How Do I Get Paid (Methods of Payment)

U.S. exporters to Egypt typically rely on letters of credit from Egyptian buyers, arranged by the latter through Egyptian banks, confirmed irrevocably by an American bank.  Other financing sources include:  USAID’s Commodity Import Program (CIP),  the U.S. Export-Import Bank (EXIM) and, for investors, the U.S. Overseas Private Investment Corporation (OPIC).

How Does the Banking System Operate

According to the Central Bank of Egypt (CBE), the Egyptian banking system currently consists of 39 banks, split between commercial and non-commercial, public and private sector banks.

In practice, the vast majority of these banks operate as normal commercial banks, although there are a few specialized banks (such as for agriculture and real estate).  National Bank of Egypt is a large public sector bank, as is Bank Misr, which merged with Banque du Caire at the end of 2006.  The other public bank, Bank of Alexandria, was sold to the private Italian bank San Paolo IMI for $1.6 billion in December 2006.  Over the last two years, the government has also sold its shares in several joint venture banks.  The downsizing and privatization of Egypt's banking sector should strengthen it and improve implementation of market-based financial operations

All banks in Egypt are subject to supervision by the CBE. However, the Arab International Bank and the National Investment Bank are exempted due to special provisions in law and treaty. According to CBE officials, a third bank, Nasr Social Bank, is currently in the process of gaining exemption from CBE supervision.

Egypt has also been acting aggressively to promote bank consolidation. A new banking law passed in 2003 (Law 88 of 2003) and Presidential Decree (No. 64 for 2005) issuing the statute of the CBE raised the minimum capital requirements for banks sharply (from LE 100 million to LE 500 million for domestic banks and from $10 million to $50 million for branches of foreign banks).  The new regulations have forced a major consolidation of the banking system, as many smaller banks have not been able to meet the new capital requirements.  The banks that did not meet the new threshold are undertaking procedures to merge with larger institutions or exit the market.   Misr Exterior Bank merged with Banque Misr, and Credit Lyonnais merged with Calyon Bank-Egypt, which subsequently purchased Egyptian-American Bank.  Mohandes Bank of Egypt merged with National Bank of Egypt, and Misr International Bank merged with the Arab International Bank, before being purchased by NSGB at the end of 2006.  This consolidation and decrease in government ownership in the banking sector is a healthy development.  

The banking system deposit base and loan portfolio totaled LE 577,208 million and LE 513,209 million respectively, at the end of July 2005.  Banks are theoretically free to set their own interest rates, which the CBE closely monitors through a series of formal and informal guidelines.  The CBE uses T-Bill auctions and discount rates in its monetary policy and regulates the banking system by setting reserve and liquidity requirements and rules for loan classification.  A deposit insurance fund has been announced, but implementing regulations have yet to be issued. The CBE has expanded its use of monetary policy tools to affect mainly short-term interest rates, primarily through the inter-bank corridor system.
 
Citibank is the only American bank operating in the Egyptian market as a full service bank.  J.P. Morgan Chase, Bank of New York, Wachovia and First Union National Bank have only representative offices.

Foreign-Exchange Controls

In January 2003 a more flexible exchange rate policy was implemented and subsequently there was a 25-30% depreciation of the pound against the dollar. By late 2004 Egypt’s foreign exchange regime had stabilized and the parallel market had disappeared. The currency has remained stable in relation to the international market and the CBE had accumulated $24,064.91 billion in net international reserves, as of late 2006.
 
A new profit repatriation system was announced by the CBE in June 2002 whereby sub- custodian banks are required to open two accounts for foreign investors (global custodians), a foreign currency account and a local currency account, which will be exclusively maintained for stock exchange transactions only.  The two accounts will serve as a channel through which foreign investors can process their sale, purchase, dividend collection and profit repatriation transactions using the official exchange rates.

