Egypt – Trade Hub for North Africa

Egypt’s geographical and cultural proximity to its main export markets – including the Middle East and North Africa (MENA) and European countries – facilitates business operations and trade. Egypt further has the advantage of a strategic location at the crossroads of MENA, Europe and Asia, making it the centre of trade and business in the Middle East.

It is also party to several preferential trade agreements that offer tariff reductions and rules of origin for products. Notably, it has access to Europe, Arab countries and Sub-Saharan Africa through the Egypt-European Union Partnership Agreement; the Greater Arab Free Trade Area; and the Common Market Eastern and Southern Africa Agreement (COMESA).

To boost trade with its neighbours, Egypt is building a rail link between the Mediterranean and the Red Sea ports as an alternate route to the Suez Canal. Apart from cutting down transportation time, the link could serve as the nucleus of an aspiring rail connection between North Africa and the Arab Peninsula. This project is under development until 2021.

The Adabiya port is the only one in Egypt that can receive bulk palm oil and coconut oil shipments. Storage tanks are equipped with heaters to suit tropical oils and maintain their quality. Availability of storage tanks is affected, though, by growing demand for palm oil and the port’s role as a redistribution hub.

The port currently has 91 tanks and 207,200 tonnes of storage capacity. All the tanks are either owned or held under a long-term lease. The biggest owners are Integrated Oil Industries with 33,000 tonnes of capacity; United Oil Processing Company (26,000 tonnes); and Afia International (22,500 tonnes). However, several companies are willing to rent out part of their facilities to new entrants.

DP World Sokhna port was established under the build-operate-transfer system, near the entrance to the Suez Canal. Its position on the Red Sea in Egypt allows it to handle cargo transiting through one of the world’s busiest commercial waterways.

An established road and rail network makes the port perfectly placed to reach Cairo’s 18 million consumers. Roads have been constructed through the port area. Specific conveyor systems help minimise the cost of logistics and reduce the environmental impact. Utility supplies like water, electricity, telecommunications and IT facilities are provided.

Current facilities include a container terminal, general cargo/Ro-Ro terminal, bulk terminal and a livestock terminal. However, the port is not ready to receive liquid bulk palm oil as there are no storage tanks with heating facilities. Construction of a second basin, together with a jetty and liquid bulk facilities, is well underway. Specialist warehousing is also being built to support industries located outside the port.

Market-related challenges
A consumer population of about 196 million in North Africa – covering Egypt, Tunisia, Algeria and Morocco – has created a large market for oils and fats. Adequate infrastructure, a higher standard of living and rising vegetable oil consumption will improve palm oil uptake.

In 2020, the consumption of vegetable oils and fats registered 2.4 million tonnes in Egypt; just over 1 million tonnes in Algeria; 0.8 million tonnes in Morocco; and 0.4 million tonnes in Tunisia. However, domestic production can only supply up to 34% of needs. While imports are required to satisfy demand, Malaysian Palm Oil (MPO) will have to address several challenges to improve its market share.

Indonesia’s palm oil price discount has severely affected MPO imports. In 2020, Egypt imported over 1 million tonnes of palm oil, with 85% of this from Indonesia. The main buyers, who bring in more than 80% of the palm oil products, are ARMA, SAVOLA, IFFCO, United Oil, Gulf Arabian, El Safwa, PIL and Wilmar.

Egypt is a highly price-sensitive market. MPO exporters should therefore strategise by forming joint ventures with local oils and fats manufacturers to reduce operational costs; utilise available market networks and distribution channels; and leverage on trade agreements to which Egypt is party.

Algeria, Tunisia and Morocco now levy high import duty and value added tax (VAT) on direct imports from Malaysia (Tables 1-3). This hampers trade, as the MPO price is much higher than that of other soft oils.

Advantages of trade agreements
Egypt has strong potential as a hub for commercial activities in Africa and the Middle East, due to the favourable duty-free structure for imports of palm oil products, including semi-refined and fully refined oils. Trade agreements provide Egypt with another edge in penetrating the market in neighbouring countries.

In 2020, the palm oil market share in Algeria, Morocco and Tunisia was only 14%, 6% and 25% respectively. Hence, there is much room for expansion. These countries could potentially import an additional 744,000 tonnes of palm oil, which could then attain a market share of 52% as in Egypt; and an extra 332,000 tonnes for a 30% share (Table 4). With the population increase and heightened awareness of palm oil, demand could penetrate neighbouring countries as well. However, a better effort will be required to grasp the opportunities.

Agadir Free Trade Agreement
This has established a free trade area between Jordan, Morocco, Egypt, Tunisia and other Arab countries of the Mediterranean area. It is also part of the free trade Euro-Mediterranean area as foreseen by the Barcelona Declaration.

The Agreement deals with important issues such as customs systems, rules of origin, government procurements, financial transactions, safeguard measures, new industries, subsidy and dumping, intellectual property, standards and specifications, and establishing a dispute settlement mechanism.

Rules of origin constitute an essential article, since this will increase the prospective European Market Access for products from party states. In turn, this will encourage investments and increase inter-country cooperation. Under the Agreement, all industrial and agriculture products are exempted from most of the tariff and non-tariff measures.

Pan Arab Free Trade Agreement (PAFTA)
PAFTA covers trade for Egypt, Bahrain, Algeria, Saudi Arabia, UAE, Jordan, Iraq, Kuwait, Lebanon, Libya, Oman, Palestine, Qatar, Syria, Sudan, Morocco, Tunisia and Yemen. Member-states of the Arab League that have not yet completed the entry procedures are Djibouti, Comoros Islands, Mauritania and Somalia.

PAFTA was established by the Arab League’s Economic Council to favour economic and trade relations between the Arab states and the rest of the world. It is the first concrete step towards creating an Arab economic bloc that creates value to the world.

COMESA
COMESA involves Angola, Burundi, Comoros Islands, DR Congo, Sudan, Djibouti, Eritrea, Ethiopia, Kenya, Uganda, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Swaziland, Zambia and Zimbabwe. Egypt signed the Agreement in 1998. It grants full customs exemptions for exchanged imports, provided that certificates of origin accompany the products.

The EU-North Africa trade agreements
The trade agreements between the European Union and Egypt, Algeria, Tunisia and Morocco are part of a broader effort to cover the North Africa market. However, economic growth in the four countries has been relatively slow, volatile and challenged by fiscal imbalances for the last 10 years.

Mohamad Suhaili
Market Analyst, MPOC