Privileged relations between the EU and Egypt go deeper

A new chapter in the relationship between the European Union and Egypt is opening, deepening even more the partnership in key fields of interest, such as agriculture, industry, trade and investment.

Marcelle Nasr - Cairo, Eurojar

During the last five years, a far-deeper cooperation has been established between the European Union and Egypt, precisely on the economic level, with more trade and more aid. Egypt’s export to EU countries went up from 2.8 billion Euros in 2004, to 8.2 billion Euros in 2008. Egypt’s imports from EU countries have increased as well during the same period from 7.6 billion Euros to 12.7 billion Euros, according to the Head of Delegation of the European Union in Egypt, Marc Franco.

Mr. Franco underlines that the European Union is the first direct foreign investor in Egypt. Among 9 billion Euros of total investments in the country last year, 30 to 40% are European investments. He adds that the flow of European investments to Egypt is due to the economic reform policy launched by the Egyptian government and to the effects of the Association Agreement, which came into force in 2004.

Fayza Abul Naga, Egyptian Minister of International Cooperation states that there is already a quasi free trade on agricultural products is in effect between the EU and Egypt, which is a prelude to a completely free trade zone. Both parties benefit not only from stabilized custom rates at a first stage, but they have also agreed to gradually eliminate customs on Egyptian exports to EU countries during a transitory period ending up in the year 2019.

Abul Naga explains that both sides agreed on liberalizing Egyptian agricultural exports within the quota system. Practically, free trade has been already applied on 108 Egyptian agricultural products, which resulted in doubling the export volume of these products to the EU. On the other hand, EU agricultural exports to Egypt were not liberalized; customs rates on EU agricultural products to Egypt were only reduced to 14%.

Abul Naga highlighted the success of the European-Egyptian partnership, which began in 1977 with a preferential treatment granted by the EU under a cooperation protocol and was then replaced, in 2004, by an association agreement. This partnership imposed on Egypt new challenges on the short and medium terms, as it had to face the competition of European products on the local market. In addition, Egypt was not financially capable of eliminating customs on imported goods.

From another angle, this partnership paved the way for Egypt to enhance its cooperation with 27 European countries, whose annual Gross Domestic Product reaches more than 10 trillion dollars. These countries, in reality, possess the largest purchasing power in the entire world, with the largest economic and trade space ever. Hence, relations between the EU and Egypt are of great benefit to Egypt. Abul Naga underlines that the support granted by the EU to Egypt is the best investment for the EU, as it guarantees the stability of the whole region.

The establishment of a free-trade zone between Egypt and the European Union is indeed a strategic target in the partnership agreement. Further cooperation between governmental bodies, the private sector, and EU enterprises is required to promote the relations between the EU and Egypt and persevere in the process of custom tariff reduction until the year 2019. It is worth noting that the European financial support to Egypt between the year 2002 and 2010 reached a total of 1.152 billion Euros, guaranteeing the realization of a number of development projects.

The European support to Egypt
Director of EU twinning projects in Egypt, Ambassador Gamal Bayoumi says that the European support to Egypt did not have a big effect on the country’s economy. He goes on to say that in 2008, Egypt exported products to EU countries for a total of 9.8 billion dollars, and imported from the EU for 18 billion dollars. These numbers show that trade relations between the two sides are to the benefit of the EU. Bayoumi explains this difference by “the obstacles that Egyptian products face in conquering the EU market, due to the difference in quality between Egyptian production and European one.”

Bayoumi states that from 1977 to 1995, EU-Egypt relations were governed by a cooperation agreement, under which four financial protocols have provided EC funding for programmes and projects in Egypt for a total budget of 1.463 billion Euros (donations were estimated to 661 million Euros, and loans from the European Investment Bank to 802 million Euros).

In the year 1995, EU-Egypt relations embarked in a new phase of strengthening preferential trade relations thanks to the Barcelona process, which worked on establishing permanent and strong ties between both sides of the Mediterranean. With MEDA I (1996-1999), Egypt benefited from a financial support estimated at 686 million Euros, which constitutes 17% of the overall support to the South Mediterranean, estimated to 3.424 billion Euros. During the same period, loans from the European Investment Bank reached 250 million Euros.

In the framework of MEDA II (2000-2006), the financial support to Egypt reached 594 million Euros. In the context of its deeper cooperation with the EU, Egypt signed the National Indicative Programme, which supported programmes for an overall budget of 351 million Euros between 2002 and 2004, and of 243 million Euros between 2005 and 2006. Loans from the EIB totaled 1.920 billion Euros.

On the basis of the expansion process launched by the EU in 2004, the European-Egyptian action plan was adopted in March 2007. Consequently, Egypt signed the National Indicative Programme for 2007-2010 amounting to 558 million Euros. Loans from the EIB for the period of 2007 to 2009 reached 542.5 million Euros.

A 449.3 million Euros were proposed for the period of 2011 – 2013 in March of the current year in the framework of the National Indicative Programme released by the European Parliament. In fact, Egypt was hoping for a greater support to fund its political, economic and social reforms.

Yet, the question is why Egypt did not succeed in modernizing its local industry with all this European support? Executive Director of the Egyptian industrial modernization centre, Adham Nadim does not agree with this statement; he explained that industrial modernization in Egypt faced several obstacles in the beginning, but witnessed substantial progress later on. He added that the success of the industrial modernization programme was an incentive to discuss with the European Union the possibility of an agricultural reform.

Nadim underlines that the Industrial Modernization Centre was established by presidential decree number 477/2000, as an independent body to implement and coordinate the modernization of the Egyptian industry. The centre is jointly funded by the European Union (250 million Euros), the government of Egypt (103 million Euros) and the Egyptian private sector (73 million Euros), with a total budget of 426 million Euros. He goes on to say that the centre is part of a sustainable plan aiming at bringing Egyptian industry to international competitiveness level, with serious commitment from the Government of Egypt to continue financial support for years to come. The total number of companies served by the IMC in different sectors reaches 15,000 companies. The sectors involved are: textile and readymade garments, construction and building materials and metallurgical industries, chemicals, food sector, furniture, jewelry, agro-industry, leather sector, pharmaceutical and cosmetics, printing and packaging, cinema, information technology and communication.

Nadim to conclude that “Europe is now the largest trade partner of Egypt, as Egyptian exports to Europe constitute 23% of the total Egyptian trade with the world, and 34% of Egyptian imports come from Europe”. It is worth clarifying as well that this privileged partnership works better to the benefit of Egypt than to the EU, since Egyptian exports – although not greatly competitive- enter the European markets with no custom tariffs, whereas European products are subject to customs once exported to Egypt. He stresses that the partnership aims mainly at supporting the private sector and providing it with the necessary equipment. The European Union is supporting the companies that are not owned by the government, in an effort to benefit from their products in the European market. The neighborhood policy signed in 2007 also gives the right to companies’ owners to seek technical support from the European Union.

Trade exchanges between Egypt and the European Union (in billion US dollars)

Growth rates of bilateral trade, EU-Egypt

European investments in Egypt (in million dollars)

See also: EU and Egypt: course of relations