Why it could be a challenging retail journey
Egypt joins the chorus of those singing ‘we’re open for business’
If it was good, we wouldn’t have withdrawn. The problem is that the red tape in Egypt is just so horrendous that it is impossible to trade
Whitey Basson
Former Shoprite CEO
● It’s 6.45pm on a Friday at the City Star Heliopolis Mall in Nasr City, Cairo, when the sound of a bell rings through the 750 000m² mall, signalling the beginning of iftar, the meal with which Muslims end their fast at the end of the day during Ramadan.
As the sun sets, young Egyptians flood through the many entry points to the mall, many of them adorned in stylish tops, ripped jeans and hijabs (head-coverings for women), the latter reminding one of the country’s conservative Muslim culture.
But as they prepare to break the fast, the Zara store opens and within minutes it is filled to capacity.
Getting and spending
Zara, along with Marks & Spencer and Starbucks, is one of almost 750 retail stores in the mall that thrive on the purchasing power of Egypt’s young middle class.
And as Egypt opens up to foreign companies, it may lure South African retailers looking for a second wave of expansion across the continent.
In 2001, Shoprite set up shop in Egypt, with plans for 100 outlets, but just three years later it pulled out, citing bureaucratic obstacles.
Whitey Basson, former CEO of Shoprite, said this week: “If it was good, we wouldn’t have withdrawn. From our side there were enough customers and there was enough buying power to maintain a decent supermarket and a retail atmosphere. The problem is that the red tape in Egypt is just so horrendous that it is impossible to trade.”
Closer to Europe
Woolworths chairman Simon Susman said Egypt was oriented more towards Europe and was geographically a long way from southern Africa. “My instinct about Egypt is that it would be relatively more interesting to the European operators than the South African operators, but it’s a big and vibrant market.”
Susman said sending goods from southern to northern Africa was complicated. “You’d either have to ship or air-freight; you couldn’t truck. Air freight is expensive but shipping is slow.”
Martyn Davies, MD of emerging markets for Africa at Deloitte, said Egypt had been through a tough time in the past couple of years.
“It’s partly self-inflicted, but it’s an economy which South Africans largely ignore.” Davies said local businesses tended to focus on Nigeria, Ghana and Kenya, and from a retail perspective it was “quite strange” that countries like Morocco and Egypt were of less interest.
According to the Egyptian government’s General Authority for Investment and Free Zones, total household spending in the country is expected to grow from $101.3-billion in 2014 to $173.9-billion in 2018 (about R1.3trillion to R2.2-trillion at this week’s rates).
Strength in numbers
Davies said that for the retail sector, “it’s a population game”. Egypt was a tough environment in which to operate but structural reforms that began two years ago were starting to kick in and consumer spending was rising.
He said the first wave of expansion by South African companies into other parts of Africa was largely led by retailers such as Massmart and Shoprite, with MTN, Vodacom and Standard Bank also in the forefront.
The announcement by Ethiopia this week that it would open its state-owned telecommunications company and airline to foreign investors could represent opportunities for South African companies such as MTN and Vodacom, Bloomberg reported.
Nadene Johnson, an economist from NKC African Economics, said Egypt had become more open to foreign direct investment.
“Since November 2015, the country has undertaken to liberalise its exchange rate and has also undergone private-sector development,” she said.
Two years ago, Egypt’s central bank floated the local pound currency to rebalance its currency markets and secure an IMF loan. Egypt previously enforced strict controls to keep the pound artificially strong, which hampered trade.
Johnson said foreign exchange was now more readily available, which would help with the import of materials for the manufacturing industry.
Speaking at a trade conference in Egypt last week, Tareq Qabil, minister of trade and industry, said Egypt was now open for business following the easing of regulations.
He said Egypt’s exports to other countries in Africa were worth about $4-billion, only 1% of its total trade exports.
Do they speak our language?
For South African companies, language and culture could be perceived as a barrier to investing in Egypt. Davies said companies were often reluctant to invest in countries where English was not widely spoken.
“But the demographics are changing rapidly, and with younger people culture is less important,” he said.
Young people across the world had more and more in common, “so to talk about culture, that’s a concept we need to get over”.
His words are borne out at the Zara shop in the Heliopolis Mall — Selena Gomez is on the soundtrack, and the young Egyptians in the long queue for the fitting room are all mouthing the lyrics.
Some adaptation is required for Western retailers entering the Egyptian market. For example, Swedish retailer H&M displays kaftans prominently in its storefront, hoping that doing so will lure consumers with a conservative dress sense.