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Cablegate: Goe Looks at Retail and Distribution Sector

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

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