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Country Commercial Guides for FY 2000: Egypt Report prepared by U.S. Embassy Cairo, released July 1999

CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES

DISTRIBUTION AND SALES CHANNELS

Foreign firms can sell directly within Egypt if they are registered to make direct sales. Many do so as part of a manufacturing or assembly operation in Egypt. A few foreign firms use free zones or bonded warehouses to store goods and hire their own employees to sell door-to-door consumer goods, such as vacuum cleaners.

Most foreign firms, however, rely on Egyptian companies for wholesale and retail distribution, ensuring their effectiveness through staff training programs in Egypt and abroad, supplying short-term home office personnel to work with the Egyptian firm in Egypt, and making regular visits by marketing and technical support staff. Although the concept of "marketing," as compared to simply selling, or waiting for the customer to find and come to you, is new to Egypt and weakly practiced, there are a growing number of good Egyptian firms who know what they are doing and how to market the products in which they specialize.

Egyptian commercial agents are required for foreign firm bids on most civilian government tenders. By contrast, commercial agents cannot be used to bid on military tenders, although use of Egyptian "consultants" may be allowed if the arrangement is properly structured. Commercial agents are optional when bidding on tenders issued by the petroleum companies, when selling to the private sector, or when selling under USAID-financed programs.

There are many choices for distributors, dealers and agents in Egypt. There are a few firms with modern management, including "profit center" staff responsible for success in specialized departments. There are more traditional "general trader" type companies, some of which have developed a certain specialization (e.g., lumber, building products, canned goods, fresh and frozen meats), and some of which handle "everything." Also there are smaller firms specializing in only a few product lines or only a handful of foreign suppliers.

According to Egyptian Customs authorities and the Ministry of Public Enterprises, in 1998 Egypt had 5,200 registered importers, 8,400 exporters, 3,300 commercial agents representing 104,000 foreign firms, and 3,200 factories licensed to import components. Most of these firms are privately owned, but the government sector -- which produces two-thirds of manufacturing output -- includes some 279 separate companies affiliated with 16 holding companies; nearly 30 military factories that also make civilian products; and 1,500 companies owned by one of the 26 provincial authorities (governorates).

Most retailers of consumer goods tend to import their own needs directly, rather than pay high markups to wholesalers -- sometimes a suitcase or truckload at a time. A corollary is that many Egyptians would prefer getting quotes directly from the overseas supplier instead of from the local agent, on the theory that the price will be better. This requires that U.S. principals be sensitive in prescribing the role (and presumed cost) of their Egyptian agent if the U.S. firm refers customer inquiries back to the Egyptian agent, or to a regional representative outside Egypt.

Only registered commercial agents can work on government tenders. Often such persons have retired from the government agency to which they are now specialized in selling. This is especially common among persons selling to the military, security and police agencies. In the extreme, some of these people literally operate out of their homes and have neither office nor staff, but they can be effective.

In Egypt, as elsewhere, the artistry of appointing a representative requires a blend of many concerns and decisions. Will your company and its product line be prominent in the attention of the prospective agent, or just be added to a dusty shelf of many other product lines? Is his influence with government decision-makers generational and therefore subject to decline as his years pass? Does he have children or trusted staff being groomed for responsibility?

Egyptian law requires that all commercial agents and importers have Egyptian nationality. (If it is a company, the chairman and all members of the board must be Egyptian, and it must be 100% Egyptian-owned.) Agents also must have resided continuously in Egypt for at least five years (with specified exceptions for expatriate Egyptians having an overseas work permit); be certified by a local chamber of commerce or professional association; not be a civil servant or worker in a public sector company (i.e., not moonlighting), nor a member of the People's Assembly; not be a "first grade relative" (i.e., a member of the immediate family, or uncle, aunt, niece, or nephew) of a civil servant of the rank of Director General or higher, or of a member of the People's Assembly. (This prohibition against agents with family members in government is rarely enforced.) Public sector firms can be agents, as can be private firms and individuals.

Distributor-type companies with any foreign ownership can market goods, including imported goods, in the following circumstances, although they cannot handle the import operation, per se:

(A) General Partnership Companies, or Limited Partnership Companies: In these types of companies, there may be a foreign partner, provided that the Egyptian partner(s) have at least 51% of the capital and the general manager or head of the company is an Egyptian national. In these instances, such a distributorship company cannot be an "importer" nor act as commercial agent unless it is 100% Egyptian owned and managed.

(B) Limited Liability Company: A foreign partner in this type of distributorship company faces no limit on the percentage of ownership, provided that at least one manager of the company is an Egyptian national (there can be one or more managers depending upon the articles of incorporation), there are at least two shareholders or partners, and the capital of the company is not less than LE 50,000 (approximately $15,100). A distributorship company of this type also cannot be an "importer," nor act as commercial agent.

(C) Joint Stock Company: Provided that at least 49% of the shares are offered to Egyptians upon formation, foreign shareholders ultimately can own up to 100% of the company, provided that a majority of the board of directors are Egyptians, the capital of the company is not less than LE 250,000, and there are at least three shareholders. Again, a distributorship company of this type may not import or act as a commercial agent unless it is at least 100% Egyptian owned and managed.

Foreign firms which form a distributorship as mentioned above often permit the Egyptian partners to form a separate company to act as "importer" or agent. The latter delivers the goods to the distributorship company for distribution/marketing within Egypt.

USE OF AGENTS AND DISTRIBUTORS - FINDING A PARTNER

Egyptian law concerning commercial agency agreements is among the most liberal in the Middle East from the foreigner's perspective. The law is neutral concerning exclusivity, compensation is not required to cancel an agency, and there is no minimum notification period for cancellation. There is no requirement that the agent authorize the import of the foreign principal's products into Egypt, nor that the importation take place through the agent. (Importers of any product must be separately registered, under another law.) Commercial agents must register the fact of their agency with the Ministry of Supply and Trade's Commercial Registry Department, giving basic facts about the agreement including the amount of commission to be received on sales. The foreign firm itself faces no local registration requirement. The commercial agency law is also neutral about dispute settlement procedures (leaving this to the parties to decide, preferably in writing at the time of appointment of the agent, and in advance of a dispute), and on the amount of commission due an agent.

