Egypt's economy weathers global storm

By Christian Fraser
BBC News, Cairo

With companies like Xceed Egypt hopes it to compete with India

Xceed is one of Egypt's first call centre companies. In the past five years it has grown from 50 employees to 2,000.

The outlook is bright and even in the past few months they have been taking in new clients - big multinational companies from the United States and Europe.

They are one of the new breed of companies in Egypt now taking full advantage of the downturn in the world economy. Out of crisis comes opportunity.

Xceed's marketing and business development vice president, Ossama Nazmi, predicts his business will grow as other firms outsource "non-core" business to cope with the economic crisis.

He says Egypt is well placed to compete with the likes of India in the changing environment.

"The labour force here is multilingual - besides English, we can offer French, Italian, Arabic and Hebrew. We are at the gateway to Europe, and last but not least, we have the support of the government," he says. "It makes us extremely competitive."

To fight this crisis, the Egyptian government has recently announced a $1.2bn (£777m) stimulus package.

It is increasing public spending on infrastructure, roads, sewage works and housing, and it has put in place a number of sweeteners and tax breaks designed to lure outside companies that might soon be hunting cheaper manufacturing and services.

'Share of pain'

Over the past four years, on the back of some promising economic reforms, Egypt has seen steady economic growth - the government reports that in the past 12 months there has been a 7% rise in GDP.

But no country is immune to the global financial crisis and Egypt is no different - the pressure is already starting to tell on exports and tourism.

Our banks have not been involved in the US sub-prime crisis... but Egypt is encountering its own share of the pain Rachid Mohamed Rachid Trade and industry minister

It surely cannot be long before the downturn in world trade also starts to affect the amount of shipping that comes through the Suez Canal.

Egypt is still heavily dependant on the United States and Europe, its two biggest export markets.

While there has been diversification away from traditional industries - like cotton, agriculture and tourism - into petrochemicals, building materials and engineering products, the value of those exports on the international markets is now beginning to fall.

Trade and Industry Minister Rachid Mohamed Rachid, a former businessman, certainly has his work cut out.

"Our banks have not been directly or indirectly involved in the US sub-prime crisis and fortunately our loan-to-deposit ratio is low," he says. "But Egypt is encountering its own share of the pain."

Mr Rachid says Egypt is facing a higher level of competition as big producers like India, China and Brazil are sending their goods towards emerging markets because they can no longer sell their goods in the United States and Europe.

At the same time, foreign trade has been hit by the lack of finance from international banks, he says.

Encouraging signs

The government recognises that it needs to adapt quickly and to encourage businesses, like Xceed, which are taking advantage of the crisis.

In the Middle East urgency is not part of the culture, but you can see it here. The government recognises that it has to do more and it is starting to happen Hazem Ezzat Chief research officer, Nile University

Many of the hi-tech companies that will look to profit are now located in the country's flagship business park, Smart Village, a public-private partnership built on 3 million sq m of land in the outer suburbs of the capital.

Alongside Xceed's plush new offices are those of Convergys, a huge multinational company that provides billing and customer care services.

Its senior programme manager, Sherif Malaty, says he is encouraged by the government's efforts, but he points out that Smart Village is still the only business park of its kind in Egypt - a sign that the country has a long way to go to catch up.

"In spite of the advances we have made, the standard of education is still an issue - it has to be better," he says.

"And at the same time, the government has to continue, even step up, its efforts to attract global companies - it has to reduce the bureaucracy and the red tape."

Among the companies moving into Smart Village is the recently established Nile University, which specialises in IT education, preparing the next generation of students for the technology and communication industries.

Some of its current crop of students are now working on research for the world's biggest semiconductor company, Intel.

One thing is for sure it will get harder before it gets better Rachid Mohamed Rachid Trade and industry minister

The students are virtually guaranteed employment when they leave university - such is the demand for their skills within the country, which pleases Hazem Ezzat, the university's chief research officer.

"We have some incredibly smart people here, they are working with the biggest players in the industry and there is potential - huge potential - in this changing environment. We just have to make sure we harness it," Mr Ezzat adds.

While he acknowledges that the challenges facing Egypt are "enormous", he says he is proud to see a sense of urgency from the government.

"In the Middle East urgency is not part of the culture, but you can see it here. The government recognises that it has to do more and it is starting to happen," he says.

Persistent poverty

But Smart Village is an oasis, far removed from the chaotic, polluted and overcrowded city that Cairo has become.

A five-fold increase in the price of bread led to violent clashes in summer

With 80 million people now living in Egypt, the social pressures are enormous.

There have been food riots this year as inflation hit 15% and demonstrations over the country's perpetually low wages.

There is huge dissatisfaction that the wealth being created in some areas is still not filtering down to the poorest people.

"We cannot deny this has been a very difficult year for Egyptians," says Mr Rachid, the trade minister.

"In the first six months, we were talking about a completely different economic crisis - the rate of inflation, the price and scarcity of food - and all of a sudden we are talking about deflation and recession," he notes.

He says not everyone is pleased by the government reforms introduced along the way.

"If you are trying to take away the bureaucracy and the red tape, or deal with severe over-employment in many areas, or to turn certain industries towards privatisation, there will be people who are not comfortable with that."

Mr Rachid says the challenge is to "galvanise the reformers."

"All the good indicators are there, there are positive things that have happened, but we have to keep going. One thing is for sure it will get harder before it gets better."