By AP Gondolas line the bank of the grand canal in view of the San Giorgio Maggiore church in Venice. By Mity Simonetto Governo Italiano Prime Minister Silvio Berlusconi By AP Tourists and Italians at Milan Beach have only the “Acro della Pace” to give them shade.

By Leah Bower

While the list of Egyptian products headed for the shores of Italy may be growing, local companies in some industries are still losing out because they lack the equipment and skilled labor needed to make high-quality products fit for more competitive markets.

There is growing evidence that this trend may be reversing, however, in part due to Italy’s strongest export to this country technology needed to make leather purses, high-grade furniture and finished marble that will fetch Egyptian companies higher prices for value-added goods.

In addition to making it possible for Egyptian companies to compete, Italy is hoping to extend economic ties and become the gateway of choice for a flood of fruits, vegetables and other, non-edible products, headed to a steadily growing European Union, says Nicoletta Bombardiere, an economic counselor at the Italian Embassy’s commercial office.

“Trade-wise, we are the second largest partner with Egypt after the United States,” she says. “In Europe, we are first in volume of trade balance.”

There is no question that economic ties have historically been strong, although Egypt doesn’t appear on the top 20 list for exports to or imports from Italy. In 2003, the value of bilateral trade between the two countries was 2.2 billion (or LE 16.9 billion), with Italy importing 1 billion worth of Egyptian goods. Even though oil products remain Egypt’s largest export to the European country, to the tune of about 630 million in 2002, the winds are changing. The value of non-oil exports, including furniture, agricultural products, marble and leather, to Italy has grown from 310 million in 1999 to 500 million in 2003.

The relationship between the two countries involves more than goods, however. The European Union is the largest investor in Egypt, accounting for more than 30 percent of foreign direct investment (FDI) in Egypt. Breaking down EU investments, Italy ranks third with $200 million, following the United Kingdom and Holland.

Then there are the tourists. More tourists visiting Egypt come from Italy than any other country and the number is growing, from 701,000 in 2002 to 796,000 in 2003, according to Bombardiere.

“Tourism is a fundamental asset of the relations between Italy and Egypt,” she adds. “We should now maintain Egypt as an attractive destination one that is a favorite of the Italian public by diversifying the tourist offers, developing entertainment infrastructure, developing new high-quality destinations, exploring the full potential of eco-tourism and re-launching cultural tourism.”

Although the overall picture looks rosy, Bombardiere cautions that much remains to be done before Italian investment can flow more freely into Egyptian companies, even as Egyptian products are flowing smoothly back into the EU. Not only does the quality of finished products remain a concern, but fruits and vegetables Egypt’s fastest-growing exports to the EU have to meet stringent quality standards. Produce must be traceable from a grower’s field all the way to the consumer’s breakfast table. Transportation also needs to be streamlined and both the fiscal and customs systems need a comprehensive overhaul, Bombardiere says.

Maintaining confidence in the Egyptian pound, and a stable exchange rate, will also go a long way toward making Egypt an attractive investment opportunity. “It is a fact that Egypt has done a lot on the path of reform to a market-oriented society. But it is also a fact that the economic environment in Egypt today needs some improvements to encourage further the presence of foreign medium- and small-sized companies,” she says.

Despite the obstacles that remain, Bombardiere expects trade between the two countries to steadily grow in the near future, especially with Italian technology on hand to upgrade Egypt’s aging infrastructure.

“Machinery is the bulk of our exports, and this means technology,” she says. “Exporting Italian technology to Egypt means helping them face modernization. Italian technology is quite a fit for these purposes.”

Bearing fruit

Then there is the appeal of strawberries in winter and asparagus in the fall.

Despite the dominance of oil, agricultural products are the trade item of the moment, especially with the sector’s potential for explosive growth as Europe where the growing season is constrained by the four seasons increasingly looks to the south for a year-round supply of fruits and vegetables.

“[Egyptian growers] need to look for niche markets and specialized products like out-of-season [fruits and vegetables],” says Bombardiere. “And the demand for organic products is growing unbelievably.”

That is exactly the direction Egypt is hoping to take.