Commission rates vary according to the type of product or service, volume of sales, and effort needed by the agent. The larger the volume of sales, the smaller the commission. For commodities such as rice, wheat, sugar, lumber or cotton, the commission ranges between 1-3%; for chemicals and foodstuffs 3-5%; for medical equipment, earthmoving equipment, office/business equipment, about 10%; for expensive laboratory and scientific equipment, 15%. For major projects such as a complete civil engineering project, the commission is typically 1-3%. In tenders the commission is calculated in the quoted bid. If a bidder reduces the bid price, the agent typically is asked to share in the reduction. Commission rates must be reported in bid packages for government tenders, with the government reserving the right to reduce any commission it deems extravagant. As previously noted, commission rates also must be noted in the Ministry of Supply and Trade commercial registry documents signed by the Egyptian agent.

Although law does not require exclusivity, in practice most Egyptians expect or at least hope for it. The majority of U.S. firms have one or two Egyptian agents, although a few have more.

Agencies can be split geographically, although this is generally avoided in a country like Egypt, where activity is centralized around the capital city of Cairo. If there is a geographic split, it is generally Alexandria with or without the Delta cities on one hand, and Cairo and the Nile valley on the other. Agencies also can be split between private and public customers, with one agent specializing in tenders and another handling private sector customers. Agents often appoint subagents to cover smaller cities.

There is no special Egyptian secret to finding a partner. It is as difficult and personal in Egypt as anywhere. Networking and lengthy investigation by the interested principal are necessary. There are plenty of reputable, dynamic, educated, and far-sighted Egyptian entrepreneurs available in Egypt, and some reside overseas in London, Paris, or the United States. The best are on a par with those of senior management of major U.S. corporations, and they should never be underestimated in one's evaluation of them or in negotiating with them.

In this search, for an appropriate partner, the U.S. Mission in Egypt can be helpful through its network of contacts developed by the Commercial Service, Foreign Agricultural Service, U.S. Agency for International Development, the Office of Military Cooperation, the U.S. Information Service, the Embassy's Economic and Political offices, and others. The Agent/Distributor Service (ADS) program, offered by the U.S. Commercial Service, is designed to assist U.S. companies in finding appropriate local agents/distributors for their products. For further information, U.S. business representatives should contact the nearest Department of Commerce Export Assistance Center in the United States, or the Commerce Department's Trade Information Center at 1-800-USA-TRADE.

Recommended business networks in Egypt include the 1,000 members of the American Chamber of Commerce in Egypt (with branch offices now in Alexandria and Washington, DC) and various associations of Egyptian entrepreneurs including the Egyptian Businessmen's Association, the Alexandria Business Association, the Federation of Egyptian Industries and the Egyptian Exporters Association. There are investor committees in the large industrial cities of Tenth of Ramadan, Sixth of October, Borg El Arab, and a chamber in Ismailia promoting projects in the Sinai.

FRANCHISING

Franchising of fast-food restaurants and clothing stores is a growing business in Egypt. Franchises in other business lines include do-it-yourself systems, language and computer training centers, pest control and gold plating.

Fast-food restaurants in Egypt, mostly affiliated with U.S. firms, are the fastest growing area within the franchise sector. Its representatives are more unified in overcoming the bureaucratic barriers this industry faces. An International Franchise Committee has been established under the umbrella of the American Chamber of Commerce in Egypt and is engaged in speaking with senior government officials to find solutions for their common problems, such as delays in customs clearance of imported foodstuffs where four different government agencies are involved. Delays can normally run 25 days or even up to three times that much. The committee also plans to promote the franchising concept as one which can play a positive social role, offering employment and advancement for young people.

At present, there are 33 American fast-food franchisors operating in Egypt. They include such popular chains as Chili's, KFC, McDonald's, Pizza Hut, Subway, Popeyes, Taco Bell, Kenny Rogers, TGIF, Hard Rock Cafe, and Little Caesars Pizza.

Egyptians themselves have begun franchising their own retail businesses to others, particularly clothing stores. This suggests that the franchise business concept, per se, is acceptable within the Egyptian cultural milieu and could be replicated in other business lines by interested firms.

All but one of the franchises now operating in Egypt is the result of an Egyptian entrepreneur approaching the foreigner, rather than the result of a marketing effort by the foreign firm. While this may show an entrepreneurial spirit among Egyptian business persons, it also highlights an attention gap on the part of foreign businessmen.

DIRECT MARKETING

Direct marketing within Egypt is covered in a previous section, Distribution and Sales Channels. Other forms of direct marketing such as catalog sales or television sales tend to be problematic and are just beginning. This is tied directly to the fact that the use of credit cards or checking accounts drawn on foreign banks is not common in Egypt (although it is increasing), and the mailing of goods into Egypt faces the risks of mail theft, loss in the airport mail warehouse, and arbitrary and high customs duties.

Foreign Sales Corporations (FSC)

Under U.S. law, FSC's can be set up in Egypt and other specified countries to permit a U.S. firm to exempt a portion of its earnings from U.S. taxes. Egypt has no such law, but can accommodate an interested U.S. party. One way is to obtain Investment Authority (GAFI) approval for a site (e.g., storage warehouse) in an Egyptian Free Trade Zone. The company's normal business offices can be located anywhere in country, including outside the Zone. This offers tax-free treatment under Egyptian law of the company's business located in the Zone, while also giving the U.S. firm the benefits of U.S. tax exemptions as an FSC.

JOINT VENTURES/LICENSING

Egyptian entrepreneurs like the comfort factor in having a foreign partner in a joint venture in Egypt. The foreigner supplies and ensures quality of the technology, as well as the "cachet" necessary to gain customer acceptance. Foreign equity in joint ventures can be as low as a few percentage points, depending upon mutual agreement. Egyptian Law No. 8 (Investment Incentives and Guarantees Law) allows foreign investors to own any amount, up to 100%, in projects in most sectors.

