Understanding The WTO's Doha
The WTO looks ready to make
concessions to emerging markets.
The bargaining table is set for the next round of global
trade talks after World Trade Organization ministers concluded their
November meeting in Doha. The place settings hold a potential feast
for Egyptian businesses.
Capitalizing on the WTO's need to escape its image as a tool
of rich countries, developing nations won major concessions in the
Qatari capital. Egypt now has a chance to bargain for terms that
could increase its exports of agricultural products, textiles and
"If there was any question that developing countries have
been able to influence these discussions, I think there is no
underestimating that now," said J.W. Wright Jr., chief trade adviser
at USAID. "The advanced developing countries are probably going to
come out the best, Egypt being among them."
At the same time, China and Taiwan formally became members of
the WTO trading club, agreeing to its rules in order to enjoy access
to member nations' markets. That will give Egyptian exporters
greater access to the world's most populous consumer market--and
present a formidable challenge from a giant potential rival.
The gains for the developing world reflect the WTO's effort
to rehabilitate its image, battered by the breakdown of talks at
Seattle in 1999 and angry anti-globalization street protests ever
since. Nations send representatives to the WTO to negotiate import
and export rules intended to be applied fairly to all countries. But
the WTO has faced allegations that it works in secrecy and supports
the interests of wealthy multinational companies at the expense of
poorer nations, worker's rights and the environment.
The next round of talks on renegotiating the global trade
pact will take many years: Delegates in Doha set a deadline of
January 2005, but experts say talks will likely run longer. But the
Doha ministerial meeting was critical because it set boundaries for
"Countries now need to figure out what are the most important
things they need and how to pursue those objectives," said Irving
Williamson, who was involved in the last round of WTO negotiations
as deputy general counsel in the US Trade Representative's
Opportunities for Egypt are obvious:
Agriculture: Egypt, like many developing
countries, has long complained that European countries protect their
domestic farmers from international competition by subsidizing
exports. But touching the subsidies is an explosive issue in
domestic politics. The major coup at Doha: Developing nations were
able to get developed countries to agree even to discuss the
In an indication of the delicacy of the subject, France
agreed to talk about the possibility of phasing out export subsidies
only if the rest of the world agreed it was not a foregone
conclusion that such a phase-out would ultimately occur.
Textiles: Developing countries had been
pressing for faster increases in the quotas that limit how many
textile products can be exported into major markets; the US and
Canada resisted. At Doha, member nations agreed that raising the
quotas faster than previously scheduled will be on the table for the
Technical Assistance: The WTO has faced
criticism in the past that it cannot truly allow fair competition
because developing nations lack the technical resources to
participate in high-tech trade. For example, the global trade
regulators were telling countries to enforce international patents,
but not helping them set up modern patent offices.
That type of complaint was given short shrift at the WTO's
previous agenda-setting meeting in 1999: USAID's Wright recalls
being summoned to help assemble a technical assistance proposal just
two days before Seattle was to begin. At Doha, by contrast,
delegates made technical assistance a major part of the agreement,
which says that technical assistance budgets should not decrease
over the next five years. But it leaves the exact form and amount of
assistance to be determined by international aid bodies.
Intellectual Property: Developing countries
have objected that patent protections for prescription drugs make
vital medicines beyond reach in their countries. Without actually
stating that countries have the right to manufacture drugs in
violation of patents in times of health crises, the WTO ministers
came close by declaring that "member countries have a right to take
measures to protect public health ... and in particular to promote
access to medication for all."
Other Issues: The EU won the right to
give preferential tariff treatment to African, Caribbean and Pacific
countries that are former colonies of its member states. The WTO
agreed that the next round will include talks on how trade affects
the environment, and there will be negotiations on lifting barriers
to importing services. bt
A Shake-Up At The Central Bank
El-Oyun takes over after Hassan, reeling from reported policy clashes, turns down
If wagging tongues in financial circles are any indication,
Egypt is in for an interesting ride on the monetary policy roller
coaster. Late in October came word that Mahmoud Abu el-Oyun was up
for promotion to become governor of the Central Bank of Egypt after
his boss refused reappointment. Just two weeks after el-Oyun stepped
into his new office, President Hosni Mubarak announced he was
considering a shake-up that would strengthen the CBE's role and
independence in setting monetary policy while likely phasing out the
Ministry of Economy.
