs held in Egypt.

The increase in Russian exports to Egypt after 1993 was accompanied by certain shifts in its pattern. However, its main distinguishing feature of the past few years, the large percentage of machinery and equipment, remained unchanged thanks to the active work on the Egyptian market by Russian suppliers of machinery and equipment (33.4% in 1997).

Aviation technology forms the basis of Russian export of machinery and equipment to Egypt: helicopters from the Kazan plant, radio-navigational and radio-location equipment.

There is an interest in TU-204-120 airplanes, installation of the PB-211-535 engines in which by the British Rolls Royce Company and of American Avionics is financed by well-known Egyptian businessman I. Kamel. On 2 November 1998, a presentation of the first two airplanes made by the Aviastar Amalgamation as ordered by the Egyptian Kato Aromatic Company was held in Cairo. They will be used in airliners linking Egypt with the African states, and subsequently with Asia and Europe, as TU-204-120s are certified in these countries.

VAZ cars are popular, and they can be found in the most remote corners of Egypt. Russian lorries, particularly Ural and Kamaz, are also highly respected. In 1997, deliveries of passenger cars and lorries to Egypt amounted to US million.

Large batches of Russian road-building machinery and Ural motorcycles are also exported.

As for Russian export of raw materials and semi-finished products to Egypt, the leader among this group of exports are semi-finished products made of iron and steel, slabs and blooms, which are rolled in Egypt into finished products. According to Russian customs statistics, 479,000 tons amounting to US million were shipped in 1997, or 55% of Egypt's import demands.

The percentage of Russian products in covering Egypt's import demands for dressed timber and paper pulp products is also extremely high. Plywood (excluding plywood made from coniferous and tropical trees) amounted to 42.9% of imports in value terms in 1998, and newsprint in rolls amounted to 49.2%. The percentage of deliveries of coniferous timber from Russia equaled 16.1% of Egypt's import costs for this product, whereas in fact the percentage of Russian deliveries of lumber in Egypt's total imports was much higher since a large portion is supplied through joint ventures or West European companies. The export to Egypt of vinyl chloride polymers in original form has significantly increased, reaching 23,700 tons for US million in 1997, as a result of which the percentage of Russian products in imports increased to 15%.

Russian companies import consumer goods from Egypt, primarily foodstuffs. Oranges, the purchase of which amounted to US million in 1997, account for approximately 20% of Egyptian exports. It is also possible to find Egyptian rice, onions, garlic, macaroni, instant soups and bouillons, and red carcade tea in Russian stores. Consumer goods imported from Egypt include medication, razor blades, perfume and cosmetics, furniture, sewing accessories, and knitwear. Deliveries of these and other Egyptian products to Russia are small, since Egyptian exporters have still been unable to adapt to the new working conditions on the Russian market.

In September 1998, like a year ago, an Egyptian Week was held in Moscow at the International Trade Centre with the participation of the largest Egyptian exporters who are new to the Russian market: the Bella Donna Company (knitwear), Nounou Bros. (cotton fabrics and garments), Nefertary Cosmetics (creams, shampoo, lotions) and others. Clothing, furniture, fabrics, perfumes and cosmetics, pharmaceutical products and foodstuffs were on display. Egyptian businessmen from the Mamso Company, which exports agricultural products to the CIS, participated in the Nizhny Novgorod Fair in 1998.

There is a Russian section in the Federation of Egyptian Chambers of Industry and Commerce, the members of which have business contacts with Russia. The section regularly holds meetings on questions of cooperation with our country. Its chairman or deputy are taking part in major trade negotiations and exhibitions of Egyptian products in Russia. The section participates in drawing up proposals for the intergovernmental commission.

Economic and technical cooperation. Since 1958, 97 industrial, power and agricultural facilities have been built in Egypt within the framework of intergovernmental agreements. The largest of them is the Aswan Hydroelectric Power Plant. With assistance from the Soviet Union, the production of aluminum, metal-cutting lathes, cold-rolled steel sheets, coke, and lubricants was organised in Egypt for the first time. Output capacities in power engineering, ferrous metallurgy, and the oil-refining, metal-working and shipbuilding industries have been significantly expanded.

Until the mid-1970s, Soviet organisations operated actively on the Egyptian major construction market: 97 major facilities were built and put into operation, which form the basis of Egypt's economy today. Since the mid-1970s, Soviet and, since 1991, Russian organisations have lost many of the positions they previously conquered on the Egyptian construction market, which have been taken by companies from other countries.

