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Will Brexit affect Egypt-UK economic relations?

Moslem Ali, Monday 30 Sep 2019
A British Petroleum (BP) logo is seen at a petrol station in south London, April 27, 2010. (Reuters)
BP's presence in Egypt stretches back more than half a century (Photo: Reuters)
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Trade exchange between Egypt and the United Kingdom (UK) stands at nearly $3 billion per year. This is largely facilitated by the European Union (EU) Association Agreement with Egypt, but since the UK is leaving the EU, future rules governing trade with the UK remain vague. Meanwhile, many market experts believe Brexit could present an opportunity to increase Egyptian exports to the UK and may boost economic relations between Cairo and London.

The EU is the biggest trade partner to the UK, accounting for 46% of the UK exports and 54% of its imports, and although a no-deal Brexit is now an unlikely scenario, any Brexit without a trade arrangement could negatively impact this large trade volume.  

Trade prospects

“I do not think Brexit will have any negative impact on Egypt. If anything, it could create more opportunities for Egyptian exports, if we are able to take advantage of what will be a significant but temporary disconnect between the EU and the UK,” Karim Helal, renowned finance and banking expert and Managing Director for Corporate Finance and Investor Relations at Carbon Holdings, told Ahram Online. 

Data shows that 40% of food in the UK is imported, and some agricultural crops and dairy products were among commodities British media warned could be in short supply in British markets after the Brexit. This followed the release of the “Operation Yellowhammer” documents that showed a plan by the Boris Johnson cabinet to face disruptions following a then likely no-deal Brexit. 

Such shortages will result from logistical challenges affecting imports from the EU. “Once these logistical challenges are resolved, the volume of imports from the EU will ultimately be governed by the price of those goods to the British consumer,” said Robin Lamb, executive director of the Egyptian British Business Council and board member of the Egyptian British Chamber of Commerce. 

“This provides other global food exporters with the opportunity to compete in the UK market and Egyptian exporters can share in that opportunity, if the price and quality of their produce are competitive,” Lamb emphasised. 

Egyptian exports could clearly help bridge this gap, considering that Egyptian agricultural exports grew by around 16 percent during the first seven months of the year to more than 4.6 million tons, and more importantly that agricultural products are already among Egypt’s top exports to the British market. 

Agricultural products and textiles each represented 15 percent of Egyptian exports to the UK in 2017, following only electric equipment and crude oil with 26 percent and 18 percent, respectively, according to the Observatory of Economic Complexity and the United Nations International Trade Statistics Database

Moreover, the textile industry has another great opportunity to grow its exports to Britain. Not only is the Egyptian government planning to quadruple textile and garment exports by 2025, as part of a national strategy to develop the industry, but also clothing was the UK’s fourth biggest import in 2018, accounting for 4.1 percent ($24.5 billion) of the total British imports, surpassing crude oil imports by around $493 million. 

“The UK will be seeking to find competitive alternatives to some EU products, particularly on the short to medium term. But this largely depends on how nimble and creative Egyptian exporters will be in dealing with these market developments,” Helal noted. 

Although currencies in general prefer stability, the GBP is expected to depreciate after the Brexit is completed. “A cheaper GBP might result in increased Egyptian imports from the UK, and a larger trade balance surplus for the UK, as British imports will be cheaper. Moreover, British manufactures will be trying to penetrate new non-EU markets to compensate for losing access to export freely to the EU,” said economist Mohamed Ashour. 

Framework in the making

Egyptian and British officials previously discussed potential frameworks for bilateral trade. However, it is worth noting that official negotiations or agreements cannot take place until the UK is officially out of the EU. Nevertheless, UK Investment Minister Graham Stuart last year said Britain was looking forward to avoid any trade disruptions with Egypt by replicating the association arrangement between Cairo and the EU. This agreement has helped Egyptian-European trade exchange more than double from EUR 11.8 billion in 2004 to EUR 27.9 billion in 2017, according to the European Commission

The UK has refused to remain part of the European single market or customs union, but talks for a new or even transitional trade arrangement continue. Lamb explained to Ahram Online that the continuity of trade through a transitional agreement would allow trade to continue with minimal disruption, but weighed down its significance by indicating that the UK has adopted a temporary tariff schedule that will leave 87 percent of its imports eligible for tariff-free access to the British market. 

“UK firms will be looking to develop markets outside the EU, and if Egypt agrees continuity arrangements with the UK, there could be minimal changes to tariffs and quotas. Without such an agreement, UK trade with Egypt would be conducted on Most-Favoured-Nation terms under [World Trade Organisation] rules,” Lamb noted. 

Finance and investment 

“In 2016/17 the UK represented 41 percent of total foreign direct investment (FDI) inflows into Egypt. This decade alone, UK companies have invested $43 billion in Egypt,” Jeffrey Donaldson, UK trade envoy to Egypt, told the Oxford Business Group in 2018. 

This shows the importance of British investments to the Egyptian market, considering that the UK ranks fifth worldwide in outward FDI with about $1.6 trillion, and third in terms of inward FDI at with $1.65 trillion. 

British investments in Egypt total around $5.4 billion, distributed over about 1,570 projects across multiple sectors, according to the Ministry of Trade and Industry. 

“We could see more British companies increasing their FDIs globally to overcome the barriers to trade that will arise because of the Brexit,” Ashour noted. 

Lamb personally believes that even after the Brexit, the UK as a leading economy and a major global market will continue to invest in Egypt due to its major strategic assets, alongside a “well-regarded reform programme, impressive infrastructure development, natural resources in agriculture and hydrocarbons and, above all, the skills and economic competitiveness of its growing population.” 

Last year, the UK government, through its Export Finance department, agreed to provide a record $1.6 billion to Carbon Holdings to participate in financing the Tahrir Petrochemicals Complex (TPC), the region’s largest petrochemicals complex with around $11 billion in investments that is being built in the Suez Canal Economic Zone (SCZone). 

Managing Director for Corporate Finance and Investor Relations at Carbon Holdings expects more deals to follow between the UK and Egyptian companies in the post-Brexit era. After the Brexit “the UK will exert more efforts to boost their exports to non-EU [countries], and export finance is one key driver for that,” Helal noted. 

Helal, who also serves as advisor to the minister of tourism, expects little to no effect from the Brexit on tourism in Egypt. “It may even direct more British tourists to Egypt, if they start facing entry restrictions or complications for some of their favorite sunny getaways like Spain, Greece, and Italy.” 

Meanwhile, Ashour argued that as the GBP is expected to depreciate, tourism inflows from the UK to Egypt could be negatively affected as a result of international travel becoming more expensive to Britons. 

report by British Office for National Statistics showed that the number of Brits travelling abroad decreased by one percent in 2018, however, spending increased by the same percentage. 

It is worth noting that British people travelling to Sharm El-Sheikh, Dahab, Nuweiba, and Taba for up to 15 days, are granted a free entry permission by Egyptian authorities upon arrival. Otherwise, they can get a three-month visa before traveling from the UK, or obtain a 30-day visa on arrival at Egyptian airports for $25. 

Around 415,000 Brits have visited Egypt last year. 

As for Egyptians traveling to the UK, travel arrangements such as the visa process is not really subject to change, since the UK, like Ireland, was never really part of the Schengen area, which means the current rules remain intact even after the Brexit.  

Unlike travel, rules governing trade and economic exchange would depend on whether the UK and EU reach a Brexit deal. The European Summit on 17 October could see a settlement on the details, especially since the British prime minister has repeatedly vowed to leave the EU on 31 October. This would finally end the uncertainty that prevailed over the last three years.

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