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By Ahmed Namatalla

Until recently, the Pan Arab Free Trade Area (PAFTA) had resulted in little more than the exchange of delay tactics and distrust. Even since the agreement fully came into effect this past January, imports have not exactly flooded in.

Mohamed Kassem, a leader in the textiles industry and vice-chairman of the Egyptian Exporters Association, blames the glacier-like progress on logistical problems and poor communication. Pointing out that implementation “doesn’t happen with a push of a button,” he adds that “the government has already created a climate to encourage free trade, the rest is the responsibility of major market players to take advantage of the establishment of a free market.”

El-Shorouk Home Appliances Chairman Laila El-Far plans to be one of the first to step up to the plate. When El-Far brought the LG brand to Egypt back in 1996, no one had heard of it.

“I took a huge risk,” she says. “People didn’t even know what LG was. They thought it stood for Laila Group But it didn’t take long before people started buying LG televisions in large quantities, thanks to a good marketing campaign.”

Today, LG has become one of the top-selling home electronics brands in Egypt. Hoping for another import success story, El-Far is now on the verge of taking a new and unexpected risk.

This month, 5,000 televisions manufactured in Saudi Arabia should arrive in Cairo courtesy of El-Far’s newly established company, Egypt SAT. The company was created especially to import and distribute the Saudi televisions in Egypt, though El-Far says the company will expand into manufacturing and exporting later. The exporter is the Saudi Arabian Television Manufacturing Company (SATMC), an enterprise with 51% Saudi-investor ownership, 34% belonging to MIMR Resources of Malaysia, and 14% to American System Technology Inc.

El-Far says she took a calculated risk when she decided to import the television sets from Saudi Arabia instead of setting up her own factory in Egypt, but is certain the benefits outweigh the costs: between the good reputation of Saudi products in Egypt, low transportation costs and the absence of duties under PAFTA, she decided that importing would be the most profitable.

“When I was talking to Sheikh Ghazi [Bin Shalhoub, SATMC’s chairman], he suggested, ‘Why not buy television sets from us?’ After all, it would be like buying from a factory in Suez or Ismailia since the products would be exempt from customs. So why do we need to reinvent the wheel?” El-Far says.

She believes that businesses have been slow to implement the new trade policies because of a lack of trust on both sides.

Kassem, who retired from government service as one of the nation’s top trade officials after having participated in the negotiation of a number of major trade deals, agrees. He cites Morocco as an example, explaining that it is still more expensive and complicated to export to the North African country than to a more distant European nation despite PAFTA.

“It takes 21 days for a ship to travel from Egypt to Morocco,” Kassem notes. “It takes 7 days for that same ship to travel to Britain. That’s because there are better-established transportation trade routes to European countries than there are routes to Arab countries. A ship traveling to Morocco most likely has to stop in Europe before reaching its destination.” Kassem also cites the necessity of more regular air travel to facilitate the business meetings and shipments of goods necessary to keep goods and services flowing: there are far more flights from Cairo to London than to Yemen.

But a lack of market knowledge may be the ultimate cause of reluctance to enter new markets. “I don’t know the Moroccan market,” Kassem says. “Even if my products can go into Morocco custom-free, I don’t know the market. So I have to visit Morocco, meet trade partners and market my product. That takes time.”

According to Said El-Alfy, chairman of the People’s Assembly’s Economics Committee, the most progress under the agreement has been made with Saudi Arabia and Lebanon. “We’re 85% of the way toward free trade with Saudi Arabia,” he says, pointing out that Saudi Arabia is Egypt’s largest Arab trade partner and the largest market for Egyptian exports. According to the Ministry of Foreign Trade, Egyptian-Saudi trade was worth nearly $420 million in 2004; of that figure, almost $230 million was in Saudi exports. Ministry reports also show the two countries share 112 joint-investment projects collectively worth about $2.5 billion.

El-Far’s televisions were originally scheduled to arrive in early May 2005, but El-Far says the delay is natural as her company is still in the process of filing import application documents. Once they arrive, El-Far will rely on marketing to sell the sets she says rival top brands, such as Toshiba and her own LG, at an average savings of 5%.

“We believe in an open market,” she says. “It’s about giving people choices. There’s supposed to be more than one competitor on the market.”

The new televisions will include both CRT and LCD sets in a full range of sizes. Prices will start at about LE 750 for a regular 15” and top off at about LE 17,000 for the 32” LCD display. El-Far says she will focus on marketing the LE 2,500 regular 30” set as it continues to be in high demand.

The deal, worth SR 60 million (about LE 93 million), will bring a total of 15,000 television sets to Egypt. A pending agreement between the two companies could also bring 300,000 Saudi-manufactured mobile telephones to Egypt by September 2005, El-Far says.

Like other products that have been manufactured in UAE and marketed in Egypt, the mobile phones will target the Muslim market. The devices will feature built in compasses to give the user the direction to Mecca from any location in the world, prayer calls at prayer times, and will have a recorded version of the entire Qur’an. Some of the phones will also be capable of operating on a third-generation network like the one currently being planned by the Ministry of Communications and Information Technology. The phones will range in price from LE 300 to LE 1,000, she says.

El-Alfy suggests that increased regulations and penalties are necessary for businesses to take full advantage of tariff-free entry.

“It’s not like the WTO, it doesn’t have real consequences. There should be real commitment, with real penalties. It’s because we, as Arabs, are used to being informal with each other. When [Arab countries] sign agreements with anybody else, they always stick to them because they want themselves to look good. So [Arab free trade] is coming. It’s going to happen no matter what. It’s just going to take some time, as usual.”  bt