The representative offices of more than 30 Russian entities are seeking to find a place on the Egyptian investment market. Every year, Russian organisations take part in 20 to 25 international bids, in particular, for the reconstruction of the Helwan Metal Combine and Byproduct Coke Plant, for modernising the Aswan Hydroelectric Power Plant, for constructing irrigation facilities, and for delivering equipment, materials and technology for facilities previously built with Soviet assistance.

In 1997, the export of Russian machinery and equipment to Egypt under economic cooperation agreements amounted to US million. This mainly consisted of spare parts and replacement equipment supplied for facilities previously built with the technical assistance of the Soviet Union.

During the first half of 1998, as many as 70 Russian specialists were involved in reconstructing workshops and modernising the main technological equipment of the Helwan Metal Combine and replacing coke oven battery No. 1 at the Helwan Byproduct Coke Plant; the representation offices of Russian associations took part in 19 tendersfor US million, and 8 bids were won for a sum of more than US million.

Tyazhpromexport, which took part in the tenderto replace coke-oven battery No. 2 at the Helwan coke plant and in the bid to repair the blast furnace at the Helwan Metal Combine, is playing an active part on the Egyptian major construction market.

Cooperation between Russia and Egypt is based on an Agreement on Economic and Technical Cooperation signed in November 1994, which included 35 fields in energy supply and the construction of facilities using renewable forms of engergy, hydroelectric power plants, transmission lines, transformer substations, the peaceful use of nuclear energy, deliveries of spare parts and others.

The development of broad Russian-Egyptian cooperation in traditional power engineering is hindered by the lack of the state financial support of previous years and centralised deliveries of basic technological equipment. In "non-traditional" power engineering, despite the state-of-the-art solutions at the disposal of Russian companies, there are no facilities operating for three years, as Egyptian legislation requires. The lack of experience of Russian organisations in participating in international tenders is also taking its toll, which results in them losing bids to western competitors.

Russian companies on the Egyptian major construction market must be ready for the fact that an increasing number of projects will be realised with the granting of foreign credit or BOT systems and its various modifications.

The Egyptian machinery and equipment market. The import by Egypt of machinery, equipment and transportat vehicles essentially encompasses the entire range of products presented in sections 84-90 of the Uiniform Commodity List. The list of products in the above-mentioned sections imported into the country in 1997 exceeded 17,000 items. Their total sum amounted to US billion, or 30% of Egypt's import volume.

The import of machinery and equipment encompasses products intended for directly meeting import demands for equipment, as well as products which, along with the purchased licenses, know-how, and patents, are used for setting up both domestic and joint enterprises. In so doing, such enterprises are encouraged by tariff regulation methods and tax breaks, particularly during the first years a venture is in operation. While protecting its own manufacturers, Egypt continues to maintain high import customs duties on several items. The market price of imported passenger cars into Egypt, regardless of the engine volume, can reach 300% of the c.i.f. contract price. This increase in price includes both high customs duties and high sales tax. Recently, under constant pressure from the World Trade Organisation, Egypt has been lowering the level of tariff and non-tariff restrictions and barriers.

Another specific feature of the Egyptian market is that purchases are carried out on the basis of tenders, in keeping with which the exporter must submit Bid Bonds by way of guarantee of his participation in these tenders. In so doing, the guarantees must be issued by an Egyptian bank. In order to do this, potential exporters must "freeze" their funds in the Egyptian bank for the entire time the bids are being reviewed. Frequently exporters encounter delays in the return of these funds even after the bids are over and contracts signed, due to certain special features of tender procedure. Similar difficulties arise for exporters during the return of money paid under a signed contract as guarantee of reliable contract performance, the so-called Performance Bond.

Therefore, as a rule, any transactions on the Egyptian market are carried out through agents, who, in addition to finding clients and buyers, help to overcome many organisational and financial difficulties associated with participating in bids. The practice of working through agents is supported by legislation, pursuant to which participation by foreign companies in announced tenders should be carried out through registered Egyptian agents. But even in the case of direct purchases (without inviting a tender), Egyptian clients are interested in dealing with agents, with whose help it is easier to resolve questions of warranty servicing and the delivery of spare parts. This is particularly important when buying complex equipment. Of course, there are Egyptian customers who, in order to relieve exporters of agency costs, try to establish direct relations with Russian manufacturers. However, this usually takes place when buying small batches of machinery and equipment and, as a rule, does not yield a positive result.

Introduction of Russian machinery and equipment onto the Egyptian market is carried out under conditions of tough competition with companies from industrialised countries. Russia feels the pinch of competition from CIS companies (Belorussia and Ukraine), the equipment of which traditionally, since as early as Soviet times, has been performing well on the Egyptian market.

