Environmental Technologies Industries
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Market Plans

Egypt Environmental Export Market Plan
Chapter 7-Market Strategies for U.S. Firms

Understanding the Business Climate

U.S. firms enjoy a solid position in Egypt with one-third of the total import market. The fact that the United States is the biggest donor in Egypt creates a favorable climate for American businesses there. In the environmental sector, most U.S. exports come through donor-funded projects. At the same time, the volume of competitively priced commercial sales of environmental technologies unrelated to large U.S. aid programs is increasing. There also continues to be steady growth in the number of U.S. suppliers that have appointed Egyptian representatives.

There are no legal or commercial barriers specifically pertaining to the import of environmental equipment. However, despite the recent liberalization of the tariff regime, import duties remain high (see section 1.2.2).

The investment climate is gradually improving. Basic guarantees for foreign investors are provided in the Investment Law (Law 8/1997). Law 8 explicitly addresses 16 distinct fields of economic activity, effectively creating a “positive list” for foreign investment, including industry, tourism, and water supply. Businesses investing in any sector not covered by Law 8 operate under Companies Law 159/1981. Provided that at least 49 percent of their shares are offered to Egyptians upon formation, Law 159 companies may ultimately have 100 percent foreign ownership. Foreign companies established under Law 159 can benefit from incentives, such as tax holidays, offered for investments in designated areas (new industrial cities) set forth in the New Communities Law.

Branch offices and representative offices are regulated by the Companies Department of the Ministry of Supply and Trade. Representative offices are required to be funded entirely by remittances from abroad in foreign currency. They cannot engage in commercial activities and are not subject to Egyptian taxes. Nongovernmental organizations (NGOs) may work in Egypt as branch or representative offices of the foreign-based parent NGOs after securing a bilateral agreement with the Government of Egypt (GOE).

A key business impediment in Egypt is red tape, including a multiplicity of regulations and regulatory agencies, delays in clearing goods through customs, arbitrary decisionmaking, high market entry transaction costs, and an unresponsive commercial court system. However, at the Cabinet level, the GOE has shown a willingness to intervene in favor of private-sector concerns and to modify arduous regulations when they are brought to the attention of senior officials. A strategic alliance among the U.S. Embassy, U.S. exporters, and their Egyptian importers, agents, and partners is aimed at combating unfair bureaucratic practices.

Positioning for Success

As in all countries, establishing a presence in Egypt requires both time and the investment of human and financial resources. It is necessary to thoroughly investigate the market, understand the customer base, and assess the competition. There are typically three ways to enter a local market:
Infrastructure Development

Because practically all infrastructure in Egypt is publicly owned, the environmental infrastructure development market is primarily donor driven. USAID is, by far, the largest donor in this sector; since 1975, it has invested over $2 billion in urban water and wastewater infrastructure in Egypt. Total USAID funding for ongoing municipal water and wastewater projects exceeds $1.1 billion (see table 4). Therefore, U.S. companies are at a distinct advantage in obtaining new business. Although bidding can be done from a U.S. corporate office, having a strong local presence through a local office or a strong local partner is essential for success in this market.

In many cases, large tenders call for the supply of a wide variety of commodities and services. Since a single U.S. firm might not be able to provide everything required for the bid, a consortium of companies can offer a bid package. This approach has been successfully used in Egypt by the Italians, Germans, and Japanese. However, Egyptian clients prefer a single bid for an entire tender rather than separate bids for each component.

U.S. firms should be aware that although the purchasing agency may simply accept the lowest bid that meets specifications, it also may attempt to bargain with one or more of the lowest bidders to negotiate better terms. U.S. firms should be prepared to instruct their representatives to take appropriate measures to increase competitiveness. The 1995 Presidential decrees granted autonomy to water and wastewater utilities in seven governorates, most importantly in Cairo and Alexandria. These decrees allow the governorates to operate as economic entities on a cost-recovery basis, which makes these utilities prospective buyers of U.S. equipment and services.

The market for waste management infrastructure in Egypt is just emerging, and USAID is not active in this sector. It is advisable for U.S. companies seeking to enter this market in anticipation of growing demand to start making contacts with the Ministry of Housing, Utilities, and New Communities as well as major municipalities.

Tender Law 9/1983, which regulates GOE procurement, requires that all foreign bidders on public-sector tenders submit bids through an Egyptian commercial agent. This means that, generally, U.S. firms can only purchase tender documents from issuing government agencies through a commercial agent and not by writing directly to the government agency or through the U.S. Embassy.

Egypt's tender regulations are written by the government for its own benefit. Obligations and responsibilities of suppliers are spelled out in excruciating detail, but fewer explicit requirements are placed on the client. Safeguards for the contractor and supplier must, therefore, be negotiated before contract signing, particularly for issues such as force majeure, “final acceptance,” drawdown of the performance bond, and dispute resolution.

Equipment Sales

The most common means of involvement in Egypt's environmental business sector is to export equipment and supplies. Equipment procurement can constitute a separate contract or be part of a large infrastructure project.

Different rules apply to equipment sales to public entities (municipalities and state-owned enterprises) and private industries. As already mentioned, Egyptian law requires all foreign companies bidding on public projects to have an Egyptian commercial agent. It is not required that the agent authorize the import of the foreign principal's products into Egypt nor that the importation take place through the agent. Commercial agents must register their agency with the Ministry of Supply and Trade, while the foreign firm itself faces no local registration requirements.

