VZCZCXYZ0000
PP RUEHWEB
DE RUEHEG #0065/01 0120928
ZNR UUUUU ZZH
P 120928Z JAN 10
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 4719
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 0705
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS CAIRO 000065
SENSITIVE
SIPDIS
DEPT FOR NEA/ELA
E.O. 12958: N/A
TAGS: ECON EG ETRD TU EINV
SUBJECT: TURKISH INVESTMENTS IN EGYPT GROWING FAST
1.(SBU) Key points: -Turkish investment in Egypt has more than tripled in recent years, and is expected to continue
growing in the coming years. -The favorable outlook by Turkish investors is driven by lower costs of doing business and
Egypt's solid market access to the European Union, the United States, and countries in Africa and the Middle East.
-Despite issues with the Egyptian Customs Authority and a publicized dispute over Turkish steel imports, bilateral trade
continues to grow at a rapid pace. -The GOE's practice of providing highly subsidized energy and strong support for the
textile industry conflicts with the GOE's long-term goals of moving beyond garment exports and removing subsidies.
------------------------------------------- A Fast-Growing Market for Turkish Investors
-------------------------------------------
2.(U) Turkish-Egyptian commercial relations have expanded rapidly over the past few years, and indications are that this
trend is likely to continue. In a January 5 meeting, XXXXXXXXXXXX told EconOffs that roughly 250 Turkish companies are
operating in Egypt, with investments of $1.5 billion. Turkish investment has more than tripled in the past five years;
nearly 85% of Turkish companies operating in Egypt have been established since 2004, according to the Egyptian Ministry
of Trade and Industry (MOTI). Sahin estimates that 40,000 Egyptians are employed in Turkish-owned factories around Cairo
and Alexandria. Sahin said he expects Turkish investment to triple again soon, reaching $5 billion in the next three
years.
3.(U) Since the Turkey-Egypt free trade agreement (FTA) entered into force in 2007, bilateral trade volume has more than
doubled, reaching its current level of $3 billion. In a November 2009 conference on Turkish-Egyptian economic relations
in Cairo, both Egypt's Minister of Trade and Industry Rachid M. Rachid and Turkish Foreign Trade Minister Zafer Caglayan
expressed interest in tripling bilateral trade to $10 billion in the next three years.
--------------------------------------------- --------- Low Costs and Solid Market Access Attracting Investors
--------------------------------------------- ---------
4.(U) XXXXXXXXXXXX says that Turkish investors are attracted to Egypt in part because of low labor costs and subsidized
energy prices. Even with labor inefficiency, Sahin estimates that low wages (about $100/month on average for factory
workers in Egypt) save Turkish companies at least 30% in total production costs.
5.(U) Another major factor in spurring investment is Egypt's strong duty-free market access, such as that provided by
its Association Agreement with the EU, the Qualifying Industrial Zones (QIZ) protocol with the United States, and the
COMESA and Agadir agreements. Much of the Turkish investment in Egypt is concentrated in the textile and ready-made
garments (RMG) sector. Sahin says that large American garment importers like Gap and Target have recommended that their
Turkish suppliers consider relocating to Egypt to take advantage of both market access and lower costs.
6.(U) XXXXXXXXXXXX says that 11-12 Turkish-owned garment factories in Egypt are currently exporting to the U.S. through
the QIZ program. XXXXXXXXXXXX said, however, that she does not think Turkish investments in RMG will increase, but that
Turkish investors are looking for other sectors in which to invest, such as durable goods. Sahin also mentioned that
some Turkish companies are looking to invest in glass and electronics factories.
--------------------------------------------- ----- Trade and Customs Disputes Not Deterring Investors
--------------------------------------------- -----
7.(SBU) According to Sahin, Turkish businesses have reported problems with the Egyptian Customs Authority, including
long clearance delays, inconsistent treatment of imports under the FTA, and a general problem of unskilled government
workers. Despite this, Sahin says these problems are manageable and that customs issues have not dissuaded Turkish
businessmen from investing in Egypt.
8.(SBU) Turkey's estimated $2.2 billion in exports to Egypt in 2009 was driven by steel, leading to calls in Egypt to
impose anti-dumping duties on Turkish steel imports. While the GOE's MOTI has announced it will study imposing such a
measure, Sahin says that the high demand for steel in Egypt's booming real estate sector and the strong Turkish-Egyptian
political relationship make the adoption of anti-dumping duties very unlikely. ------- Comment -------
9.(SBU) The rapid expansion in Turkish investment marks progress for the GOE towards its goals of increasing investment
and trade ties with non-traditional partners outside of the EU and U.S. The attitude of Turkish investors on the
economic potential of Egypt reflects positive strides made by the GOE in terms of increasing export market access and
improving the investment climate. However, since much of the current investment attractiveness is driven by subsidized
energy and the strength of the ready-made garments (RMG) industry, the GOE may struggle in the coming years to reconcile
attracting foreign investors with its stated goals of reducing subsidies and broadening manufacturing exports beyond
RMG. SCOBEY