The details of joint venture or licensing agreements between Egyptians and their foreign partners are a matter of mutual agreement, defined by their contract, not by special law. Liberalized foreign exchange regulations since 1991 permit the free transfer abroad of profits and dividends, and invested capital may be repatriated without prior approval of the government's investment authority, the General Authority for Investment and Free Zones (GAFI).

Technology licensing that does not involve "investment" in Egypt by the foreigner but that does involve using "process secrets" for manufacturing in Egypt must be approved by the Ministry of Industry's General Organization for Industrialization (GOFI). Approval is not required for licensing agreements involving trademarks and technical know-how other than "process secrets." A stiff withholding tax is levied on royalty payments unless a double taxation treaty exists. (There is a U.S.-Egyptian treaty for the avoidance of double taxation which limits tax on royalty payments to 15% of the gross amount of such royalty.)

Numerous government and private companies have licensing agreements with foreign firms under which royalties and other fees are freely transferred abroad pursuant to individual corporate agreements. Examples of licensed production in Egypt include name-brand clothing, personal care consumer products, kitchen utensils, pistols, laser alignment equipment, and military vehicles. Service licenses include diving training, and franchised services include personal care and restaurants.

Inadequate patent protection has been the biggest barrier to licensing in Egypt. This hopefully will change with passage of a new patent law, a draft of which has been under debate within the government for several years.

Some U.S. investors have looked to Egypt as an investment site so as to be able to benefit from U.S. Government procurement preferences. Under the U.S. Federal Acquisition Regulations (FAR), Egypt is a designated country (among many others) from which the U.S. Government theoretically could procure certain goods as if they were made in America. However, this rule does not apply because the FAR requires such countries to sign the GATT/WTO Procurement Code and Egypt has not done so.

Organizational Structure & Management in Egypt

Most decision-making in Egypt is top-down and generally made by one person or a small handful of top managers. Delegation typically consists of giving and implementing orders. Nonetheless, many middle managers are effective, educated and intelligent, and do not like to be overlooked. They should not be minimized or underestimated. American visitors/negotiators need to greet middle managers politely and enhance their status in front of their superiors. Such efforts pay off in favorable treatment of paperwork and other work processes, and reduce bureaucratic obfuscation.

Managers of firms in Egypt say they typically spend 30% of their time dealing with Egyptian bureaucracy.

STEPS TO ESTABLISHING AN OFFICE

As in any other country, seek early legal counsel from one or more attorneys and tax counsel from a professional accounting/auditing firm. Lists of such firms are available on the internet from the Commerce Department's STAT-USA.GOV on-line service, in its National Trade Data Bank.

Egypt is a country in which the bureaucracy has flourished since the time of the Pharaohs. A newcomer's biggest and never-ending challenge is to learn, preferably in advance, what laws affect him/her and how to cope with them. Many of the laws reflect Egypt's socialist government of the 1950s-1970s, and, if interpreted literally, do not favor private enterprise. However, newer laws and the policy of today's government favor entrepreneurship and the free market economy. Tension between political desire favoring entrepreneurs and bureaucratic reliance on old laws-on-the-books continues.

There are two alternative legal routes for a foreign company to invest in Egypt: through Law 159 of 1981 or Law 8 of 1997. Companies Law 159 offers generally fewer privileges to foreign investors than Investment Law 8.

SELLING FACTORS/TECHNIQUES

The Egyptians with whom an American will deal in business are typically trilingual (English-French-Arabic), well-traveled individuals who pride themselves on ferreting out good deals at decent prices. Mid-level government officials with whom a foreigner may deal may be less sophisticated and less well-traveled, but no less able to negotiate.

Cairo is the cultural capital of the Arab world. Thousands of affluent Arab tourists and investors travel to Cairo often throughout the year, soaking up the cinema, theater, television, live performances, and relaxed lifestyle not generally available in some other Middle East countries. Many of these persons have second or vacation homes and apartments in Egypt, as well as factories and real estate investments. Foreign suppliers/ marketers are beginning to take advantage of Egypt as a locale from which to market to its audience of wealthy Arab visitors.

Some 16 million of the estimated 63 million Egyptians live in Cairo, the capital. Five million live in Alexandria permanently, and its population increases by 50% in the summer as vacationers flood in. Numerous important secondary cities offer market opportunities for agricultural, industrial, and consumer goods in the Delta (Tanta, Damietta, Mansoura, Mehalla el Kubra, Damanhour, Benha, Zagazig); along the Suez Canal (Port Said, Ismailia, and Suez); and along the Nile south to Upper Egypt (Assiut, Minia, Sohag, Qena, Luxor, Aswan).

Negotiations for a sale, whether with a government agency or a private individual, will be bound by certain unspoken Egyptian cultural requirements. One is that there is no final best price that cannot be reduced further by negotiating. A corollary is that only a fool would offer one's best price, or anything close to it, early in negotiations. Government employees are judged on their ability to squeeze the final penny from the lowest bidder. This happens repeatedly, at every level of decision making. This is the Egyptian version of the "Dutch auction," called in Arabic "momarsa." Momarsas have been popular because they give Egyptian officials the appearance of trying to get the best deal for Egypt, and they reduce charges of cronyism in the award.

Momarsas, however, are viewed by companies subjected to them as potentially unfair, without clear rules or procedures, and a violation of Tenders Law No. 8's mandate to negotiate with the lowest qualified bidder (only). The U.S. Embassy and some business groups, including the President's Council, urged the government to ban momarsas. A recent positive development is that the practice of momarsas has now been prohibited in the new tenders law (Law 8 of 1998), approved in May 8, 1998, and enacted, effective June 9, 1998 (see Pricing Products, later in this chapter).

A marketing problem in Cairo is that it is difficult to find out who offers what for sale, and where to find them. The city is splayed across the Nile about 15 kilometers (9 miles) in diameter, with several distinct marketing districts that are an hour apart in normally heavy traffic. Yellow pages and the like are not available to the average consumer. This means that people may only find a product they want by attending a trade show or fair, as it is too hard to find the single or handful of outlets maintained by official agents, distributors and dealers. A growing number of trade directories and commercial directories (including Kompass - Egypt) have eased the problem of identifying existing companies.