U.S. Banks and Local Correspondent Banks

Citibank
Mr. Elia Samaha, Vice President & Country Corporate Officer
4 Ahmed Pasha St., Garden City, Cairo
Tel: +20 (2) 795-1873/4/6 Fax: +20 (2) 795-7743
Bank of Alexandria
Mr. Mahmoud Abdel Latif, Chairman
49 Kasr El Nil St., Down Town, Cairo
Tel: +20 (2) 393-8631/3, +20 (2) 391-3495 Fax: +20 (2) 391-9805
 
Bank of New York (rep. Office)
Mr. Tarek El Refaie, Chief Representative
9 Abdel Moneim Riad St., Dokki, Cairo
Tel: +20 (2) 336-5818  Fax: +20 (2) 336-5816
 
Banque du Caire (in the process of merger with Bank Misr)
Mr. Ahmed El Bardai, Chairman
22 Adly St., Down Town, Cairo
Tel: +20 (2) 390-9575  Fax: +20 (2) 390-1735
 
Bank Misr (in the process of merger with Bank du Caire)
Mr. Mohamed Barakat, Chairman
151 Mohamed Farid St., Cairo
Tel: +20 (2) 391-2263, +20 (2) 391-4974  Fax: +20 (2) 391-9779
 
National Bank of Egypt
Dr. Hussein Abdel Aziz Hussein, Chairman
Cairo Plaza Bldg., 1187 Corniche El Nil, Cairo
Tel: +20 (2) 574-9101 Fax: +20 (2) 574-8910
 
Arab International Bank
Dr. Mustafa Khalil, Chairman
35 Abdel Khalek Tharwat St., Downtown, Cairo
Tel: +20 (2) 391-6391, +20 (2) 391-8021  Fax: +20 (2) 391-6233

BNP Paribas
Mr. John Tomozeau, Chairman
3 Latin America St., Garden City, Cairo
Tel: +20 (2) 794-8323/4/5  Fax: +20 (2) 794-0619
 
Cairo Barclays Bank
Mr. Colin McCormack, Managing Director
12 El Sheikh Youssef Sq., Garden City, Cairo
Tel: +20 (2) 366-2600 Fax: +20 (2) 366-2810/11
 
Commercial International Bank (CIB)
Mr. Hisham Ezz Al Arab, Chairman
Nile Tower Bldg., 4th Fl., 21/23 Charles Degol St., Giza
Tel: +20 (2) 570-3043/22  Fax: +20 (2) 570-3172
 
Delta International Bank
Dr. Aly Negm, President
1113 Corniche El Nil, Cairo
Tel: +20 (2) 575-3492  Fax: +20 (2) 576-2851
 
HSBC
Mr. Abdel Salam El Anwar, Deputy Chairman, and Managing Director
3 Aboul Feda St., Zamalek, Cairo
Tel: +20 (2) 736-7425  Fax: +20 (2) 736-4010

Project Financing

OBTAINING FINANCING

The emerging securities market, donor-assistance credit lines such as USAID and other bilateral aid, EU credits for the private sector, and the Social Fund for Development, offer alternatives to financing from banks.
 
The CBE conducts open market operations to manage liquidity in the banking system using many tools including the primary dealers system for government securities.  The new system, which began operating on July 6, 2004, allows 13 financial institutions listed with the Ministry of Finance, including banks and bond dealers, to underwrite primary issues of government securities and activate trading in the secondary market through sale, purchase, and repurchase agreement of government securities based on a multiple-price auction system.  Interest rates on deposits are at an average of 8% and 9.5% for T-bills.  Deposit rates dropped in banks in early 2004 then gradually increased in response to the CBE adoption of a tight monetary policy and a more flexible exchange rate without increasing dollarization.  Interest rates for time deposits in commercial banks average 5%.  Lending rate movement has not coincided with those of deposit rates.  Lending rates have minor changes but they are still high at an average of 14%. 

In 1992, the Egyptian stock market was reactivated by the GOE in order to allow alternative financing to private and public firms.  The total volume of trading from January-September 2006 was 6.3 billion shares, with a trading value of LE 213.4 billion.  The volume of trading on January 25, 2005 was 12,723,260 million shares, with a trading value of LE 354 million.  In addition, there are currently about 21 mutual funds in Egypt with value exceeding LE 3 billion.  This indicates the significance of the Egyptian stock market in terms of providing financing and an opportunity to build savings.  The development of professional investment banking capabilities will definitely help encourage the private sector to tap the securities market more often. 