Abu el-Oyun, who prior to his appointment was deputy governor
of the CBE under Ismail Hassan, has also been appointed to represent
Egypt at the Arab Monetary Fund, the African Development Bank and
the International Monetary Fund. His appointment was welcomed by
many analysts, who view him as a market-friendly figure with an
understanding of the need for reform.
"While I think the new central bank governor was a positive
hire, he is still much more of an unknown than the team at the
Ministry of Economy," Taher Gargour, Middle East analyst at HSBC
Securities in London, told Business Today Egypt.
Unlike their counterparts in other industrialized countries,
CBE governors have had limited input in monetary policy decisions,
which are made by the president and his top advisers with input from
the ministers of finance and economy. In the days after his
appointment, el-Oyun stopped short of promising sweeping change,
noting, "the responsibilities of the governor of the Central Bank of
Egypt are always limited and known and there's nothing new in this.
It is a change in leadership."
But Mubarak announced in early November that the CBE,
established in 1960, would enjoy greater freedom to make policy.
"The CBE will be completely independent. It will not belong to any
ministry, and the CBE governor will report directly to the prime
minister. Independently, the CBE will be formulating monetary and
credit policies," Mubarak was quoted as saying by local press. At
the same time, Mubarak announced he was looking to revise the
mandate of the Ministry of Economy.
According to Egypt's banking laws, the Central Bank of Egypt
is an autonomous public legal entity that formulates (and supervises
the implementation of) monetary, credit and banking policies. Many
observers say the People's Assembly will have to amend existing
legislation if the CBE is to exercise more independence.
"President Mubarak announced plans to dismantle the Ministry
of Economy and hand over its role in monetary policy to the Central
Bank of Egypt," says HSBC's Gargour. "At a time when the currency
was coming under increasing pressure, we were unsure if this was the
ideal moment to enact such changes." In the short term, he believes,
it is often a case of "better the devil you know." In the current
climate, uncertainty over central bank policy will only put more
pressure on the pound, he says.
Still, Gargour is among the many who see the redefinition of
the CBE and Ministry of Economy's roles as likely long-term
positives. Minister of Economy and Foreign Trade Youssef
Boutros-Ghali will focus more aggressively on improving Egypt's
trade profile, and an independent central bank with full control
over monetary policy is the international norm.
Analysts attribute Mubarak's decision to fallout from the 11
September attacks on America and reported clashes between Hassan and
Boutros-Ghali. But Hassan, whose term expired on 13 October, was
firm that he had stepped down for personal reasons. Hassan, 66, is
believed to be the first senior government official to refuse to
have his term prolonged.
One of the first major clashes between Hassan and the
government came during the foreign exchange squeeze in summer 1999.
Then-Prime Minister Kamal El-Ganzouri refused to acknowledge there
was a crisis, forcing the governor to bring the bank's policies in
line with Cabinet's view. As a result, Egypt's foreign exchange
reserves dropped from $22.9 billion in 1996 to $15.6 billion when
El-Ganzouri left office in October 1999. Reserves now stand at $14.2
Hassan and Boutros-Ghali also reportedly had strong
differences of opinion regarding devaluation of the pound. Hassan is
said to believe devaluation would cause an increase in inflation and
a decrease in the purchasing power of the nation's poor and those on
fixed incomes. Boutros-Ghali reportedly favors devaluation to
increase exports and help lower the trade deficit.
The pound was devalued in January and August of this year,
dropping more than 15% against the dollar. The CBE rate now stands
at LE 1:$4.14, while the market rate is at LE 1:$4.26. The bank also
cut reserve requirements from 15% to 14% in October to increase
liquidity and lower interest rates.
As recent as late October, the IMF's executive board praised
Egypt's commitment to continued exchange rate flexibility, saying it
would allow the country to ride out periods of market turbulence
while avoiding further significant declines in official reserves.