ADVERTISING AND TRADE PROMOTION (INCLUDING LISTS OF MAJOR NEWSPAPERS & BUSINESS JOURNALS)

Strategically placed newspaper and magazine ads can produce good results. Egyptians read newspapers voraciously, and all literate people will see or hear about advertisements placed in the widely circulating Al Ahram daily. Television is watched by all Egyptians, literate or not. TV advertisements reach and influence wide audiences. In Egypt, with the launch of several new TV channels in recent years (all government-owned), TV advertising has become much more sophisticated and influential.

Other forms of advertisement in Egypt consist of roadside billboards, flashing neon signs on building roofs, building walls completely painted with advertising signs, "junk mail" advertisements, faxed advertisements, and messenger/courier-delivered direct mail campaigns. Flyers/stickers plaster Cairo's walls and lampposts just as in America. Street peddlers and hawkers shout the praises and prices of consumer products they offer for sale.

Trade promotion is becoming more sophisticated. True trade shows are frequent, aimed either at targeted business audiences or at the general public; several take place each month at one or more of the downtown hotels, or the Cairo International Conference Center (CICC). Most of these shows consist exclusively of Egyptian distributors/dealers/agents of foreign suppliers, or local manufacturers -- not because they purposely exclude foreigners but because of poor marketing and last-minute preparations. The Commercial Service in Egypt is working with some of the better trade show organizers to offer advance publicity to U.S. firms, help the organizers target Egyptian customers, and provide an opportunity for U.S. technology to be displayed at an Embassy-staffed information stand that includes catalogs of American suppliers relevant to the show's theme.

The annual Cairo International Trade Fair held in the spring is the historical centerpiece of Egyptian trade promotion events. It has evolved from its beginnings as a "required" government annual extravaganza to today's version of a county fair aimed at consumer purchasers. U.S. firms offering consumer products as diverse as office and business equipment, telephone credit cards, courier services, saunas and swimming pools, satellite dishes, educational toys, car care products, lawn furniture, and recreational equipment all do very well at the annual U.S. Pavilion at the fair.

SELECTED MEDIA LIST: (those of likely interest to U.S. advertisers):

Daily Newspapers Al Ahram (circulation 1,000,000 Sunday - Thursday, 1,500,000 Friday) ---Egypt's most prestigious daily and most prosperous of the country's five largest publishing houses. In addition to publishing, the company has interests in many business services including computerization, billing services, and ID card services.

Al Akhbar (circulation 900,000)
---more informal news (crime, human interest) than Al Ahram.

Al Gomhouriya (circulation 350,000)

---established by the Government of Egypt, with more local and sports news than other dailies.

Al Wafd (circulation 150,000 - 180,000)
---mouthpiece of the New Wafd Opposition Party.

Egyptian Gazette (circulation 15,000)
---the English-language daily.

Weekly Newspapers/Magazines
Akhbar al Yom newspaper (circulation 1,200,000 - 1 million)
---Saturday edition of Al Akhbar with many special interest sections, particularly women's and sports.

Akher Saa magazine (circulation 50,000)
---current events, sports, economics, history, arts, cinema, theater.

Rose al Youssef (circulation 50,000)
---political magazine with human interest stories.

Al Ahram Weekly (circulation 20,000)
---English-language weekly newspaper summarizing key features originally published in Al Ahram Arabic-edition, as well as original stories.

Al Ahram Hebdo (circulation 15,000)
---French-language weekly

Economic Publications
Al Ahram Al Iktisadi weekly magazine (circulation 30,000)
---Egypt's leading economic magazine, modeled after the British "Economist", is read by academics and government economic officials.

Al Alam Al Yom daily newspaper (circulation 5,000 in Egypt, 50,000 in Saudi Arabia).
---economic, commercial and Arab affairs.

Nosf al Donia weekly magazine (circulation 100,000)
---women's issues.

Hawaa weekly magazine (circulation 50,000)
---Egypt's original women's magazine, first published in 1892.

Al Kawakeb (circulation 30,000)
---Egypt's cultural magazine, specializing in cinema, theater, radio and television.

Business Monthly (circulation 5,400)
---Published by American Chamber of Commerce in Egypt.

Egypt Today and Business Today (circulation 17,000)
---Glossy magazines related to social/business life in Egypt published by International Business Associates.

Middle East Times (circulation 4,400)
---English language weekly, part of the Washington Times group, Cyprus and printed in Athens.

Cairo Times (circulation 10,000)
---A bi-weekly English language paper that carries primarily features and has a large business section.

PC World Egypt
---A monthly English language publication launched in 1998 that focuses on business computing.

PRICING PRODUCTS

Egypt traditionally is a price-sensitive market, where quality often takes second place to cost. This is slowly changing. One important example of that change is a new tender law (Law 89 of 1998) which requires compliance with terms, conditions and specifications of the tender, as well as a comparative consideration of technical and financial aspects in arriving at an award decision. Prior to the new law, however, government tender rules had essentially required that the low bid win, regardless of quality. American firms sometimes had not understood this and would mistakenly quote "better value" than was required by tender specifications. This was ineffective and generally produced losing bids. Many companies would bid strictly to the specifications, then, as an alternative, would provide a second, optional value-based bid.

In the tender process, specifications are often unclear and poorly written, which allows for a wide divergence in interpretation by bidders as to just what the tender requires. Elaborate bid proposals often fail, passed over for cheaper, practical alternatives. U.S. firms that succeed in Egypt tailor their products to customers' specific needs.

Exceptions to the generalization that price sells are sales financed by USAID and other foreign/international donors such as the African Development Bank. Since funds are provided by these donors, Egyptian decision-makers can afford (and the foreign donors often require) quality, efficiency, and endurance considerations to play heavily in buying decisions. Another exception is consumer goods; people will pay for quality if they perceive it. However, the same affluent Egyptians who may buy a Mercedes car will tend to outfit their new factories with used equipment if they can transplant cheaply a "complete" factory from abroad.

