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MORE LEVERAGE FOR QIZ COMPANIES
BY REHAB EL-BAKRY
With prospects of an Egyptian-US free trade agreement
(FTA) drying up, efforts are being made to exploit Egypt’s
qualifying industrial zones (QIZs), industrial parks that give Egyptian
manufacturers duty- and quota-free access to the US market provided
their goods include a minimum 11.7-percent Israeli component. While
no substitute for unrestricted free trade, QIZs already account
for a significant share of US-bound trade, and are credited with
increasing Egyptian exports to the US by 62 percent in 2005 to $2.1
billion.
Much of this increase can be traced to 100 large companies that
were already exporting to the US prior to the December 2004 QIZ
agreement. Hoping to widen the scope, the Ministry of Trade &
Industry (MTI) will launch a new initiative this month aimed at
boosting the export capabilities of the remaining 350 companies
registered under the QIZ agreement.
“These registered companies are basically unutilized capacity
with the potential for exports. We wanted to identify why these
companies were not exporting under the agreement,” explains
Mohamed Kassem, chairman of World Trading Company and head of the
QIZ board, an MTI-affiliated body that oversees all functions pertaining
to the trade agreement.
A ministry survey revealed that the majority of the 350 companies
were medium-sized, and had no prior export experience. “Because
exporting requires companies to have a strong understanding of the
international market,” Kassem says, “it’s very hard
for companies that have no experience in export to utilize the agreement.
This program was designed to address the obstacles to full utilization.”
The QIZ Leveraging Program, slated to begin in early May, includes
several components that the MTI hopes will help upgrade the export
capabilities of smaller companies, including employee training,
increased access to financing for infrastructure and technology
upgrades, consultancy and design courses. “These were the areas
that were identified by the companies as necessary for upgrading
their competitiveness in international markets,” a ministry
official told Business Monthly.
The official pointed out that many of the components for successful
export already exist; producers simply don’t know where to
find them. The QIZ Leveraging Program aims to streamline factories’
access to services already present in the market, while MTI subsidies
will make them more affordable to smaller factories that might otherwise
lack the liquidity to pay for these services. “The program
is simply bringing together a variety of resources and making them
accessible for the factories,” the official says.
A core component of the program is its training module, which focuses
on developing the skills that factory owners want their workers
to acquire. “One of the reasons that the smaller companies
are unable to compete for the big international contracts is that
their workers lack the [training] to make products with the necessary
level of accuracy and the quality that an importer would require.
These courses are all designed based on input from the factory owners,”
the official explains. Once factory owners identify the number of
workers and the courses they need to take, the MTI foots the bill
for 85 percent of their training.
The QIZ Leveraging Program will also bring in consultants to identify
the upgrades that the factories need in order to improve management
and streamline production. The cost of these consultants will be
covered by the government.
Another program component addresses product design, which is particularly
important to the competitiveness of the textile and garment industry,
the major benefactor of the QIZ agreement. “In order to export
to the US, you have to design more than just the basics. You have
to understand the taste of these markets and how to manufacture
products, because this is where the added value is,” says Kassem.
“That’s why one of the components of the leveraging program
is to help factories upgrade their design capabilities.”
For textile and garment companies, the design component will be
delivered in cooperation with the Fashion Design Center in Cairo,
which is affiliated with Milan’s prestigious Instituto di Moda
Burgo. “The majority of the factories agreed that what they
needed most was to train people in pattern making,” says the
ministry official. “Since this course is usually part of a
degree that could take up to two years, the center agreed to provide
an intensive 13-week training course subsidized by the MTI.”
For many companies, the ideas and the expertise are there; it’s
only capital that’s lacking. The QIZ Leveraging Program aims
to address this need by helping companies obtain financing for the
expansion of factory lines. “Many of these factories are not
able to tap into the export market because they don’t have
the cash to upgrade their machinery,” the ministry official
explains.
Commercial International Bank (CIB), which has worked with the MTI
on previous export initiatives, has agreed to provide financing
support to small and medium-sized enterprises (SMEs). “We have
developed several standard products to suit their needs, [and] to
reduce the amount of time it takes to process applications,”
says CIB vice president Mohamed Ashmawy. He says that the bank’s
loan officers will work with SMEs in order to understand their needs
and goals for growth, and to match them with the product that best
suits them.
The benefit for CIB, Ashmawy explains, is that by helping these
SMEs to grow, the bank will in turn be generating potential corporate
clients. “We are working to develop a long-term relationship
with the clients,” he says. “At the same time, we will
be with the client at every stage to provide them with services
and support as they need it, and also to ensure that the money is
being used for the purposes for which it was granted.”
The idea behind the QIZ Leveraging Program is to augment the export
capacity of participating companies. Yet without a solid marketing
plan, increased production would simply be wasted. The MTI has devised
a “matchmaking” component to help companies find new export
partners.
Initially, matchmaking will allow larger companies that are currently
exporting under the QIZ agreement but have surplus demand to subcontract
their work to smaller factories. “We will hold an internal
event to allow these factories to meet and showcase their respective
capabilities,” the ministry official explains.
“The next step will be to bring in importers from the US to
Egypt to allow medium-sized buyers to meet medium-sized manufacturers.
We believe this will be very effective in marketing the sector as
a whole.”
Kassem points out that while the QIZ Leveraging Program is geared
towards the textile and garment sector, which makes up the lion’s
share of factories operating in QIZs, it is open to all. “Any
QIZ company in any sector that wishes to benefit from the program
or from [any of the specific] components of the program can do so
simply by applying,” he says.
Furthermore, the MTI has agreed to make certain components available
to all companies, even those not registered as QIZ exporters. After
all, almost every company has a few weak links in its export chain
that need mending.
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