Flexibility is particularly important as Egypt looks to weather
global economic turmoil. The Fund's directors also welcomed the
slowing growth of private credit--which has reduced pressures on the
exchange rate--and are encouraging efforts to strengthen monetary
policy tools. bt
Ramadan Karim -- That's LE 20,
The meaning of the Holy Month remains
unchanged, but the past decade
has seen it transformed into a commercial bonanza
It's all about worshiping God and feeling close to
Him--that's the true message behind the holy month of Ramadan. But
Ramadan is now suffering from the same "commercialism blues" as is
Christmas in the West. It's no longer a pure month of worship, but
rather one of television, food, advertising and tents.
"People work very hard all through the year," says Mohamed
Sadek, chairman of SANO Catering and the Sohbageya Tent. "We rarely
eat dinner as families. But every one takes it easy, works less and
spends more time with family and friends during Ramadan." While
Ramadan once meant an economic slump as people turned their backs on
work, shops and consumer goods in favor of families, fasting and
prayer, it underwent a commercial facelift in the early
It began with the most popular of traditions, the Ramadan
lantern. Instead of the custom-made metal and stained-glass
lanterns, today's fanoos are mass-produced commercial
products. Take a walk down Faisal Street in Haram, for example, and
watch children spending hours meticulously selecting lanterns that
now sing, talk and blow smoke.
But the biggest changes are beaming through the airwaves on
television. "The fact that many people spend so much time at home
during Ramadan meant that television had a golden opportunity to
make a lot of new dramas," explains Caroline Assaf, senior vice
president at Tarek Nour Advertising. "Because viewership was high,
advertisers saw a golden opportunity to reach a large base of
potential clients." It's a marriage made in heaven: Advertisers pay
almost double for the same 30-second commercial spots in return for
double the average number of viewers. While the entire month of
Ramadan is an advertising high season, the first 10 days make or
break a campaign. "We found that during the first 10 days, more
people stay at home and watch television as they re-adjust their
lives to fasting," Assaf explains. "Advertisers will spend obscene
amounts of money on their Ramadan campaigns."
Since watching television plays such a vital part of life
during the Holy Month, the sales of televisions inevitably spike.
Manufacturers begin advertising their latest models at least two
months prior to Ramadan, and the campaigns generally run until the
end of the month. Most offer payment plans to entice middle- and
As people grow bored with television, they begin to
socialize. Their destination? Most likely one of the many Ramadan
tents. Tents were also an invention of the 1990s. In 1994, SANO
Catering chairman Sadek created Ramadanna (Our Ramadan), the first
such offering. "People spent many a Ramadan night in Hussein smoking
shisha and drinking sahlab. My idea was to create a similar
traditional ambiance in a more controlled environment." While
Ramadanna might have been the first tent, it certainly wasn't the
last. Sadek says hotels saw a golden opportunity to make up for
revenue lost during the month, since no one books wedding halls.
They set up shisha corners, brought in entertainment and applied a
Sadek knew that he needed to re-invent the tent to keep
people interested, "So we created Sohbageya which serves sohour,
shisha and traditional drinks, but it also has live entertainment.
Some of the biggest names performed, and people seemed amused by
By 1999, Sadek decided that it was time to tinker with the
image again. He moved the tent from an outdoor steel structure into
an abandoned 125-year-old warehouse next to the World Trade Center,
and decided he would no longer bring in a famous performer every
night. "I was more interested in having my customers come more than
once a week. When I had a performer, the minimum charge was between
LE 60 and LE 70 per person. But when I just arranged for a DJ or
another decent act, I was able to drop my price by half." His
targets were not the rich to whom a few hundred pounds were no big
deal, but rather those with more limited disposable incomes.
Towards the end of the month, the focus shifts to Eid Al Fitr
and suddenly the price of sheep is sky high. In fact, if one plans
correctly, there's money to be made in a small investment. Sameh
Abbas is a teller at a private bank by day. But by night, he breeds
sheep for the Eid. "It's actually very simple. You make an
arrangement with someone who owns a sheep farm and invest at least
LE 5,000 six months before Ramadan. He takes the money, buys the
sheep, raises them and then sells them at the end of Ramadan and
takes a share of the profit. You can make up to one and a half times
what you put in."