Another pricing issue that causes some U.S. firms to fail in Egypt is that some U.S. suppliers may inflate their prices when quoting to USAID-financed projects, since they know such projects are restricted to U.S. firms. Egyptians who get cheaper quotes for the same products on non-USAID related projects network with one another and will refuse to deal with such suppliers.

SALES SERVICE/CUSTOMER SUPPORT

U.S. sellers should aim to create and support a sales/service network in Egypt by training their distributors and dealers. Firms that sell directly to government agencies need to do the same thing -- ensure training of the work-force using the product or it will fail through ignorance of proper maintenance and the foreign supplier will be blamed for poor quality. Total Quality Management (TQM) interest has skyrocketed among producers in recent years with a number of them now working toward ISO 9000 certification.

SELLING TO THE EGYPTIAN GOVERNMENT

In selling to the Egyptian government, one will of course deal directly with the client agency. Egyptian procurement is either done with national budgetary funds, or by using aid funds from USAID or other donors.

In the case of USAID-funded procurement, project announcements are made in the U.S. "Commerce Business Daily," published in Chicago. This journal publishes U.S. Government procurement needs, and is available in hard copy for $324 per year from the Superintendent of Documents, Government Printing Office, Washington, DC 20402-9371, phone (202) 783-3238, fax (202) 512-2233, or on line from Mead Data Central, Arlington, VA, phone (800) 843-6476.

Other donor-funded projects open to U.S. bidders are from the Government of Japan's United Overseas Development Assistance (ODA), or multilateral assistance from entities such as the World Bank, African Development Bank, or Arab and Islamic development funds. The new Bank for Economic Cooperation and Development in the Middle East and North Africa (MENABank), is scheduled to open in Cairo, possibly in 1998, and could be another funding source.

The following pertains to contracting directly with the Egyptian government. It is also relevant for donor-financed projects to the extent that Egyptian law applies to them.

Tenders Law

The Tenders Law No. 89/1998 now governs Egyptian government procurement by all civilian and military agencies (ministries, departments, local government units, and public and general organizations) unless they are excused from this law. It has replaced the former Law 9 of 1983.

Law 9 required that all foreign bidders on public sector tenders submit bids through an Egyptian commercial agent, except in the case of Ministry of Defense tenders for which commercial agents are prohibited. ("Consultants" may, however, be used in connection with military bids.) This means that tender documents generally can be purchased from issuing government offices only by the commercial agent. U.S. firms usually cannot get the documents by writing directly to the government agency or through the U.S. Embassy.

Public sector entities routinely request credit terms in their tenders for capital equipment. Typical payment guidelines for tenders worth more than $62,000 are 10% paid at contract signing, 10% against shipping documents, and the rest paid in semi-annual installments over two to five years.

Egypt's tender regulations are written by the government, for the government's benefit. Obligations and responsibilities of suppliers are spelled out in excruciating detail, but there are fewer explicit requirements placed on the government client agency. A contractor/supplier's safeguards, therefore, must be negotiated before contract signing, particularly in defining force majeure, "final acceptance," drawdown of the performance bond, and dispute resolution.

What the Tenders Law says:

Law 89 of 1998 has been promulgated and enacted. Business sources have reacted positively to the new tenders law which clearly tends to overcome some of the inefficiencies of the former Tenders Law 9/1993. This improvement is evident mainly in these areas:

(1) No negotiation of bids after bid opening (Dutch Auction, or momarsa, in the Arabic). It will not be allowed to transfer a tender into a momarsa.
(2) No cancellation of order without reason. Moreover, rejected bids and awarded bids will contain reasons on which decision was based.
(3) Bid bond will now be refunded immediately upon expiry of validity of tender.
The new law has not changed the following features:
(A) open competition with publication for at least 30 days;
(B) 15% price preference for Egyptian bidders;
(C) a two-phase decision-making process: a bid opening committee that convenes a public session to which all bidders are invited and bid prices are read aloud; and a decision-making (settlement) committee that reviews the technical bids and either makes a decision or (if the value is over $62,000) recommends a decision to the minister concerned;
(D) bid bonds of one or two (generally two)%, and a performance bond by the winning firm of (generally) five %. Favoritism is shown to Egyptian public sector companies and Egyptian cooperatives, both of which are exempted from the bonding requirements, provided they do the work themselves and do not request an advance payment; (E) fraud, bribery ("either personally or through a third party, directly or indirectly"), or bankruptcy by the contracting party annuls the contract and allows any outstanding bid or performance bond to be confiscated;
(F) sole-source decisions are permitted in special instances: monopoly sources of supply, goods whose import is monopolized, specialized products or services, and goods and services needed urgently;
(G) advance payments are permitted, against a letter of guarantee. U.S. standby letters of credit (which can be insured for political risk by the U.S. Overseas Private Investment Corp.) are acceptable in Egypt.

Law 106 of 1976 requires that insurance be provided to meet the decennial liability of the civil code.

Practical Problems of the Tenders Law:

There is no time limit for the decision-making committees to meet, make, or announce their decision. If a bidder withdraws its bid prior to bid opening, it forfeits the bid bond. Bidders often are "held hostage" to a government agency that stalls the bid opening for varied reasons, including running out of funds for the project. Costs of extending bid bonds are borne by the bidders. If a winning firm withdraws from a project before beginning or completing a project, its performance bond similarly will be confiscated. This has happened when a client has delayed start-up because of budget shortfalls, expecting the contractor/supplier to carry the burden of maintaining the performance bond.

Government agencies often delay giving the "final acceptance" of goods or works projects. This holds up final payment and final retirement of the performance bond. There are no time limits for making payment from the date of acceptance of a bid, nor any provision for implied or automatic acceptance of a supplied good or service. The client must explicitly acknowledge final acceptance before the contractor can receive final payment, retire the performance bond, and close its books.

