July 2002








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Archive: 2002 > July > Country Profile

Partners In Tech?
writer: Dan Bernard
photographer: Mohsen Allam, Omar Mohsen

Photographer: Frederic de la Mure /MAE
Massive undertakings like the Suez Canal and the Metro are symbols of France's historic involvement in Egypt, but the future of French investment here could be represented by a project so small it can't be seen with the naked eye.
In Heliopolis, a French company's Egyptian engineers are driving the evolution of the microchip to the next level. The chips being developed at MEMScAP Egypt don't just pass electronic impulses like normal microchips. They hold tiny moving parts that give the chips superior efficiency and functioning - itty-bitty switches, pumps, gears and mirrors smaller than a hair's width that rotate to direct laser beams between fiber-optic lines.
This month, MEMScAP and its Egyptian subsidiary are awaiting confirmation that a French multinational cosmetics company will purchase one of the innovations nurtured in the Heliopolis lab. Dermatologists currently use their eyes and field experience to gauge patients' skin condition, but MEMScAP's "skin station" uses the technology of MEMS (micro-electronic mechanical systems) to provide precise measurements. As a handheld probe is set on the patient's body, a microchip with a tiny membrane measures the skin's elasticity, while other chips with built-in sensors measure water content, acidity and temperature. If the multi-million-dollar contract is signed, the skin station will be assembled and refined in Egypt.
The work in Heliopolis is not only on the verge of providing a big payback for the French parent company: It also illustrates that while some French businesses continue to pursue their traditional strengths in Egypt like large-scale power and transportation projects, others are seeding a new high-tech industry.
Why did a hotshot tech firm from France come to Egypt to build a machine that it will sell back to France? Because it needed skilled technicians - and fast. "For a startup that wants to move aggressively and hire tens of qualified engineers, you cannot do that in a reasonable timeframe in France, or if you wanted to do that in France in a reasonable timeframe, you'd have to pay them a lot," says Hisham Haddara, president of MEMScAP Egypt.
"Egypt is not perceived as a high-tech country. But you can hire and recruit in Egypt high-caliber, top-notch engineers," says Haddara, who is also an electronics professor at Ain Shams University. "You have to train them, for sure, because they are not experienced. But if you train them, they will do the job, and they will do it for one-fourth the cost of an engineer in Europe." A starting engineer in Egypt generally earns LE 2500 per month, while in France the same worker could command a monthly salary of LE 10,000. Not to mention that a similar operation would require annual overhead costs of €90,000 in Europe (about LE 390,000) and as much as €150,000 in the US (LE 645,000) but only €30,000 in Egypt (LE 130,000).

Global launching pad
The same economy of location is yielding benefits at the Dokki headquarters of Alcatel, the French telecommunications network company that built much of Egypt's modern phone infrastructure.
Alcatel's high-profile work in Egypt includes its €40-million (LE 172-million) project to extend MobiNil's wireless telephone coverage, as well as the €300 million contract (LE 1.3 billion) finalized with the Egyptian government in June to add 1.5 million fixed telephone lines in Alexandria and the Delta over the next five years. Less obvious is that in recent years, Alcatel has been building a base of telecom network expertise in Cairo whose activities now span 28 countries.
Alcatel opened its International Service and Software Center (ISSC) in 1998 for the original purpose of training Egyptian engineers for work in Egypt. "We realized that our engineers were so good that we would have an advantage in utilizing them in a lot of other countries," says Vincenzo Nesci, Alcatel's vice president for the Middle East. Now the ISSC in Dokki is a base for 100 Egyptian engineers who travel to client sites in Europe, Africa, the Middle East and Asia. Alcatel customers send their engineers here to be trained on cutting-edge equipment.
Recently, Alcatel trainers gave a tour of the ISSC's mock mobile phone center while trainees from Kenya took a lunch break. Two microwave transmitter boxes pointed at each other, pretending they were kilometers apart. Metal cabinets' open doors revealed stacks of black circuitboards, their green diodes flickering to communicate the status of the dummy network. One of the machines, a multisocket functional server (MFS), is an engine for wireless websurfing via mobile phones, laptops or PDAs. The server overcomes the usual sluggishness of dialing into the internet by converting data to "packets" and passing them at a clip of 140 kilobytes per second - breakneck speed compared to the 9.6 kbps of the typical mobile phone. The MFS server is not in use in Egypt yet, but Alcatel's clients come to Egypt to learn how to use it.
Alcatel has even more discreetly got into the business of developing software in Egypt for export, albeit on an embryonic scale. The ISSC has developed software for its engineers to use when they travel to assess the performance of telecom networks: Since last year, engineers have hit the road with Alcatel's proprietary "Smart" programs in their laptops.
Nesci hopes Alcatel will help make such high-tech products into a serious export enterprise for Egypt in coming years. Under a separate program inaugurated last year, Cairo University students come to the ISSC to design software as graduation projects. Alcatel's pact signed with the Egyptian government last month encourages those programs and envisions Alcatel helping establish software training and development centers around the country.