“The growing window for our products is earlier than in Italy,” says Wael Rafea, deputy executive director of the Horticultural Export Improvement Association, adding that green beans and strawberries are especially coveted out of season in Italy.

According to the Ministry of Information, food processing has registered an annual growth rate of 22 percent over the last decade, and the industry accounts for 15 percent of the nation’s manufacturing and 20 percent of employment. These figures have been helped along by land reclamation, which has opened up over 100,000 acres of land to fruit and vegetable farming over the past decade.

There is little question that the Egyptian agriculture sector has made progress in leaps and bounds. According to the World Bank, a 1997 export promotion project targeting the EU for exports of grapes, strawberries, melon, mango, green beans and cut flowers has been a great success.

“By 2001, grape exports had tripled, strawberry and melon exports had doubled and green bean exports had increased by 30 percent, compensating declining mango exports,” reports the World Bank. “Quality assurance and compliance with market requirements improved while transport costs fell by $1.7 million for grapes.”

Most importantly, a significant number of 100,000 small- and medium-sized farmers adopted new production techniques.

Rafea also says that exporters in the association have watched their exports to Europe boom. Export of table grapes jumped from 2200 tons in 1998 to 14,000 tons in 2003, while exports of strawberries soared from 4800 tons to 8000 tons in the same time period.

Now Italy is hoping to boost Egyptian agricultural exports even further though the “Green Corridor” initiative, a joint declaration signed in early 2002 that is attempting to clear the way for Egyptian fruits and vegetables especially those that don’t compete with Italian crops or the off-season variety to flow into Europe through Italian ports.

Already companies from the two countries are looking at how to improve production quality in order to meet the far more stringent requirements of the EU market. Also, a project that will allow for tracking of agricultural products from field to table is under development.

“We are supporting our exports, but they must meet European standards,” says Rafea. Out of his association’s 180 members, 40 percent are growers, 33 percent are both exporters and growers, 11 percent are exporters only, and 16 percent are suppliers and service companies.

“[These standards] must be applied at the farms,” he says. “We have a lot of programs to improve our products.”

In addition to quality standards that cover everything from pesticide use to the ability to track origins, transportation of perishables is a concern, Bombardiere says.

Previous discussions between the two countries have “demonstrated that there is a clear bottleneck in the transport field and that action is needed to tackle the practical problems that hamper the fast, effective and reliable transport of perishable products from Egypt to Italy,” she says.

But Rafea says a lot of progress has been made, especially with the July 2003 opening of a terminal at the Cairo Airport dedicated to agricultural products, which has reduced losses on some products from 40 percent to 1 percent.

In the details

Italy may be world-renowned for its design whether it’s suits, shoes or furniture but steadily increasing labor costs have priced some items out of the reach of everyday consumers. One alternative, at least when it comes to furniture, is to import the ornate, hand-carved furniture from Egypt that is suited to Italian tastes and sell it at a fraction of the cost of locally-made items.

“The Italians are interested in the style with lots of carving and handicraft it [brings] a lot of added value,” says Adham Nadim, secretary general of Expolink and owner of furniture manufacturers Nadim Industries. “Although we now have some new clients that are going toward contemporary [styles].”

The Egyptian furniture manufacturing industry is also one of the few sectors that imports all their raw materials from abroad before exporting finished products to markets around the world. Because the country has a long history of woodworking combined with cheap labor costs, the export of furniture to Italy has been on a slow but steady climb. According to government figures, $1 million worth of Egyptian-made furniture entered Italian ports in 2001, with that figure growing to $1.5 million by 2003, Nadim says.

“But this is only the official number,” he adds. “Industry numbers are 10 times these figures.”

The huge discrepancy is due to exporters under-invoicing in order to dodge taxes and inaccurate record keeping at Egyptian ports, he says, adding that the issue is something Expolink has brought to the attention of the new government.

As with other industries in Egypt, local companies are also looking to benefit from an influx of Italian machinery and know-how.

“Italy is now very interested in bringing Italian technology to Egypt,” Nadim says, pointing to a recently signed memorandum of understanding between the Italian government and the Ministry of Industry that may lead to the creation of a woodworking technology center.