If award decisions are delayed beyond the validity date specified by a bidder, extra costs incurred by the delay cannot routinely be passed on. If the client adds new requirements to an ongoing contract, any extra monies requested by the supplier/contractor must be endorsed by a special "price study committee" which sometimes takes years to approve them. In the meantime, of course, the supplier/contractor is expected to fulfill the revised contract without delay or complaint.

The Tenders Law makes no reference to dispute resolution, which therefore must be negotiated prior to contract signing. Arbitration in Egypt or abroad (the latter can include foreign law and foreign arbitral procedures) is preferred to the court system, although enforcement of arbitral awards is not assured because the losing party can appeal Egyptian or foreign arbitral decisions in Egyptian courts. If no specific dispute settlement procedure is mentioned, any future dispute with a government party will go to the government's Council of State, a government agency that both reviews the constitutionality of proposed laws and regulations and functions as a court for all non-criminal matters in which the government is a party. If the government party does not honor an arbitration decision, the tenders law does not permit the winning party to use the arbitration settlement documents to settle claims with other government entities (customs, tax, social insurance, etc.).

There is no provision allowing the supplier to delay work if payments are delayed. There is no provision to reduce the performance bond progressively according to the rate of completion of the work.

For Letters of Credit/Guarantee offered as a performance bond, it is advisable to have separate L/Cs for each procured commodity or distinct order, to avoid blocking the whole in case of dispute over one item.

The Tenders Law has increased the ceiling on direct orders to reach LE 50,000 (approximately $14,700).

In the Tenders Law, tenders and bids are not to be transformed into Dutch auctions unless otherwise explicitly mentioned in the tender advertisement. Maintenance and after-sales technical service is to be given significant consideration in deciding and evaluating offers. The job is to be given to the lowest bidder only if the requirements for technical and maintenance support are fulfilled.

The amendments to Dispute Settlement Law 27 of 1994 regarding contracts between public enterprises and private (domestic and international) sector suppliers allow both parties to agree to appoint any accepted legal body. In the past, the only body overseeing disputes with public enterprises was the State Council, which was taking years, in some cases, to settle disputes. Parliament approved these amendments in May 1997.

The new laws correct some of the most serious flaws in Egypt's current government procurement procedures, and will no doubt be welcomed by suppliers when implemented. Egypt is also now playing a positive role in international discussions of procurement practices, including in the World Trade Organization.

Other Practical Considerations in Selling to the Government:

Poorly written specifications make bidders have to guess what the customer wants. U.S. firms must stay in close touch with client agencies to minimize doubts and uncertainties. Do not assume the "best" is desired, since its superior features may not be understood or its price may be too high. The law is silent about who writes tender specifications and neither encourages nor discourages hiring of consultants to do so. Foreign firms that are trusted by government officials often voluntarily propose tender specifications to prospective tenderers, which gives them a chance to wire the specifications. In the decision-making committee, the technical representative (typically an engineer) must concur in the award decision. Such persons carry much influence.

Government entities expect performance bonds to cover the full warranty period for the product or work in question, and drawdowns proportional to work completed are not usual. U.S. suppliers, by contrast, generally want their warranty limited to safe delivery and/or set-up. Therein lies grounds for much misunderstanding and complaints over alleged delays in releasing performance bonds.

Influence peddling in procurement decisions is a much-discussed phenomenon. What is certain is that decision-makers must feel comfortable with a supplier. They will not select a low-bidder unknown to them. Personal friendships and frequent visits to decision-makers by foreign principals and their local representatives are important marketing factors. Some sweetheart deals are known to take place. However, many Egyptian sources affirm that most decisions are openly competitive and straight-forward. While the decision-making process per se may be opaque, it is also porous in the sense that details of all bids are readily obtainable through back channels and become known quickly to all concerned.

DEFENSE TRADE

Defense and "Defense Conversion" U.S. military aid finances most of Egypt's big-ticket defense procurements - $1.3 billion annually for several years. Large projects underway include the M1A1 Abrams tank manufacturing facility, M88A2 coproduction program, IFF, the HAWK rebuild program, and Peace Vector V. Such projects can be expected to continue, although improvements to and maintenance of existing force capabilities are perhaps more likely targets of future spending than entirely new systems.

Military production plants are not scheduled for privatization and are unlikely to be sold. Twenty?six of these plants produce both military and civilian goods, and many managers of these plants are interested in licensing arrangements with foreign firms to enhance their production mix and improve quality.

The M1A1 Tank Factory (Military Factory 200) outside Cairo is one of the largest military manufacturing facilities in this part of the world. Its American?trained Egyptian workforce is highly skilled and has access to state?of?the?art production and maintenance machinery. Since the foreseen production run of M1A1 tanks will end in 1998, Egyptian authorities are interested in attracting large?scale medium and heavy industrial producers to produce other products at this excellent facility either under license or in joint venture.

Examples of civilian products currently manufactured at 26 of Egypt's military factories include: medical and diagnostic equipment; domestic appliances; fire extinguishers; ammunition; machine shop equipment such as lathes, drills, and grinders; generating and welding sets; electric motors; television receivers; computers; batteries; electric and water meters; agricultural machines; kitchen equipment; mobile water purifiers; circuit boards; calibration equipment; Chrysler Jeep?brand vehicles; laser alignment instruments; and microscopes.

Military goods produced in Egypt include: small caliber and heavy ammunition, mortars, mines, grenades and other explosives, antitank rockets, rocket motors, radars and electronic equipment, smoke and pyrotechnic devices, rifles, pistols (Beretta licensee) and machine guns, jet trainer aircraft (Alpha and Tucano), armored personnel carriers, Alpha jet engines, field and aircraft communications equipment, Gazelle helicopters and engines, gyroscopes, weapon sights, binoculars, periscopes, tanks, MLRs, and artillery pieces.