Importing skills
While increasing exports is the mantra for those trying to steer Egypt out of economic stagnation, importing skills into the Egyptian workforce is a common feature of recent French-Egyptian business activity. And it goes to the heart of what Egyptian government leaders say is their number-one concern, at least as French officials interpret it: empowering Egyptians to attain a better standard of living. That goal is more important to the top layer of Egyptian government than any political issue facing Egypt, says Hervé Piquet, economic and commercial counselor at the French embassy.
"The message is clear: The first priority for the Egyptian government is economic and social. What they're looking for is the possibility of training for young people and the means to raise the level of life to global standards," Piquet says. "It's a very big challenge with the crush of demographics. Each 23.5 seconds, you have a newborn Egyptian. That means that each year you have half a million young Egyptians coming into the labor market, and it's unable to deal with that."
Training is a standout feature of French-Egyptian business activity even in traditional areas such as oil and gas exploration.
As Egypt taps liquefied natural gas (LNG), a powerful magnet for foreign currency, Spain is its first partner. Unión Fenosa of Madrid is spending $1 billion (LE 4.6 billion) to build Egypt's first plant for liquefying natural gas in Damietta, scheduled for operation in late 2004.
But Egypt's subsequent deal with France is more wide-ranging. Under a memorandum of understanding signed last November with the Egyptian Ministry of Petroleum, state-owned Gaz de France (GdF) agreed in concept to finance the construction of a new LNG production plant and to explore for additional natural gas reserves in the Mediterranean offshore. The locations are under discussion. (For more on GdF and Egypt's petroleum industry in general, see this month's Sector Survey, beginning page 73.)