Looking up

Although Egyptian exports to Italy are currently dominated by oil and cotton, the biggest potential for growth appears in some smaller sectors, namely marble and leather. The only downside now is that both industries export raw or only partially finished products, losing money that could be earned if products were finished locally.

Although Italy produces plenty of local marble, there are several factors that make stone from Egypt appealing. Both countries produce a rare yellow marble, but lower labor costs in Egypt contribute to a huge price differential, according to Ahmed Sabry, executive manager of EgyBiz, the first web portal for the Egyptian marble and granite sector.

“This marble is $35 [per square meter] in Italy. In Egypt, the same quality is $10,” he says. “In Italy, companies are importing the marble, mixing it with different colors [of marble] and making art pieces to re-export.”

The leather industry faces a similar predicament.

The bulk of Egyptian exports are unfinished leather or semi-finished, which means all or part of the dyeing process has been completed. But because the infrastructure especially technology needed to make high-quality products is lacking, Egyptian cow, goat, sheep and camel leather will probably be leaving Egypt in the form of raw hides for the near future.

But Expolink’s Nadim says big-name companies like Kenzo are increasingly on the prowl in Egypt, looking for good business deals.

“We do have some success stories in exporting leather,” he adds. “Some potentially big clients have come in and looked around at making finished products.”

Bobbing around

Despite strong economic ties, Italian exports to Egypt have still suffered through a slump in the wake of terrorist attacks on Sept. 11, 2002 in the United States.

“The year 2002 was not a good year for Italian exporters in Egypt. The repercussions of 9/11, the devaluation of the pound and the currency shortage in the market did not spare Italian exports, which decreased [that year] by 26 percent,” Bombardiere says. “[This reflected] the scaling down of investments by Egyptian manufacturers.”

But by 2003, Italian investments rebounded along with the Egyptian economy, with machinery exports increasing by 15 percent over the previous year to bring total exports to EUR 1.2 billion. According to Bombardiere, the upward trend continued during the first four months of 2004.

Another blow to Italian investment came in May 2003, when Italy’s second largest power company, Edison Electric Corp, sold its gas assets in Egypt for $1.75 billion. Malaysian energy group Petronas picked up half of Edison’s stake in the West Delta Deep Marine concession and a 35 percent interest in the Egyptian liquid natural project over the bid of another Italian company, Eni.

Despite the loss to Petronas, Eni which is known as IEOC in Egypt has a 50 year history here and is gaining ground in natural gas liquefaction, Bombardiere says.

Eni says its Egyptian operations, which date back to 1953, include exploration and production of hydrocarbons, natural gas and oil field services, construction and engineering.

“With an overall share of 33 percent, Eni is currently the largest international company operating in hydrocarbons in the country. In 2001 production in Egypt totaled more than 418,000 [barrel of oil equivalent] per day,” the company said in a statement, adding that its quota was 180,000. “Exploration activities have been carried out mainly in the Nile Delta area that has emerged as one of the most important gas reserves in the Mediterranean. Eni has also discovered new reserves in the Belayim (Red Sea) concession at greater depths than current production.”

Eni began expanding further into liquid natural gas (LNG) in 2001, when Eni and British Petroleum signed an agreement with Egyptian General Petroleum Co. to develop a LNG plant. When fully operational, the Damietta facility will have a capacity of around 4.5 billion cubic meters per year.

“The marketing and sale of the LNG produced by the plant will be done by Eni and BP, mainly in Euro-Mediterranean markets,” the company says. “This LNG plant represents a further contribution to the realization of the infrastructure for the export of natural gas. Eni has also recently completed the construction of a gas pipeline network (the InterSinai Pipeline) linking Port Said to the industrial area, currently being developed, at El Arish.”

With its hands on a variety of petrochemical pumps, Eni stands as the cornerstone of Italian investment in Egypt, although Bombardiere has high hopes for smaller industries, which she says may take larger roles in the future.

“Italy is ready to examine, in concrete terms, the possibility of expanding existing investments in the sectors that already witness a successful presence of Italian investments and, at the same time, also consider the possibility of generating further investment in new sectors.”  bt