It may be inevitable that religious holidays in capitalist
countries gain a capitalist air, but the essential meaning of
Ramadan remains unchanged--except that it has become one of the
biggest money earners of the year. bt
Cementing The Deal
A flurry of acquisitions in the cement sector has
buoyed the stock market
There are precious few bright spots on the Cairo and
Alexandria Stock Exchange these days, but one of them is the cement
sector. In the last three months of 2001, cement stocks have become
the darlings of the exchange as established players consolidate and
foreign firms move into the market.
While cement companies may not, at first glance, seem like
the sexiest of investment options, rising interest in the sector is
well founded. Performance in the sector is closely correlated to the
performance of the economy as a whole, in much the same way that oil
is. Factories don't run without oil, and they're not built in the
first place without cement. New industries, commercial centers and
residential areas are all served by the cement industry. This makes
cement stocks a safe long-term investment: Analysts predict annual
returns on investment as high as 15% for some of the strongest
performers in the sector.
But the interest in cement is not only due to the role of the
sector in the economy at large. In fact, prior to the last three
months, many cement stocks slid on fears that projected growth in
capacity would outpace the increase in demand. In the 1990s, the
industry was plagued by the opposite problem: undersupply. Capacity
grew during that decade at an average annual rate of 5.9%, while
demand grew at 10.7%. In the last few years, cement companies have
responded by redoubling efforts to improve capacity: 23.5 million
tons of cement were produced last year, and an additional 18 million
tons are expected to be added to annual production within a few
years. Analysts say this will result in oversupply and ultimately
lead to a crunch in the sector. One might have expected these fears
to have been even more pronounced in the new era of global economic
uncertainty. It seems a bit strange, then, that the sector should
suddenly become the darling of securities traders.
Much of the interest is founded on speculation over which
companies will survive the coming cement crunch and which will fold
or be bought up. To answer this question, traders on the CASE have
been taking their cues from foreign investors, who have favored
three established producers: Suez Cement, Torah Cement and Helwan
Portland Cement. Together, these three account for about 10 million
tons of Egypt's 23.6 million tons of annual production.
In September, Ciment Français bought 25% of Suez Cement,
which in turn bought 100% of Torah Cement. Just weeks earlier, the
Arab Swiss Engineering Company (ASEC Group), a Swiss-Egyptian joint
venture with a 25-year history in Egypt, had bought 100% of Helwan
Portland Cement from the state holding company in one of the year's
few privatization deals. Not surprisingly, the three producers
received the biggest boost on the CASE.
Aside from sparking interest in the otherwise anemic stock
market, the spate of deal-making is worth a close look because it is
likely a harbinger of things to come as the cement sector sheds its
state-run past and deals with the oversupply problem of the coming
Ciment Français entered the Egyptian market in the biggest
possible way. Suez and Torah are the sector's two biggest producers:
Suez supplies the market with 3.72 million tons per year, while
Torah supplies 3.35 million tons. For now, the French concern owns
only a quarter of that capacity through its stake in Suez, for which
it paid LE 515 million, but if the government follows its
traditional pattern of privatization, its share is likely to grow in
the coming years.
The deal could ultimately be hugely beneficial to both
parties. The Egyptian firms will get technical support and
modernization assistance, and Ciment Français will find itself with
a new source overseas as tighter European environmental restrictions
constrain its ability to produce at home. Ultimately, this
arrangement could lead to a lucrative export market for Egyptian
cement, although some pundits worry about the environmental impact
of enhanced foreign interest in domestic cement producers.