Going underground
Big projects in Egypt are nothing new for the French. The Suez Canal was built because Napoleon ordered his engineers to design it in 1800 and French diplomat Ferdinand de Lesseps persuaded Egypt to let him oversee the work starting in 1859. In the modern era, the French government bankrolled the creation of the Metro, Cairo's urban railway system. The first line of the underground opened in September 1987 with a handshake between President Hosni Mubarak and Jacques Chirac, then France's prime minister, now its president.
Although Japan's Mitsubishi won the contract for the second Metro line from Giza to Shubra, the French conglomerate behind the original Helwan-El Marg line has built up a major presence in Egypt in the intervening years.
Alstom leads the Interinfra consortium that includes Alcatel and the Vinci Group. Local subsidiary Alstom Egypt employs nearly 360 Egyptians at its Maadi office, handling power and transportation projects that generate LE 60 million worth in work locally and stimulate another €150 million (LE 646 million) in work for Alstom's foreign properties.
The Metro remains a big source of business. Alstom is currently rehabilitating cars and signals on Line 1 by virtue of an €48 million (LE 206 million) low-interest loan from France to Egypt. The French firm will work on an extension of Line 2 that will add 2 km to the Giza end by late 2004. But the big prize is the much-heralded Line 3, proposed to extend from central Cairo to Heliopolis and the airport with a loop around the Nasr City fairgrounds. Contracts are expected to be awarded next year for the first section, stretching from Abbassiya to Imbaba. It would be worth no less than half a billion euros (LE 2.1 billion).
Alstom is hungry for contracts to supply the train cars and install systems such as signals and power supply, says Alstom Egypt President Gregor Stinner. Siemens of Germany is expected to compete aggressively for the systems. Mitsubishi will gun for the trains; so might Canada's Bombardier. The French bidders will play up their past experience, but the competition will come down to price.
Egyptians are more conscious of the need to upgrade the country's long-distance trains since the 20 February Al-Ayyat disaster, in which 364 people died and 64 were injured in a fire on a crowded second-class train. France's own inter-urban railway, the SNCF, is looking into whether it can at least help Egypt put together a feasibility study for upgrades, says French economic counselor Piquet. (For more on plans to rehabilitate Egypt's National Railway Authority after the Ayyat disaster, see "Runaway Train," April 2002, page 46.)
In air transport, JV Aeroport de Paris will upgrade the Luxor Airport under a build, operate and transfer (BOT) deal, and the French government plans to offer low-interest loans for the development of an aviation school in Imbaba.

Autos and the EU
French carmakers are striving to keep their brands recognizable on Egypt's roadways even as Egyptians find less money to buy new cars. Citröen and Peugeot have some cars assembled domestically to avoid steep import tariffs, but most of their locally sold cars are imported whole, as are all of Renault's.
Peugeot literally set off fireworks when it launched its new model at the new Marriott in Qatameya in late May: The imported 307 sedan is distinguished by its big windows and interior. Peugeot's local partner is Wagih Abaza.
Renault suffered an image problem with the Egyptian car-buying public in recent years because its after-sales service was lacking and spare parts were scarce. But Renault tackled those problems and increased its sales in 2001, according to French trade officials. Renaults are distributed in Egypt by Mohammed Nosseir, a partner in Vodafone Egypt and Giza Systems computers, among other ventures.
Citröen is also working to upgrade its image among Egyptian consumers. Citröen dropped the JAC Group as its local partner two years ago. Now local assembly is handled by Mohammed Sabat, also known as the developer of Qatameya Heights, while Azz el Arab handles distribution. Like Peugeot, Citröen's local assembly is at the partially government-owned AAV factory. But one of the pillars of those operations is shaky. Foreign automakers have an incentive to assemble cars in Egypt to avoid steep tariffs that apply to importing whole vehicles. Those tariffs would be phased out over 15 years under the Egypt-European Union Association Agreement awaiting approval in the People's Assembly.
As Egypt moves toward a tariff-free zone with the EU starting in 2005, Egyptian auto-parts suppliers hope that carmakers from the far East will increase local assembly in order to sell to Europe tariff-free. But the incentive for European firms to assemble here would be gone. In fact, an imported car fully assembled in a foreign country will likely be less expensive than the same model imported in parts and assembled locally.
With that concern in mind, Egypt appealed to the EU to postpone the tariff removal until 2009. European officials now speculate that Egypt will seek a second such delay until 2012 or 2013.

Selling the fruit
The EU will aid Egyptian exports of fruit and vegetables, and local business promoters are already targeting France. Egyptian produce has sufficient quality, but the competition is intense. European neighbors have stronger reputations, while North African nations Morocco, Algeria and Tunisia are nearer, have historical ties to France and speak the lingua franca.
On top of that, Europeans can be picky. Egyptian wholesalers learned that in 2000 in Rungis, a French hotspot for the agrifood trade. Some of the Egyptian produce was in packaging materials that fell below European standards, and the price was a bit high, according to the Club d'Affaires Franco-Egyptien (CAFÉ), a bilateral business chamber based in Cairo. The Egyptians were displaced by European and North African rivals and are still trying to regain lost ground, as was evident when CAFÉ officials recently called French buyers to schedule meetings during an upcoming visit by Egyptian sellers.
"From the French side, they are very hard to convince," says Estelle Gillot, CAFÉ's chief of mission for enterprise service support. "We say we have Egyptian companies that produce very good products. With French companies, what we now see is that they are very reluctant with the Egyptian products."
Enhancing Egyptians' marketing acumen is the aim of existing programs backed by USAID and the EU. CAFÉ plans to assist that goal by year's end by offering courses for export directors.