Advertising is of crucial importance in promoting Russian machinery and equipment onto the Egyptian market, particularly if it is being offered for the first time. According to the accepted international practice, advertising expenses may exceed 20% of the expected amount of the order. It should be noted that given the tough competition on the Egyptian market, advertising carried out by potential Russian exporters is inadequate. It is obvious that without spending money on advertising, market research and the search for a reliable agent, conquering the Egyptian market is doomed to failure. Such measures should include: colour booklets, catalogues in English, advertising in the mass media, topic-related magazines and directories, participation in presentations, exhibitions, etc. Naturally, all these advertising effort should be supported by competitiveness of the machinery and equipment being offered, i.e. the price and quality of the product should meet market demands.

In most cases, Russian exporters are oriented towards their main traditional customer, the Defence Ministry, deliveries for which are exempt of import duties.

Russian export of machinery and equipment to Egypt in 1997 in the amount of US million indicating the exporter:

All the above-mentioned agencies have their permanent representatives in Egypt and cooperate closely with the Russian Trade Representation in Egypt.

New Russian exporters operating for the first time on the Egyptian market and trying to begin or increase export of their products would do well to heed the experience of the above Russian organisations. In so doing, it is expedient to open a permanent representative office under the auspices of the Russian Trade Representation in Egypt.

The Trade Representation makes a great effort to involve Russian organisations in the international exhibitions and fairs held in Egypt. At the start of the year, the TR sends out an exhibition programme.

Business cooperation with the Russian regions is being actively developed on the basis of direct contacts with Egyptian businessmen. The TR encourages this cooperation by assisting the regions in organizing presentations in various regions of Egypt. The TR offers its own facilities for holding exhibitions, assists in the commercial analysis of each exhibit, determines how advisable is its presentation at an exhibition, selects potential partners for negotiations on each product, and organises visits to Egyptian enterprises and meetings with representatives of Egyptian departments, as well as a whole set of other organisational and technical measures. For the past three years, the TR has held presentations in the Nizhny Novgorod, Moscow, and Omsk regions, Altai territory, the republics of Chuvashia and Tatarstan. The TR also helps to organise presentations for individual enterprises and foreign trade agencies.

The legal data base of the TR has a long list of regulations, including customs, tax and currency legislation, documents governing foreign trade transactions, transportation matters, insurance and investment.

Of immense value to organisations working on the Egyptian market is the TR's assistance in resolving disputes arising between Russian and Egyptian partners. Frequently, before a disputed issue is brought to arbitration court, the TR succeeds in convincing the sides to resolve it by peaceable means. In this work, the TR relies on its prestige among Egyptian business circles, taking advantage of its close contacts with the heads of Egyptian ministries and departments and Egyptian businesspeople.

Scientific and technical cooperation (STC). The legal base of bilateral cooperation was laid with the signing of the first intergovernmental agreement in this sphere on 20 December 1997. During a visit to Moscow by President Mubarak on 15 May 1997, a long-term STC programme was adopted (until 2000). The Russian side formed part of a joint Russian-Egyptian STC commission (co-chairman E.A. Smirnov, head of the scientific-technical department of the Russian Science Ministry). The Egyptian side showed particular interest in Russia's proposals on environmental protection (detecting radionuclides in the environment with the use of a luminescent photometer; creating a set of environmentally safe wide-range purifiers), on geology and natural resources (developing methods, technical means and geophysical, geochemical and astroaerological research techniques, including in areas of the continental shelf and the exclusive economic zone of Egypt), and on agriculture (improving the use of land improvement and drainage systems).

On 18 April 1994, a framework STC agreement was signed between the Russian Academy of Science and the Egyptian Academy of Scientific Research and Technology. During a visit to Egypt of a Russian delegation headed by chief academic secretary N.A. Plateh, on 26 November 1998, an Executive Programme of Inter-Academy Cooperation was signed. It sets forth specific cooperation projects in chemistry, including polymer materials, natural resources, electrical engineering, geology, and environmental protection.

The development of bilateral relations in STC is also carried out on the basis of an Intergovernmental Cooperation Programme on culture, science and education for 1996-99 of 29 October 1996. In 1996, under the auspices of the Russian Centre of Science and Culture in Cairo, exhibitions of Alternative Sources of Energy and The Latest Achievements of Russian Polytechnic Schools were held. The agenda included theoretical symposia on petrochemistry, standards and quality.