"It's not a complete privatization yet, but it's an important
deal because it shows that foreign firms think the cement market in
Egypt has potential," says Joseph Iskander, an investment analyst at
Prime Research. "In 2004, European cement companies will be limited
by EU environmental laws. So there may be some potential to export
within two or three years, but for now the biggest market will be
Management at Ciment Français/Suez confirms that this is a
possibility. "Some Egyptian cement companies are exporting already,"
says one Suez official. "This is definitely something we have in
mind, although prices in the local market are still higher than
prices in overseas markets." But that situation may change
drastically in the coming years as the supply glut undercuts prices
at home and the EU's laws undercut homegrown supply in
And, of course, there are other potential benefits to the
deal: Suez is looking forward to the possibility of modernizing its
operations. "You have to have a strategic partnership to modernize,"
says the Suez official.
Still, performance in the cement sector is closely correlated
to GDP growth, which looks set for a steep slide as the global
economy takes a turn for the worse. That didn't stop Ciment Français
from investing in the sector (two weeks after the terrorist attacks
threw the world economy into doubt), implying that at least the
French company is confident Egypt's overall economy will continue to
grow. "I don't believe GDP is falling," the Suez official says
Iskander is not quite so certain, but he explains that while
there is no disputing a close relationship between GDP growth and
demand for cement, the cement sector draws 60% of its business from
the informal economy, which is not included in GDP calculations and
may provide the industry with a degree of insurance. Expanded
markets in Europe would also provide Ciment Français with a cushion
against fluctuations in Egyptian demand.
ASEC's involvement in Egypt is not quite as new as Ciment
Français', but the Egyptian-Swiss concern's purchase of Helwan
Portland (annual capacity: 2.95 million tons) is likely to provide
many of the same benefits as the French deal.
Although it has ties to Switzerland's Holderbank, ASEC's
corporate structure is as intricate as a Swiss watch and ultimately
includes majority ownership of a consortium of Egyptian cement
firms. The company has been working in the Egyptian cement sector
for 25 years and its structure reflects the various stages the
Egyptian economy has passed through in that time. Originally, it was
jointly owned by all nine state-run cement companies (including the
two now owned by Ciment Français, as well as Helwan itself). The
purpose of the joint venture was to disseminate Swiss production
methods throughout the Egyptian cement sector. Although ASEC, until
now, never directly ran any of the companies in the sector, it
provided guidance through feasibility studies and a team of 400
engineers and 5,000 technicians, all Egyptian.
Technically, the old ownership structure is still in place,
but prior to buying Helwan, the ASEC Group spun off the ASEC Cement
Company, the organ that actually closed the deal. Observers say
ASEC's experience in the cement sector and its reputation as the
technical backbone of the sector as a whole will ease its transition
to owning and running Helwan.
The $321 million deal will result in the formation of the
ASEC-Helwan Cement Company. Corporate leaders say one of the first
orders of business will be modernizing production methods and making
the plant more environmentally friendly.
Helwan has developed a somewhat spotty reputation for
environmental friendliness, as its outdated wet kilns have received
much of the blame for the cement dust that billows from around
Helwan and clogs Cairo's air with particulate matter.
ASEC's intention is to modernize the plant and improve its
environmental conditions to meet international standards, thus
reducing the emissions in the areas surrounding the plant, said
managing director Omar Guemei in a written statement. In addition to
improving environmental conditions, the plant's capacity will also
be increased by upgrading the existing dry kilns to reach 4 million
[tons of capacity]. All the wet kilns will shut down within a
maximum period of two years and environmentally friendly natural gas
will also replace heavy fuel in dry kilns, thus allowing Egypt to
export more heavy fuel.
Guemei admits that there are obstacles facing the sector, and
Helwan Cement in particular, but he is confident ASEC can help the
industry become stronger and more efficient. The purchase of Helwan
Portland Cement Co. is a very big challenge due to the poor
technical conditions of the plant and its current environmental
status," he noted. "But ASEC will use its capabilities and know-how
to turn around this plant, setting an example of Egyptian
efficiency, planning, research, engineering and production
Indeed, both deals--Ciment Français/ Suez and
ASEC/Helwan--are being heralded by market analysts as proof that the
cement sector in Egypt has a promising future despite the coming
supply glut and other economic concerns. And while stock traders
sort out exactly which companies will emerge the strongest, the new
partnerships are getting to work building the future that the
traders are betting on. bt
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