The Egyptian business climate has been developing with quite an interesting and exclusive view. The most profitable and large enterprises in the country belong to the people: oil and gas, manufacturing of finished products made from cotton and cargo transportation. Citizens are finding their entrepreneurial happiness in agricultural production, as well as in the tourism and service businesses.
The author has, however, made some observations on the how international entrepreneurs come to Egypt and how they conduct their businesses.
Farm labour in Egypt is extremely heavy. Overheads of Egyptian farmers over the past 10 years have grown several times. As a result, there has been a significant increase in the cost of dates, cotton, citrus and melon. 20-30 years ago, farmers comprised 40-50% of Egyptians. Today, only a quarter of the workforce devote their lives to rural labour. The volume of farmland over the past 15 years has decreased by almost a half, indicating further reduction of the popularity of peasant labour.
About 20 years ago, Egypt entered a phase of a tourism boom. French and Germans, Britons and wealthy Arabs built hotels on lands leased from the government at the low rates. Lovers of the warm sea, hot sun, art and crafts flooded in from around the world. Airports of Hurghada and Sharm el-Sheikh could barely cope with five million tourists a year. Pounds and dollars, marks and francs flowed in like a river.
Many hotels in Egypt were built by foreigners. And in the interest of a one-stop shop for tourists, most of the services – from perfume oils to manicure – were obtained through the hotel. Proceeds from the bars and beauty shops, gift boutiques and nightclubs settled mainly in the pockets of the owners of the hotel owners. Excursions and transfer services are also provided by these large firms, run by foreign owners or “new Egyptians”. However, local Egyptians seemed left out, as they struggled to keep their micro-businesses.
Of course, resort towns appeared “untouched”, in that they did not belong to the owners of the tourism entrepreneurs. But the indigenous inhabitants were not making any good income because a growing number of businesses like kebab cafe, bowling clubs, restaurants, perfume shops and souvenir shops were being built up by the foreign entrepreneurs. The first internet cafes, jewelry shops and boutiques in Hurghada and Sharm belonged to citizens of France, Germany, Britain and even the Americans. They usually arrived as tourist, falling in love with the Red Sea. The next day, they organized a business and remained forever.
In addition to the service sector, foreigners mastered industrial production, and even farming.
Currently, the major business owners are Russians. Where the Germans were afraid, and the Arabs could not, Russians built quite successful businesses. 20-30 thousand dollars – less than a modest figure for starting your own business in Russia. In Hurghada, a decent room at a restaurant can be rented for only $1,000 a month. With 20 thousand dollars, it is possible to build a cottage, which can be rented out or adapted into a bar, bowling alley or a boutique. Those who came to Egypt with a sum of over 100 thousand dollars were millionaires by local standards. They could open their own hotels, chic beauty salons and jewelry stores.
Others preferred driving schools, internet cafes, cellular phones and public telephones. The largest number of Russian businessmen today are in the Sinai, especially in Dahab. In 2006, suicide bombers blew up three popular German and Italian resort. As usual, the foreign businessmen left in a few days, leaving their firms to their fate, or just sold them for purely symbolic money.
Russians were not afraid to invest in companies because the costs were comparably moderate. These came ready with equipment and excellent maintenance services. They hired skilled personnel and leased land from the local community for 15-25 thousand euros. They were offered options for long-term lease – 100 years ahead, at a cost of $100-200 per month. Commercial risks are minimized by the fact that in Egypt the employees of service companies – manicurists, barbers, waiters, cooks and cashiers – do not receive wages. Their income is only a percentage of established profits. This is usually set 10% at the highest or 2-3% at the lowest.
70% of entrepreneurs with Russian roots prefer to invest in the restaurant business. And not because they profit more. Restaurants are an excellent trainer for the beginner with no business experience. When you turn in the restaurant lease, it usually comes almost equipped: fully prepared cuisine and basic furniture. The interim owner could only draw the rooms to your liking, and all you have to do is to buy dishes, and hire staff! Lease term of the restaurant is usually three to five years. The monthly fee depends on where the institution is located. In Alexandria tenants pay landlords $400-500 a month, in Sharm el-Sheikh – $1,000-1,500. Those interested in the tourist city will have to pay between $1,500-2,000 a month for rent. Those who could not afford this, still had the option to open the business in the cheaper cities like Cairo, Suez – or the general public resorts like Dahab and Taba.
Pricing in Cairo defies any kind of logic. In some areas, for example, tenants paid $15-20 a month rent. In downtown, rental prices were inflated, but usually 1.5-2 times lower than in the Sharm el-Sheikh. Nevertheless, with the capital of the Russian entrepreneurs, it is no less unattractive.
Reflecting on the experiences of the local workers of the Russian businessmen, it is maintained that they made some mistakes in feeling too proud. The worst mistake is to take control of a business and for weeks not to appear at the business premises. According to workers, if the owner is away for long, then he is ‘spitting’ on his business and customers.
In Dahab now, like everywhere else in the Sinai Peninsula, the main “Russian theme” – is real estate. Land here is still a mere penny: in Nueybe – $ 70-80 per square meter; meters in Dahab – from $100 to $250 (closer to the sea, so, understandably, more expensive). In order to build a small house, just 40 square meters is enough, and you still have room for the garden. The construction of the “Egyptian style” – the reception room, bedroom, bathroom, kitchen, all tiled, and the top covered with colorful carpets – would cost a maximum of $5,000. Add $1,000 for electricity and furniture, and that is it!
In the tourist seasons, you can rent the house for $350-400, and in the out seasons, it likely will remove the locals (residing in the Sinai Europeans), but still at the half price.
But there are pitfalls here as well: for every meter of the Sinai land there are three Bedouins, each of which considers itself a rightful owner. The documentation is so confusing and it is extremely difficult to understand which of the owners to pay the money to.
Business is sometimes slow and is dominated by international entrepreneurs, but a small business in Egypt can be a good investment. Egyptian government encourages its citizens working abroad. They offer unique high interest rates on deposits in local banks. In this case, the safety of deposits is guaranteed at the highest level. Greater benefits are provided to those who invested their savings in foreign private business, and opens a company or business in the country. Tax breaks and subsidies to such entrepreneurs are guaranteed. Egypt has strongly positioned itself as a secular state, which is suitable for both recreation and business.
By Iana Roginska