Three entities are responsible for military production plants: the Ministry of Military Production (5 Ismail Abaza Street, Cairo, Phone 355?3063, Fax: 355?3617) which supervises 20 factories of which 14 also produce civilian goods; the Arab Organization for Industrialization (AOI) (P.O. Box 770, Cairo, Egypt, Phone 282?2087, Fax 826-010) whose nine factories produce civilian and military goods; and the National Service Projects Organization (NSPO) (10 Mahmoud Talaat St., Nasr City, Cairo, Egypt, Phone 600-236, 601-684, Fax 604-203) which operates three production companies. In late 1994, AOI became a wholly Egyptian Government owned entity when the governments of Saudi Arabia, Qatar, and the United Arab Emirates withdrew from the joint venture.

Defense Opportunities: The Egyptian Armed Forces will continue to operate and maintain the U.S. weapons systems currently in their force structure for the foreseeable future. This means the Egyptian Services will have procurement interests in the following categories over the next few years:

Egyptian Land Forces: spare parts and major assembly support for M1A1 tanks, M60 series tanks, M113 series APCs, M109A2 SP artillery pieces, M88 recovery vehicles, TOW, TPQ-37 radars, and numerous tactical wheeled vehicles. Additional procurement of command and control equipment, light wheeled vehicles, MLRS, and M1A1 tanks, as well as a second National Training Center and computerized war-gaming center.

Egyptian Air Force: ongoing technical support, maintenance support and spare parts for C130's, F4's, F16's, E2?C's, CH47's, Falcon Business Jets, Apaches, and Black Hawks. There are construction projects for air base infrastructure for the Egyptian Air Forces. They will probably also require control tower equipment and aircraft simulator support.

Egyptian Air Defense: technical and maintenance support for TPS 63 and other air defense radars. Technical and maintenance support for HAWK, Chaparral and Sparrow Air Defense Systems, and the Avenger Air Defense System. Procurement of additional 2D and 3D radars and Avenger.

Egyptian Navy: spare parts and technical support for coastal minehunters and U.S.-equipped ROMEO-C Submarines.

Non?service?specific: spare parts for engineering equipment and tools and test equipment for upgrading depot support of all the U.S. systems listed above. Integrated IFF system for all Egyptian Armed Forces. Ministry of Defense/Egyptian Air Forces hospital and nursing school.

The Egyptian Armed Forces are currently trying to complete their replacement of East European and ex?Soviet equipment with modern Western systems. Based on these requirements plus Egyptian inquiries for information, the Egyptian Government is probably considering the purchase of the following new systems: modern anti?tank weapons systems, Avenger, air defense radars, frequency hopping radios, diesel submarines, medium (300 ton) missile attack craft, and night vision equipment of all types.

Although the Egyptian Armed Forces tightly control information about their various five-year defense plans, it is very likely that they will be interested in the purchase of the following equipment to complete the modernization of their armed forces (this is in addition to the new platforms discussed above):

- Additional HAWK or other mid?range air defense systems.
- Additional air defense radars.
- RPV systems.
- Additional scout vehicles (HMMWV or similar vehicles).
- Armored personnel carriers.
- Engineering equipment.
- GPS equipment.
- Modern NVG equipment of all types.
- Short range air defense systems.

MILES and other training equipment for establishing a National Training Center.
Improvements/upgrades to Egyptian Air Defense Command and Control Systems.
Improvements/upgrades to strategic communications networks.
- Additional cargo aircraft to support unit deployments.
Ministry of Defense/Egyptian Air Forces hospital/nursing school.
- HMMWV Co-production program.
- M88A2 Recovery Vehicle Co-production program.
- Tank Transporter Co-production program.
- Coastal Defense Systems.
- MLRS
- Patriot
- Blackhawk Helicopters.

U.S. Government-financed procurement through the Foreign Military Sales (FMS) program in Egypt is published in Commerce Business Daily, available by subscription from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402-9371, phone 202-783-3238, fax 202-512-2233 and on-line from Mead Data Central, Arlington, VA, phone 800-843-6476.

Information on non-FMS, i.e. commercial sales, to the Egyptian military that are funded by U.S. military aid may be obtained in the United States from the Egyptian Office of Military Procurement, Embassy of the Arab Republic of Egypt, 5500 16th St. N.W., Washington, DC 20011-6823.

The American Embassy's Office of Military Cooperation helps U.S. firms arrange meetings with Egyptian military offices in Cairo to understand Egyptian purchasing requirements, both under FMS and commercial contracts. This office's Defense Industrial Coordinator is Lt. Col. Jeffrey L. Long, available at tel: 20-2-357-2850.

PROTECTING YOUR PRODUCT FROM INTELLECTUAL PROPERTY RIGHTS (IPR) INFRINGEMENT (see Chapter VII).

FINANCING U.S. AGRICULTURAL EXPORT SALES

USDA/FAS operates the GSM-102 Export Credit Guarantee Program for Egyptian private sector importers of U.S. food and agricultural commodities. In FY 1999, the program for Egypt provides $100 million of short-term financing (one to three years) for importers of wheat, corn, soybeans, soybean meal, vegetable oil and dairy products among other commodities. There is also a small program that provides a longer term credits, GSM-103 (3 to 7 years) to finance the exports of U.S. dairy cattle to Egypt. Through the GSM programs, U.S. banks provide financing to Egyptian banks on commercial terms, but the USDA's Commodity Credit Corporation serves as the guarantor of the transaction by insuring up to 98% of the principal and a portion of the interest for the credit extended.

Bank participating in the GSM programs are:
American Express Bank, Ltd. - Egypt Branch
Banque du Caire Barclays Int'l S.A.E.
Banque du Caire et de Paris
Citibank, Egypt Branch
Commercial International Bank
Egyptian American Bank
Export Development Bank of Egypt
Misr American International Bank
Misr Exterior Bank
Misr International Bank
Misr Iran Development Bank
National Societe Generale Bank
Scotia Bank
Suez Canal Bank

SELLING THROUGH USAID PROGRAMS

Background and Overview of USAID in Egypt

The United States Agency for International Development (USAID), began its program in Egypt in 1974 during a period when Egypt was facing extreme economic and political challenges. The economy was at a standstill; much of its physical infrastructure had deteriorated; technical and scientific ties and relationships with the West had broken down; agriculture productivity was low; and basic health and welfare services were poor. A few years later in 1979, following the Camp David Accords and recognizing Egypt's moderating role in the Middle East, Egypt became one of the United States' largest economic assistance program partners in the world. Since then, the United States Congress has provided on average $815 million annually for this important program aimed at enhancing stability, democracy and prosperity in Egypt and the region. More than $22 billion in economic assistance has been provided to date, enhancing the quality of life for many Egyptians and helping build a stronger, market-oriented economy.

