Bill Hinchberger - Global Finance

With implementation of a new trade deal taking hold, two new reports see a leadership role for Egypt.

Two recent expert reports supply evidence of Egypt’s unique potential to benefit from a more fully implemented African Continental Free Trade Area (AfCFTA) agreement. They are helping to fuel much needed optimism about the future of an economy battered by short-term geopolitical and other challenges that have led to symptoms such as 38% inflation last September.

“Egypt has what it takes to play a key role,” said Landry Signé, senior fellow at the Brookings Institute, a Washington D.C.-based think tank, and professor at the Thunderbird School of Management, a business school in the United States. “For SMEs (small and medium sized enterprises) and larger companies, there are opportunities everywhere.”

The analytical reports were bookended by last year’s $7 billion World Bank deal (to support private sector jobs, health and education, and climate change adaptation) and a new $5 billion loan program with International Monetary Fund (IMF) announced this month, which in turn came on the heels of a $35 billion accord with the Emirati sovereign wealth fund ADQ. After the IMF deal, the World Bank decided to chip in another $3 billion.

The AfCFTA-Egypt reports come from the Organization for Economic Cooperation and Development (OECD), a Paris-based club of rich countries, and the Trade Law Center (tralac) in Western Cape, South Africa. Both suggest that Egypt is well placed to benefit from and help advance AfCFTA.

AfCFTA became the world’s largest regional free trade agreement when it was formally launched in 2021. The World Bank predicted that it could boost regional trade by 7%, meaning $450 billion, and lift 30 million people out of extreme poverty by 2035. While slow to gain momentum in trade volumes, partially due to the Covid lockdowns, the agreement has made strides on administrative, legislative and diplomatic fronts.

The Egyptian government signed on in 2022 as one of eight countries to do a fast-track test as part of something called the Guided Trade Initiative (GTI). (The others were Cameroon, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia.) Recent reports say that at least 24 other countries are slated to join the GTI soon, though insiders speculate off the record that the number could jump to more than 30.

In November, Cairo hosted the third Intra-African Trade Fair, organized by the African Export-Import Bank (Afreximbank), in collaboration with the African Union and the AfCFTA Secretariat. “The capabilities exist, and the possibilities exist, but there may be some obstacles and problems,” said Egyptian President Abdel Fattah al Sisi at the inaugural ceremony. “We in Egypt should always build, develop, rebuild and cooperate in these fields, and nothing less.”

The private sector seems to take the politicians at their word. “Egypt is trying to really make this happen,” says Usama Elsayed, chief operation officer for BPC Banking Technologies, an Egyptian financial software firm. “The official position of the government is to do whatever it takes to make the implementation run seamlessly.”

Intra-regional trade in Africa still stands at 15%, much lower than for Europe (61%) and Asia (59%), according to the OECD report titled Production Transformation Policy Review of Egypt: Spotlight on the AfCFTA and Industrialization published in November.

The apparent lack of progress can be attributed to several factors beyond the lockdowns, according to a section of the Foresight Africa 2024 report by the Africa Growth Initiative, a program of the Brookings Institute, released in January, and authored by  Andrew Mold, chief of the Regional Integration Office for Eastern Africa, at the United Nations Economic Commission for Africa, and Francis Mangeni of the AfCFTA Secretariat and senior fellow at the Nelson Mandela School of Public Governance, University of Cape Town. These would be: that it is normal, e.g., the European Union took years to solidify; AfCFTA’s tariff reductions are meant to be gradual, running through 2035; and because non-tariff barriers also need to be addressed.

Add to that just plain logistical problems. “The whole issue with Egypt and Sub-Saharan Africa is the Saharan Desert,” says John Stuart, an economist and policy analyst with tralac, and author of the above-mentioned report.

Egypt, along with Nigeria and South Africa, ranks among Africa’s most advanced industrial centers. It also represents a major trade hub, albeit so far directed mostly towards Europe, the Middle East North Africa (MENA) region, and even Asia. The strength of that triumvirate may translate to an opportunity. “The three largest economies on the continent—Nigeria, South Africa, and Egypt—all enjoy large positive trade balances with their continental partners, so in principle, they can afford to adopt a liberal import regime for intra-African imports,” according to Brookings.

The OECD and tralac reports, plus a few others, have culled out a handful of sectors that jive as priorities both for the trade group and Egyptian industrial policy. They include: renewable energy; pharmaceuticals; logistics and transportation; clothing, textiles and apparel (CLT); and agribusiness and processed foods.

There is anecdotal evidence of progress in certain areas, according to another report, this one published last year by the World Economic Forum with Signé as the main author. Titled AfCFTA: A New Era for Global Business and Investment in Africa, it noted that “several global automotive companies… have expanded operations” on the continent, working with governments in Egypt, Ghana and South Africa, among others, and the AfCFTA Secretariat. It cited Egypt, along with Rwanda and South Africa, as a leader for e-mobility start-ups that are developing sustainable vehicles.

Egypt already plays important roles in several global value chains, including those for CLT, oil and gas, automobile manufacturing and renewable energy, among others, as described in tralac’s trade brief Egypt’s Potential Trade Development Under the AfCFTA.

Egypt has been a leading cotton producer for thousands of years, but “Manufacturing clothing is not their strong point,” said Stuart. Perhaps they can use AfCFTA to hook up with lower cost clothing manufacturers on the continent. “They might be happy to import made textiles,” he adds.

By extending their supply chain experience into other parts of Africa, Egypt can help itself by helping others on the continent. “AfCFTA offers a unique opportunity to Egypt to expand its value chain participation into African countries,” concluded the tralac document.