VZCZCXYZ0001
PP RUEHWEB

DE RUEHEG #2122/01 3140742
ZNR UUUUU ZZH
P 100742Z NOV 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 4173
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 002122 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ELA 
DEPT PLEASE PASS TO USTR-SONIA FRANCESKI 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN PGOV EG
SUBJECT: ANGER AND DIFFERENT EXPLANATIONS OVER QIZ 
IMPLEMENTATION DELAY 
 
REF: 08CAIRO2507 
 
¶1. (SBU) KEY POINTS 
 
-Public and private sector contacts continue to complain 
about the delay in implementing the Qualifying Industrial 
Zones (QIZ) program in Minya and Beni Suef, although the 
delay is largely due to the GOE's slowness to provide 
accurate information on the factories in the two governorates. 
 
-Both business and the GOE have stressed that expanding the 
QIZ to Upper Egypt is key to accelerating development and 
providing jobs in an economically depressed region. 
 
-One businessman's anger over the delay reflects his personal 
stake in QIZ expansion, and may be an indication that he had 
been misinformed by the GOE about the process of the 
expansion.  While the GOE has been slow to publicly advance 
the QIZ program, increased pressure from business may cause 
the GOE to consider adopting a mechanism for creating 
greenfield investment in the QIZ program. 
 
------------------------------------------- 
Minya and Beni Suef QIZ's Slow to Get Going 
------------------------------------------- 
 
¶2. (SBU) Although the United States Trade Representative 
(USTR) officially designated Minya and Beni Suef to 
participate in the QIZ program in January 2009, the program 
has not yet been put into action in the governorates due to 
the GOE's delay in providing USTR with accurate information 
on existing factories in the area. 
 
-------------------- 
Anger Over the Delay 
-------------------- 
 
¶3. (SBU) On October 18, EconOff met with Alaa Arafa, CEO of 
the Arafa Holding company and owner of the Swiss Garments 
Factory, one of the largest factories in the Qualifying 
Industrial Zone (QIZ) program.  Arafa also sits on the 
Egyptian QIZ committee and is known to be close to the 
Minister of Trade of Industry and other policymakers in the 
trade arena.  Arafa is livid over the delay in allowing 
companies from the Beni Suef and Minya governorates, areas 
designated in the recent expansion of the QIZ program 
(reftel), to export to the U.S. through the program, 
describing the holdup as "absolute stupidity."   He accuses 
USTR of violating the QIZ Protocol by seeking additional 
information on factories operating in Beni Suef and Minya 
before allowing the program to get underway in the two 
governorates. 
 
¶4. (SBU) Arafa also blames the new U.S. administration for 
the delay, suggesting that it is blocking QIZ expansion in 
order to protect U.S. domestic industry.  The allegation of 
protectionism was echoed by Ali Awni, the head of the QIZ 
Unit at the Ministry of Trade and Industry, in a separate 
meeting with EconOffs on October 20. 
 
------------------------ 
A Tough Business Climate 
------------------------ 
 
¶5. (SBU) Both Arafa and Awni report that QIZ companies, 
predominantly in the ready-made garment industry, are 
struggling.  Arafa reports that orders for his factories have 
been down since October 2008, blaming the global financial 
crisis and a relatively strong Egyptian pound that is harming 
exporters.  Awni notes that while larger QIZ companies like 
Arafa's appear to be able to weather the storm, some smaller 
companies are going out of business, and many have ceased 
exporting. 
 
--------------------------------------------- 
Extolling the Benefits of QIZ for Upper Egypt 
--------------------------------------------- 
 
¶6. (SBU) Both Arafa and Awni emphasize the importance of 
implementing the QIZs in Upper Egypt because of the greater 
labor stability that the region offers.   A lack of local 
labor has become a problem in the industrial zones near 
Cairo, and many of the workers at Arafa,s Swiss Garments 
Factory come from Beni Suef, making the multiple-hour commute 
each week to work at the factory.  Arafa argues that by 
expanding in Beni Suef, he would be moving part of his 
operation to a larger labor pool.  The relatively stiff 
 
competition for semi-skilled labor in Cairo-area garment 
factories has also led to a great deal of turnover and 
absenteeism among workers, both Arafa and Awni report. 
Because of higher unemployment in Beni Suef, both suggest 
that worker retention would be far better there. 
 
¶7. (SBU) Arafa and Awni depict QIZ implementation in Upper 
Egypt as a key component to the GOE's stated plan for 
addressing the region's poverty and underdevelopment.  Both 
spoke of the need for investment in Upper Egypt to combat not 
only poverty, but also religious extremism and sectarianism. 
Awni argues that Beni Suef, like all of Upper Egypt, needs 
initial investors to bring jobs and infrastructure to the 
area, creating a "magnet" for future business ventures. 
 
--------------------------------------------- -------- 
Different Opinions on Reason for Implementation Delay 
--------------------------------------------- -------- 
 
¶8. (SBU) EconOff repeatedly asked Arafa why the GOE's 
Ministry of Trade and Industry has been slow to provide 
information requested by USTR on currently operating 
factories, given their outspoken support for the immediate 
need to begin the QIZ program in Minya and Beni Suef.  Arafa 
maintains that the GOE is unwilling to do it simply because 
it does not believe it is required to do so under the QIZ 
agreement. 
 
¶9. (SBU) EconOff spoke separately with Mohammed Kassem, the 
Head of the QIZ Council, which represents a collection of 
businessmen participating in the program.  Kassem believes 
that the Ministry of Trade and Industry is reluctant to 
provide USTR with a new list of export-capable factories in 
Minya and Beni Suef in place at the time of the governorates' 
QIZ designation because it will be very short, containing 
just four or five factories.  Kassem suggests that one 
possibility is that the GOE is stalling for time until more 
factories can become established in the two governorates, in 
the hope that these factories can then be incorporated into 
the QIZ program.  He notes that the GOE is offering to 
subsidize start-up costs for factories to begin operation in 
the governorates. 
 
------- 
Comment 
------- 
 
¶10. (SBU) Arafa,s anger likely reflects his personal stake 
in the matter: His company's recently built factory in Beni 
Suef will likely not qualify for QIZ participation on the 
grounds that it was not operating at the time of the 
designation of factories in the Beni Suef and Minya 
governorates as part of the QIZ.  We suspect that Arafa may 
have been misinformed about the new QIZ designations by the 
Ministry of Trade and Industry, and now feels like the rules 
of the game have changed. 
 
¶11. (SBU) The motivations of the Ministry of Trade and 
Industry are less clear. Since the expansion of the QIZ, they 
have been slow to publicly announce the expansion and slow to 
roll out any type of strategy to encourage exports under the 
program. In fairness, the optics of announcing expanded trade 
relations with Israel in the aftermath of the Gaza war during 
the Minya and Beni Suef designation in January would not have 
been ideal.  Moreover, it is possible that the global 
economic slowdown has caused the GOE to focus more on 
stimulating exports from existing QIZ factories in the face 
of soft demand, instead of focusing on longer-term strategies 
to develop Upper Egypt.   Improving export conditions, 
together with pressure from businessmen such as Arafa, may, 
however, provide the GOE with the needed motivation to engage 
on establishing a mechanism for developing new greenfield 
investment under the QIZ, as was previously proposed by USTR 
in 2005. 
Scobey