Early assistance focused on the immediate needs of the economy, including clearing, repairing and reopening the Suez Canal to restore to Egypt and the world this important trade artery. Egypt's infrastructure also claimed early attention. Expanded electric power, water and wastewater, grain storage, telecommunications and port facilities became targets of assistance. Professional and institutional ties between Egypt and the United States were rebuilt. By the end of the 1970s, USAID had broadened its assistance to give greater attention to agriculture, health and basic education, addressing quality of life problems facing Egypt's people, particularly those in the rural areas, and promoting local development. USAID also began helping Egypt rebuild its industrial and commercial base through U.S. imports of commodities, equipment and intermediate goods. Working with the Egyptian government on structural adjustment and policy reforms opened up a greater role for the private sector and touched many enterprises both great and small. Whether the immediate target was regulatory changes and privatization or greater access to credit by small and micro entrepreneurs, the bottom line has been to facilitate market entry and increase the number of productive jobs.

Some results of these investments include dependable electricity, clean water, significantly improved health care, more schools, reliable telecommunications, improved village infrastructure and services, new technologies building a more efficient and diversified agriculture base, and expanded farmer access to credit, seeds and fertilizer. The portfolio of activities has shifted and grown, responding to Egypt's changing development needs based on the mutual goal of increasing both economic growth and the quality of life of Egypt's people.

To deal more effectively with problems hindering rapid and sustainable economic growth, Vice President Gore and Egypt's President Mubarak launched the U.S.-Egyptian Partnership for Economic Growth and Development in September 1994 which broadens and deepens the economic relationship between our two countries and enhances linkages between the U.S. and Egyptian private sectors. USAID plays an important role in the network that supports the Partnership and receives valuable impetus from the Partnership for key USAID program objectives, such as the promotion of private sector-led, export-oriented economic growth.

Procurement Opportunities There are two main sources of information about procurement opportunities related to USAID programs in Egypt:

- Commerce Business Daily, a U.S. Department of Commerce publication in which all USAID direct and USAID-financed Egyptian Government procurement is advertised;

- USAID's on-line website (WWW.INFO.USAID.GOV). This on-line service also has background on the AID program and its relevance to U.S. interests at home and abroad.

A third on-line site (WWW.INFO.USAID.GOV/WELCOME/CTIS/CTIS.HTML) offers information from the USAID Center for Trade and Investment Services (CTIS), which works through World Trade Centers and other private and public organizations to provide information about USAID to U.S. companies. To help U.S. firms sell through USAID programs, USAID has outreach offices in three cities: Chicago (tel: 312-467-0500, fax: 312-467-0615), Portland, OR (tel: 503-229-6734, fax: 503-229-6113), and Long Beach, CA (tel: 310-980-4566, fax: 310-980-4561).

Most commodity procurement is done under subcontract or by Egyptian Government arrangements, rather than directly by USAID.

Commodity Import Program (CIP)

USAID/Egypt sponsors the Private Sector Commodity Import Program (CIP) that makes dollars available to Egyptian private sector importers through some 22 Egyptian banks. The program provides attractive financing whereby the importers pay for the dollars in Egyptian pounds after an interest-free grace period. Imports are financed through the issuance of commercial letters of credit, and the transactions generally follow normal commercial practice. Eligible commodities under the program include most non-luxury, non-consumer items that are not related to military or police activities. U.S. exporters may consult with Egyptian customers to see if CIP funds are available. The current annual level of funding for this program is $200 million.

Mailing Address from the U.S.:
Commodity Import Program
Office of Commodity Management and Trade

USAID Unit 64902; APO AE 09839-4902

Physical Address:
Zahraa El Maadi, Maadi, Cairo
Tel (20-2) 516-5505 Ext. 2143, Fax: (20-2) 516-4652

USAID Alexandria
36 Beny El Abbas Street, behind National Security
Tel/Fax (20-3) 482-8458/9301

Ministry of Economy and International Cooperation
Department of Economic Cooperation with USA
48-50 Abdel Khalek Sarwat, Cairo
Tel (20-2) 390-5100/5125; Fax 393-8187

Information Given to Egyptian Buyers as to How the Private Sector CIP program works:

- Apply for a credit facility at any Egyptian participating bank.
- Fulfill all the bank requirements.
- Get quotations from a reasonable number of US suppliers, or one offer can be submitted if you are an agent, representative or distributor for the supplier, and fill the transaction form.
- After the approval of your credit facilities by your participating bank, your transaction form and related documents are sent to USAID/Cairo to be reviewed and approved.
- Once assured that all requirements have been fulfilled, USAID/Cairo sends a No Objection Letter to your bank, usually within 48 hours.
- A letter of credit is opened by your bank and advised by the US correspondent bank to the US supplier.
- The interest-free grace period starts from the date the payment is made to the US supplier.
- The exchange rate is fixed at the time the letter of credit is opened.
- You can qualify for a maximum limit of $15 million per year, according to the type of transaction.

PARTICIPATING EGYPTIAN BANKS:

American Express Bank
Arab African International Bank
Arab Bank PLC
Bank of Alexandria
Bank of Commerce and development
Banque du Caire
Banque du Caire Barclays International
Bank Misr
Commercial International Bank
Delta International Bank
Egypt Arab African Bank<
Egyptian American Bank
Egyptian Commercial Bank
Export Development Bank
Egyptian Gulf Bank
Misr America International Bank
Misr Exterior Bank
Misr International Bank
Misr Iran Development Bank
National Bank for Development
National Bank of Abu Dhabi
National Bank of Egypt