EGYPTIAN FINANCIAL AND INSURANCE MECHANISMS
 
The local banking system in Egypt is the main source of finance for Egyptian exports.  Export financing is usually short-term and is intended to cover the exporter's working capital during the production period.  The period of financing ranges from between three to four months to as much as one year.  Banks normally do not finance long-term export contracts unless guaranteed by an export guarantee company.  The exporter may use loans to finance imported inputs or locally produced ones.  Banks prefer to lend exporters the same currency they will receive in payment for its exports to reduce foreign exchange risk.
 
Banks may finance from 40% to 80% of the value of an export order, based on the form of a contract, shipping documents, insurance documents, or a letter of credit (L/C), and the credibility of the exporter.  If the exporter is not well known in the market and does not have a proven track record, banks will request that the importer open an L/C to reduce their risk.  Requesting an L/C constitutes an additional cost to the importer, which may reduce the competitiveness of Egyptian exports.  On the other hand, creditworthy exporters are offered direct overdraft facilities.  Interest rates on export financing range between 1-2% above LIBOR.  Banks deduct loan repayments from the export proceeds. In general, export credit is a revolving form of credit.
 
Egypt has one export guarantee company, the Export Credit Guarantee Company of Egypt (ECGC), established by the Export Development Bank of Egypt, National Investment Bank, Misr Insurance Company, Al Shark Insurance Company, and Egyptian National Insurance Company. ECGC started operation in October 1993.  It provides guarantees against importer's risk or political risk to Egyptian or foreign exporters who export products that are totally or partially produced in Egypt.  "Importer's risk" is defined as the importer's inability to pay for the exported goods or his/her refusal to receive the shipping documents of exported goods, although the exporter fulfilled all obligations.  ECGC's guarantee also covers political risk (non-commercial), which includes the following:  cancellation of the importer's license by his/her country's authorities; refusal of entry of goods by the importer's government; denial of permission to transit a country's territory; seizure or confiscation of exported goods by the importer's country or the transit country; insolvency of a public-owned importer; or military actions or civil disturbances that affect the importer's assets.  The guarantee, on the other hand, does not cover foreign exchange risk and risks pertaining to the nature of the goods.
 
Whenever ECGC receives a request for guarantee, it investigates the importer thoroughly.  Based on the importer's financial status and estimated country risk, ECGC decides on a coverage limit and informs the exporter.  The guarantee can reach up to 80% of the importer's outstanding debt.  ECGC receives 0.5-2% premium depending on the importer's country and the product exported.  The exporter can then sell the guarantee to his/her bank.

THE WORLD BANK GROUP

The World Bank Group is a multilateral lending agency consisting of four closely related institutions:  the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).  The World Bank provides loans to developing countries to help reduce poverty and to finance investments that contribute to economic growth.  Because Egypt is now a middle-income developing country, it is no longer eligible for loans from the World Bank's "soft" financing arm, the International Development Association, but it is still eligible for regular World Bank (IBRD) loans.  Loans are made only to governments or to agencies that can obtain a government guarantee.  The IBRD also provides partial risk or partial credit guarantees (with a counter-guarantee from their government) to private lenders on development projects.  The interest rates are variable, set at half a percentage point above the Bank's average cost of borrowing or LIBOR.  Repayment is usually over 12 to 15 years, including a grace period of three to five years.  The World Bank currently has an operating portfolio of $914.7million in Egypt, concentrated in Agricultural, Educational and Health Nutrition and Population projects.  It provides up to $300 million in credit funding for the Cairo Airport expansion project.  Opportunities for U.S. companies exist to supply goods and services in connection with these loans.
 
The International Finance Corporation (IFC) is an affiliate of the World Bank that provides project financing for private investment in developing countries.  IFC offers long-term loans and equity investments, as well as other financing services.  IFC will generally invest up to 25% of the total project cost.  In addition to project finance, IFC also provides legal and technical assistance to private enterprises.  Unlike the IBRD and IDA, the IFC does not require government guarantees.  Egypt is one of the largest users of IFC funds in the world.  U.S. companies seeking direct investment funds should contact the IFC directly.

The Multilateral Investment Guarantee Agency (MIGA) was established in April 1988 to help investors overcome the problems of political risk.  Investors' concerns about political risk had the effect of slowing down the flow of foreign direct investment, which in turn slowed the creation of jobs and the transfer of modern technology.  MIGA's purpose is to promote the flow of foreign direct investment among member countries by insuring investments against non-commercial (political) risk and by providing promotional and advisory services to help member countries create an attractive investment climate.  U.S. companies seeking investment guarantees should contact MIGA directly.
 