In 1997, a protocol of intent was signed between the anti-plague Mikrob Scientific Research Institute of the Russian Ministry of Public Health and the Egyptian organisation of manufacturers of bioproducts and vaccines (VACSERA). Plans were drawn up on implementing several promising projects, and a reference of Egyptian biological safety standards is being drawn up.

The Egyptian side is showing immense interest in the possibility of Russian teachers and researchers working in Egyptian universities and scientific research institutes. The national institute of laser research at the Cairo University proposed recruiting 3 or 4 qualified experimenters, doctors of science from Russia, to work on a contract basis. The management of a private Egyptian scientific and technical university (MAST) asked the Russian embassy to arrange invitation of professors and teachers from Russia to work at this university. In October 1998, Vneshobrazovanie sent information on 16 candidates through the Russian embassy. It is expected that in 1999, for the first time in the past 20 years, Russian teachers will begin working at a university in Egypt. The working and social guarantees of contract workers is an important issue, since frequently problems arise with the receiving side not fulfilling its obligations (the same thing has happened more than once with Russians at the opera theater, conservatory and art academy in Egypt).

The Russian-Egyptian economic seminar. On 19 March 1998, a seminar was held in Cairo on Prospects for Economic Cooperation between Russia and Egypt, the third forum of its kind to be held in the past two years with active assistance from the Russian embassy.

The Russian side was represented by a delegation headed by deputy economics minister S.G. Mitin. Its members included the heads of several large companies and banks. On the Egyptian side, Deputy Interior Minister F. Shazli, Chairman of the International Affairs Commission of the National Assembly M. Abdalla, President of the Transportation and Communication Commission of the National Assembly S. Havalka, officers of economic ministrries and departments, and prominent businessmen took part in the seminar. A new aspect was the participation of Belorussian businessmen (president of Belvnesheconombank et al.) in the Cairo meeting, which makes it possible to organise economic cooperation in three directions (Russia-Egypt-Belorussia).

F. Shazli pointed out in particular that the current trade volume (US million in 1997) is clearly below the economic potential of both countries. The Egyptians are particularly concerned about the trend towards a further decrease in the already low level of Egyptian exports to Russia (US million in 1997). They were adamant that the delivery of Egyptian goods to Russia be increased, while also expressing their willingness to make reciprocal purchases of Russian products, including machinery and equipment. In so doing, it was noted that efforts to create Russian-Egyptian joint ventures for expanding Egyptian exports to Russia have not yet yielded any results, although they were supported by the intergovernmental commission for economic cooperation and trade. In turn, Russian participants highlighted the fact that the products offered by the Egyptians should be competitive, in terms of price and quality, on the Russian market.

Egyptian representatives suggested that Russian consumers might be interested in particular in the products of the Egyptian pharmaceutical industry, since many of Egyptian medicines meet world standards and are relatively inexpensive. However, their introduction to the Russian market is hindered by the extremely high cost of certifying medical preparations in Russia. In this respect, the Egyptians asked the Russian side to review the possibility of lowering corresponding certification fees for medications from Egypt. They reminded their Russian partners that proposals for the export of medication to Russia were submitted to the Russian agencies by the management of a holding pharmaceutical company in Egypt, who accompanied President Murabak on his visit to Moscow.

During the discussions, it was stressed that Egyptian businessmen are still poorly informed about the special features and situation on the current Russian market, and frequently hold onto outmoded ideas about it inherited from Soviet times. This prevents them from working actively in Russia, including in the sphere of investment. The Egyptian participants said that this situation could be corrected by the Business Council of representatives of Russian and Egyptian business, a principal agreement on the foundation of which exists, but has still not been implemented. This council would also make it possible for Russian businessmen to expediently receive all the information they need about Egypt.

Another sore point, which was brought up at the seminar, is the difficulties in the transportation of export/import freight. In this respect, the Novorossiisk port was severely criticised (slow and low-quality freight handling, extortion, embezzlement, etc.). The participants in the meeting emphasised the need to accelerate the implementation of existing agreements on the creation of a joint transportation company using "river-sea" boats.

The meeting participants spoke in favour of business circles forming a joint coordinating body capable of facilitating trade transactions under the shortage of currency on an offset basis (i.e. "multilateral barter" instead of clearing, which was widely used during Soviet times).

Representatives of Egyptian governmental departments and Egyptian businessmen suggested that contracts and agreements be made on a tender basis pursuant to Egyptian laws, which means tough international competition and skilled preparation for bids. The seminar participants noted that, as practice shows, contacts at the regional level is a promising form of bilateral trade and economic cooperation.