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Viewing cable 08CAIRO2508, GOE LOOKS AT RETAIL AND DISTRIBUTION SECTOR

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Reference ID Created Released Classification Origin
08CAIRO2508 2008-12-16 09:24 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Cairo
VZCZCXYZ0010
RR RUEHWEB

DE RUEHEG #2508/01 3510924
ZNR UUUUU ZZH
R 160924Z DEC 08
FM AMEMBASSY CAIRO
TO SECSTATE WASHDC 1060
UNCLAS CAIRO 002508 
 
SENSITIVE 
 
SIPDIS 
 
E.0. 12958:  N/A 
TAGS: ETRD EINV ECON EFIN EG
SUBJECT:  GOE LOOKS AT RETAIL AND DISTRIBUTION SECTOR 
 
Sensitive but unclassified.  Please protect accordingly. 
 
1. (SBU)  FCS and Econ counselors met recently with the Minister of 
Trade and Industry's newly hired advisor for internal markets, Sahar 
El Salab.  El Salab was until recently a vice president of CIB, 
Egypt's largest private bank.  In her new role, she is charged with 
reforming Egypt's internal markets, from the supply chain to modern 
retail practices. 
 
2. (SBU)  According to El Salab, the GOE has focused its reform 
efforts on manufacturing, SME development and trade.  No one, she 
said, had ever looked at the end of the supply chain.  Egypt has 
been suffering from significant price inflation over the past two 
years.   Some of this has been due to external price shocks from oil 
and other commodities.  Another portion is attributable to GOE 
energy price hikes and increases in public sector salaries. 
Additionally, there have also consistently been price spikes at 
times of high consumer spending, ie., during Ramadan, around the 
major holidays and in the lead up to the opening of school.  The GOE 
has tried, in recent years, to control price gauging.  Last Ramadan, 
for example, Prime Minister Nazif said that in addition to 
distributing Ramadan bags to 1 million poor families, the government 
would also to actively enforce consumer protection laws and respond 
to complaints. 
 
EGYPTIAN PRICES VERY STICKY DOWNWARD 
------------------------------------ 
3.  (U)  Despite these efforts, and current international 
deflationary trends, prices continue to rise.  Egyptian producer 
prices were up 16.9 percent year-on-year in October over 2007, down 
from 22.7 percent in September, but still high given the economic 
slowdown.  In part due to the intractability of inflation in Egypt, 
and the need to promote development and economic activity in Upper 
Egypt, the cabinet has decided to pay more attention to the internal 
market, particularly in Upper Egypt.  Prime Minister Nazif first 
mentioned his plans to address problems in the internal market in a 
meeting with the Ambassador this past summer.  More recently, 
Minister of Transport Mansour announced plans for nearly LE 18 
billion (USG 3.27b) in infrastructure investments, aimed mainly at 
upgrades to ports, roads, railroads and bridges. 
 
4.  (SBU) In the GOE analysis, however, the problem extends beyond 
infrastructure.  Minister of Trade and Industry Rachid has decided 
more attention should be paid to the retail sector.  According to El 
Salab, informal operators and kiosks control the prices for the 
lion's share of consumer products in Egypt.  Manufacturers have 
little control over final prices charged for their goods.  The newly 
created Competition Authority has concluded that there is price 
fixing and collusion, she said, but finds it very hard to 
investigate and address the problem when violators are networks of 
informal distributors and retailers. 
 
5.  (SBU) In addition to competition problems, manufacturers, she 
said, are operating at fifty percent capacity because of problems 
with utilities, the distribution chain, links to retailers and other 
barriers in the internal market.  Farmers lose a substantial 
percentage of their crops getting them to market, and face food 
safety issues in the case of poultry, cheese and milk, for similar 
reasons.  This affects profitability, discourages investment, and 
raises consumer prices.  The GOE wants to improve the marketability 
of Egyptian products, and wants Egyptians to have access to the same 
quality of products that Egypt companies are now providing to the 
export market. 
 
6.  (SBU) The solution, according to El Salab, is to modernize the 
retail sector.  This will require a number of reforms and 
incentives, she said, which have the support of President Mubarak 
and Prime Minister Nazif.  First, she has been charged with 
identifying land for development of the retail sector, and putting 
together the appropriate infrastructure to attract investment by 
large retail developers in larger regional centers outside of Cairo 
and Alexandria, both in the Delta and Upper Egypt.  The ministry 
plans to oversee the establishment of a private equity fund to 
promote investment in retail.  El Salab has been in contact with a 
number of large retailers, including, she said, Carrefour (which has 
two stores in Egypt and is opening two more soon), as well as Ikea 
and other major retailers. 
 
A NEW FRANCHISE LAW 
------------------- 
7.  (SBU) Legal reform will also be required.  According to El 
Salab, some of the regulations governing the operations of the 
internal market date back to 1952.  Fines, for example, are very low 
and not a disincentive to violating anti-competition and consumer 
protection laws.  In a recent meeting with senior MTI advisor Samiha 
Fawzy, Fawzy asked officials from Commerce's Commercial Law 
Development Project to consider providing assistance to MTI in 
drafting a new franchise law.  This, they hope, would promote the 
expansion of U.S. and international franchise activities in Egypt. 
Fawzy underlined that the introduction of franchises in every sector 
would promote modern business practices; improve marketing, 
advertising and consumer service; and allow for the transfer of 
technology and management skills. 
 
TDA COLD CHAIN STUDY WELL RECEIVED 
---------------------------------- 
8.  (SBU) FCS has recently provided a TDA-funded comprehensive 
feasibility study for Cold Chain System for Upper Egypt to Assistant 
Minister Salab. The study proposes a cold chain system that will 
benefit the rural communities of Upper Egypt by expanding and 
sustaining jobs and incomes, and by increasing volume and market 
value of agricultural exports of selected horticultural commodities 
produced in the region. The study includes a proposal for the design 
and business plan for a pack house facility and the design for a 
cold store facility, and evaluates the cost effectiveness and 
funding eligibility of the proposed development actions. It also 
analyzes how the cold chain facility would contribute to trade 
capacity building in Upper Egypt through reducing post-harvest loss, 
enhancing quality and ensuring food safety, and increasing the 
profits from direct exports from Upper Egypt to Europe and the 
greater Middle East. The lack of an appropriate cold chain system is 
reported to be the dominant factor restraining the development of 
horticultural exports from Upper Egypt.  Salab's initial reaction 
has been very positive and has informed us that she has already 
shared the study with some private investors. 
 
NEXT STEPS 
---------- 
9.  (U) FCS will lead an 18-member trade delegation from the 
Alexandria Chamber of Commerce to the Retail Expo in New York next 
month, where the Chamber is expected to sign an MOU with the 
National Retail Federation on retail management training.  The 
delegation is also scheduled to meet with representatives from the 
Small Business Administration, OPIC, TDA, ExIm, State and Commerce 
in Washington. 
Scobey