Public-sector entities routinely request credit terms in their tenders for capital equipment. For tenders worth more than $62,000, 10 percent is typically paid on contract signing, 10 percent is paid against shipping documents, and the rest is paid in semiannual installments over two to five years. Public-sector companies also generally require a performance bond equal to 10 percent of the contract, to be released upon completion of the contract.

Foreign firms are not required to have an agent when dealing with the private sector. However, most foreign firms have found it advantageous to engage a local agent to deal with problems related to communications, bureaucratic procedures, customs, local business practices, and marketing.

There are more than 50 agents and distributors in Egypt that deal with environmental equipment imports. They generally charge a 5 percent commission on the sale of equipment and supplies. A firm can appoint multiple agents in Egypt on a geographical or product basis. The Agent/Distributor Service Program, offered by the U.S. Department of Commerce's U.S. and Foreign Commercial Service, is designed to help U.S. companies find appropriate local agents and distributors for their products.

Environmental Services

The environmental services market in Egypt has so far been dominated by donor funding. USAID funding is available mainly in the areas of policy development, institutional strengthening, pollution prevention assessments, and monitoring and information systems. At the same time, new Egyptian private industries, concen-trated in new industrial cities such as the Tenth of Ramadan and the Sixth of October, are likely to become important clients for U.S. consulting firms specializing in ISO 14001, pollution prevention audits, and environmental impact assessments. This potential demand is driven by the new Egyptian environmental law requiring environmental impact assessments and stimulating pollution prevention, as well as by an increased interest, especially among exporting industries, in environmental management systems.

Since there is limited local competition, U.S., European, and Japanese consulting companies are the main competitors in the environmental services market. USAID projects allow U.S. firms to demonstrate their expertise and market their services to Egyptian industries. To be successful, U.S. consulting firms should offer a full range of services to meet their clients’ needs and have demonstrated experience in doing business in Egypt. Companies providing services to the industrial sector should be knowledgeable in environmental management systems and specific industrial processes. Companies interested in working for the government are required to be registered with individual agencies.

Another strategy for developing relationships with potential clients is through training. Companies can offer training courses on key environmental topics (ISO 14001, monitoring techniques, pollution prevention methods, hazardous waste management) to help educate clients and showcase their own expertise.

Financing Options

Egyptian importers typically arrange letters of credit for U.S. exporters through an Egyptian bank, although they must also be confirmed by a U.S. bank. The Egyptian banking system is highly liquid. Banks are willing to finance activities in either local or foreign currency, but they have to know the customer well.

Banks are not the only source of financing in Egypt because of the availability of donor assistance credit lines. USAID-Egypt sponsors the Private Sector Commodity Import Program (PRCIP) that presently provides $200 million per year to Egyptian private businesses, accessible through over 20 Egyptian banks, for short- and medium-term trade and investment financing for equipment and materials imports from the United States. The program provides attractive financing whereby the importers pay for 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. Financing is available for transactions as low as $10,000, thereby encouraging small or emerging private businesses to participate in the program. PRCIP also helps Egyptian private firms establish ties with U.S. suppliers.

The World Bank has established the Pollution Abatement Fund in Egypt to provide financing to public and private enterprises for environmental investment projects including waste minimization, pollution prevention, resource recovery, adoption of clean technology, and end-of-pipe environmental controls where no other alternatives are available. The fund will provide $35 million worth of subloans and grants through selected local participating banks.

Other financing sources include the U.S. Export-Import Bank, the U.S. Overseas Private Investment Corporation, the U.S. Trade and Development Agency, and others. More detailed information on these sources may be found in appendix C.

Taking Advantage of Information Resources

The U.S. Department of Commerce has a number of programs that provide assistance to U.S. companies interested in doing business outside the United States (see appendix D for more detail and contact information). The first point of contact should be with the Department of Commerce's Office of Environmental Technology Exports, established in 1993 to help promote the export of U.S. environmental technologies. This office offers a number of informational resources on prospective markets in emerging countries, leads environmental trade missions to create linkages for U.S. businesses, and can provide insight on getting established in foreign markets.

In addition to this office, the Department of Commerce has a number of other programs to help exporters. The U.S. and Foreign Commercial Service (Commercial Service) maintains an office in the U.S. Embassy in Cairo and has a commercial advisor whose portfolio includes the environment. This office can conduct customized market research, provide information on trade leads, and help make contacts between U.S. companies and potential local partners. The U.S. Embassy has in-house staff familiar with the Egyptian market and publishes a Country Commercial Guide that provides extensive information on doing business in Egypt. In 1997, it also published an Environmental Technologies Industry Sector Analysis.

U.S. companies interested in doing business in Egypt should use trade promotion opportunities offered by the U.S. Commercial Service in Egypt. The principal trade fair in Egypt is the annual Cairo International Fair, which includes consumer, agricultural, and industrial products. The Commercial Service sponsors a U.S. pavilion at the fair, visited by about 50,000 business representatives per year.

The Commercial Service's Gold Key Program for traveling business people is another popular trade promotion technique for U.S. environmental equipment suppliers. Through this program, the Commercial Service sets up appointments for visiting businesspeople with key government officials and private-sector companies.

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