The customary complaint
Recent reports that the Egyptian government is streamlining the Customs Authority were well-received by trade promoters. When observers describe the obstacles preventing greater French-Egyptian trade, the sluggish customs bureaucracy is the most commonly cited problem. Everyone has a horror story to recount. Some are big. Alcatel's Nesci says several major projects for Telecom Egypt and MobiNil were halted between December and April because a shipment of telecoms equipment was stuck in customs in a rate dispute. Others are little: A French firm that makes small components for circuitbreakers in a Cairo industrial city wants to export them a dozen in a box, but Customs says the firm must print its name on each of the parts; embassy officials were negotiating with the Customs Authority as of June.
Still, French officials feel Egyptian leaders understand the urgency for reform. Commercial counselor Piquet pointed to a plan under consideration by Minister of Foreign Trade Youssef Boutros-Ghalli that would entice investors by promoting Egypt as a staging ground where goods can be imported, value added, then re-exported.
"As I say to my Egyptian friends, if you want to seduire a woman, you have to make an effort," Piquet says. "Egypt needs to have a clear legal framework, a global environment that's very friendly for investors, and incentives. The competition is great now, and Egypt has to prove that it is a country as much attractive as its neighbor. So what Egypt has to do is to revamp - to revamp its image and to revamp its capacity." bt







Side Articles
Sectors to Watch
Information technology, Oil and gas, Electricity, Transport, Water...

French Presence
Telecoms, Cars, Banks, Tourism, Chemicals, Pharamceuticals and Cements.

With A French Accent
A French takeover of Alex's sanitation services coincides with moves toward cooperation on shipping and investment

France

Photographer:
France has taken advantage of its strong presidential democracy and alliance with former arch-enemy Germany to lead the charge for European integration. Since the introduction of the euro in 1999, France has continued to push for a stronger European Union with common foreign, security and economic policies, although its activist farmers and socialist/protectionist leanings are frequently cited as obstacles to the eastward expansion of the EU.

Population:- 59.6 million (July 2001 est.) German, North African, Indochinese and Slavic minorities, though 90% of citizens are Catholic.

Terrain:- Continental climate, but Mediterranean enjoys hot summers and mild winters. Natural resources include coal, iron ore, zinc, timber and fish.

Government:- A republic led by a president, with government headed by a prime minister. President (Jacques Chirac) is elected by popular vote. National Assembly nominates the prime minister, who is then appointed by the president. Independent judiciary and a bicameral parliament consisting of a Senate and a National Assembly. Recent presidential elections saw the center-right Chirac comfortably re-elected, though only after a nasty battle with far-right National Front leader Jean-Marie Le Pen, whose support is frequently attributed to rising public dissatisfaction with sluggish economic growth, rising crime and immigration.

Pressure Groups:- Communist-dominated labor unions, independent labor unions, employers' associations, students, farmers.

GDP:- $1.45 trillion in 2000. 70.6% services, 26.1% industry and 3.3% agriculture.

GDP Growth:- 3.1% in 2000. Some estimates put it at less than 1.5% in 2001.

Economy:- The state is retreating from its once-dominant role in the economy, but remains dominant in the power, public transport and defense industries. In the run-up to the recent elections, Chirac did little to cut state support for pension and unemployment benefits, maintained high taxes, allowed a 35-hour work-week and was seen by many EU partners as slow in his commitment to privatization, though some analysts believe the pace of reform will pick up in his next term.

Sources: CIA World Factbook, international media.