CAIRO: Some 240 participants from Israel and Egypt gathered yesterday at the second conference on Qualified Industrial Zones (QIZ) at the Semiramis InterContinental Hotel.
The QIZ concept was established a year ago under a trilateral agreement between the United States,Egypt and Israel. The agreement grants Egyptian products from pre-approved zones tariff-free entry to the U.S. provided they contain a minimum of 11.7 percent as inputs from Israel.
To date, 417 companies have been approved to operate within QIZs, according to Ali Awni, head of the QIZ unit at the Ministry of Foreign Trade and Industry. QIZ exports have totaled $116.2 million.
Textiles represent the largest proportion of products imported from Israel to QIZ manufacturers in Egypt, as well as exported from the latter to the U.S .Chemicals are also a major product imported from Israel and paint is the second-largest QIZ export.
The QIZ protocol has attracted the attention of investors in the Gulf and Turkey who are considering opening textile factories in Egypt to take advantage of the elimination of U.S. tariffs.
One of the main challenges facing QIZ companies is their lack of export experience.
Awni said other industries such as food, beverage and glassware could benefit from the QIZ protocol.
Most QIZ garment products are bought by discount retailers such as Walmart and Kmart, although more upscale brand names such as the Gap are increasingly importing from QIZ manufacturers.
One of the major issues on the textile front is how to compete with China,which is a cost leader in textiles. Egypt benefits from the fact that Chinese garment exports to the U.S.face tariffs of between 8 and 24.5 percent.
But the elimination of tariffs is not the only factor to be considered by potential QIZ manufacturers.
In addition to the tariffs charged to other countries, National Food Company Vice Chairman and Chief Operating Officer Douglas Anderson cited the opportunity for growth and the fragmentation of the market as additional factors to be taken into account by companies considering establishing QIZ plants.
Product differentiation should also be emphasized, said Anderson, referring to the traditional tendency of Egyptian businesses to emphasize their low costs.
“There is very little room for more than one price leader, said Anderson.
This is vividly illustrated by the price competition between Walmart and Kmart. Both these retailers had millions in sales in the late 1980s,whereas Kmart went bankrupt less than two decades later.
Anderson s own company has not opened a QIZ plant. It has, however, successfully differentiated its jam product by making use of Egypt s location, giving the product a Mediterranean image which appeals to consumers in the U.S.
While calculating the proportion of Israeli inputs may be relatively straight-forward for garments,it is more complex for food processors.Anderson cited this as one of the difficulties businesses in his industry face when trying to assess whether or not to set up a QIZ plant.
In terms of future priorities, in order to attract foreign investment in QIZ factories,Awni said more industrial parks need to be established with spaces that can be retrofitted with equipment within a month. These would also shield foreign companies from “local details.
The QIZ protocol with Egypt mirrors a similar agreement made between Israel, the U.S. and Jordan. QIZ exports from Jordan grew exponentially since the agreement took affect in 1996.
The conference continues today with more speeches from Israeli and Egyptian businesspeople.