VZCZCXYZ0000
PP RUEHWEB

DE RUEHEG #0065/01 0120928
ZNR UUUUU ZZH
P 120928Z JAN 10
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 4719
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 0705
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 000065 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ELA 
 
E.O. 12958: N/A 
TAGS: ECON EG ETRD TU EINV
SUBJECT: TURKISH INVESTMENTS IN EGYPT GROWING FAST 
 
¶1. (SBU) Key points: 
 
-Turkish investment in Egypt has more than tripled in recent 
years, and is expected to continue growing in the coming 
years. 
 
-The favorable outlook by Turkish investors is driven by 
lower costs of doing business and Egypt's solid market access 
to the European Union, the United States, and countries in 
Africa and the Middle East. 
 
-Despite issues with the Egyptian Customs Authority and a 
publicized dispute over Turkish steel imports, bilateral 
trade continues to grow at a rapid pace. 
 
-The GOE's practice of providing highly subsidized energy and 
strong support for the textile industry conflicts with the 
GOE's long-term goals of moving beyond garment exports and 
removing subsidies. 
 
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A Fast-Growing Market for Turkish Investors 
------------------------------------------- 
 
¶2. (U) Turkish-Egyptian commercial relations have expanded 
rapidly over the past few years, and indications are that 
this trend is likely to continue. In a January 5 meeting, 
Turkish Commercial Counselor Gokmen Sahin told EconOffs that 
roughly 250 Turkish companies are operating in Egypt, with 
investments of $1.5 billion. Turkish investment has more than 
tripled in the past five years; nearly 85% of Turkish 
companies operating in Egypt have been established since 
2004, according to the Egyptian Ministry of Trade and 
Industry (MOTI). Sahin estimates that 40,000 Egyptians are 
employed in Turkish-owned factories around Cairo and 
Alexandria. Sahin said he expects Turkish investment to 
triple again soon, reaching $5 billion in the next three 
years. 
 
¶3. (U) Since the Turkey-Egypt free trade agreement (FTA) 
entered into force in 2007, bilateral trade volume has more 
than doubled, reaching its current level of $3 billion.  In a 
November 2009 conference on Turkish-Egyptian economic 
relations in Cairo, both Egypt's Minister of Trade and 
Industry Rachid M. Rachid and Turkish Foreign Trade Minister 
Zafer Caglayan expressed interest in tripling bilateral trade 
to $10 billion in the next three years. 
 
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Low Costs and Solid Market Access Attracting Investors 
--------------------------------------------- --------- 
 
¶4. (U) Sahin says that Turkish investors are attracted to 
Egypt in part because of low labor costs and subsidized 
energy prices. Even with labor inefficiency, Sahin estimates 
that low wages (about $100/month on average for factory 
workers in Egypt) save Turkish companies at least 30% in 
total production costs. 
 
¶5. (U) Another major factor in spurring investment is Egypt's 
strong duty-free market access, such as that provided by its 
Association Agreement with the EU, the Qualifying Industrial 
Zones (QIZ) protocol with the United States, and the COMESA 
and Agadir agreements. Much of the Turkish investment in 
Egypt is concentrated in the textile and ready-made garments 
(RMG) sector. Sahin says that large American garment 
importers like Gap and Target have recommended that their 
Turkish suppliers consider relocating to Egypt to take 
advantage of both market access and lower costs. 
 
¶6. (U) Manal Abdel Tawab, who manages Turkish investment in 
the QIZ Unit of MOTI, says that 11-12 Turkish-owned garment 
factories in Egypt are currently exporting to the U.S. 
through the QIZ program. She said, however, that she does not 
think Turkish investments in RMG will increase, but that 
Turkish investors are looking for other sectors in which to 
invest, such as durable goods.  Sahin also mentioned that 
some Turkish companies are looking to invest in glass and 
electronics factories. 
 
--------------------------------------------- ----- 
Trade and Customs Disputes Not Deterring Investors 
--------------------------------------------- ----- 
 
¶7. (SBU) According to Sahin, Turkish businesses have reported 
problems with the Egyptian Customs Authority, including long 
clearance delays, inconsistent treatment of imports under the 
FTA, and a general problem of unskilled government workers. 
Despite this, Sahin says these problems are manageable and 
that customs issues have not dissuaded Turkish businessmen 
from investing in Egypt. 
 
¶8. (SBU) Turkey's estimated $2.2 billion in exports to Egypt 
in 2009 was driven by steel, leading to calls in Egypt to 
impose anti-dumping duties on Turkish steel imports.  While 
the GOE's MOTI has announced it will study imposing such a 
measure, Sahin says that the high demand for steel in Egypt's 
booming real estate sector and the strong Turkish-Egyptian 
political relationship make the adoption of anti-dumping 
duties very unlikely. 
 
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Comment 
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¶9. (SBU) The rapid expansion in Turkish investment marks 
progress for the GOE towards its goals of increasing 
investment and trade ties with non-traditional partners 
outside of the EU and U.S. The attitude of Turkish investors 
on the economic potential of Egypt reflects positive strides 
made by the GOE in terms of increasing export market access 
and improving the investment climate. However, since much of 
the current investment attractiveness is driven by subsidized 
energy and the strength of the ready-made garments (RMG) 
industry, the GOE may struggle in the coming years to 
reconcile attracting foreign investors with its stated goals 
of reducing subsidies and broadening manufacturing exports 
beyond RMG. 
SCOBEY