For further information and assistance contact the U.S. Commerce Department's Commercial Service Liaison Staff, Office of the U.S. Executive Director, The World Bank, 1818 H Street NW, Washington DC 20433, USA.  Tel: 202-473-1000, Fax: 202-477-6391.  Website: www.worldbank.org

SELLING THROUGH USAID PROGRAMS

BACKGROUND AND OVERVIEW OF USAID IN EGYPT

The United States Agency for International Development (USAID) began its on-going program in Egypt in 1976 during a period when Egypt was facing extreme economic and political challenges.  The economy was at a standstill; much of its physical infrastructure had deteriorated; technical and scientific ties and relationships with the West had broken down; agriculture productivity was low; and basic health and welfare services were poor. 

A few years later in 1979, following the Camp David Accords and recognizing Egypt’s moderating role in the Middle East, Egypt became one of the United States’ largest economic assistance program partners in the world.  The USAID/Egypt budget for the 2006 fiscal year is $495 million and estimated is to be $455 million for FY07.  Current planning is that economic assistance levels for Egypt will continue to be reduced by $40 million per year to a level of $407.5 million for 2009.  More than $28 billion in economic assistance has been provided to date, enhancing the quality of life for many Egyptians and helping build a stronger, market-oriented economy.

Early assistance focused on the immediate needs of the economy, including clearing, repairing, and reopening the Suez Canal to restore to Egypt and the world this important trade artery.  Egypt’s infrastructure also claimed early attention.  Expanded electric power, water and wastewater, grain storage, telecommunications, and port facilities became targets of assistance. Professional and institutional ties between Egypt and the United States were rebuilt.  By the end of the 1970’s USAID had broadened its assistance to give greater attention to agriculture, health and basic education, addressing quality of life problems facing Egypt’s people, particularly those in the rural areas. In addition local development was promoted.

USAID also began helping Egypt rebuild its industrial and commercial base through U.S. imports of commodities, equipment, and intermediate goods. Working with the Egyptian government on structural adjustment and policy reforms opened up a greater role for the private sector and touched many enterprises both great and small.  Whether the immediate target was regulatory changes and privatization or greater access to credit by small and micro entrepreneurs, the USAID investment in Egypt has facilitated market entry and increased the number of productive jobs.

Some results of these investments include dependable electricity, clean water, significantly improved health care, more schools, reliable telecommunications, improved village infrastructure and services, new technologies to build a more efficient and diversified agriculture base, and expanded farmer access to credit, seeds, and fertilizer.  The portfolio of activities has shifted and grown, in response to Egypt’s changing development needs based on the mutual goal of increasing both economic growth and the quality of life of Egypt’s people.

PROCUREMENT OPPORTUNITIES

There are two main sources of information about procurement opportunities related to USAID programs in Egypt:

- Fed Biz Opps website, (http://www.fedbizopps.gov/) in which all USAID direct and USAID-financed Egyptian Government procurement is advertised;

- USAID’s on-line website (http://www.usaid.gov).  This on-line service also has background on the AID program and its relevance to U.S. interests at home and abroad.

Most commodity procurement is done under subcontract or by Egyptian Government arrangements, rather than directly by USAID.

FINANCING EXPORTS THROUGH USAID:  THE COMMODITY IMPORT PROGRAM (CIP)

USAID/Egypt sponsors the Private Sector Commodity Import Program (CIP) that makes dollars available to Egyptian private sector importers through more than 30 Egyptian banks.  The program provides attractive financing whereby the importers pay for the dollars in Egyptian pounds after an interest-free grace period.  Imports are financed through the issuance of commercial letters of credit, and the transactions generally follow normal commercial practice.  Eligible commodities under the program include most non-luxury, non-consumer items that are not related to military or police activities. U.S. exporters may consult with Egyptian customers to see if CIP funds are available. 

     Mailing Address from the United States:
     Commodity Import Program
     USAID Cairo
     Unit 64902
     APO AE 09839-4902

     Physical Address:
     USAID Commodity Import Program
     Plot 1/A off El Laselki Street
     New Maadi, Cairo
     Tel: +20 (2) 522-6620
     Fax: +20 (2) 516-4652

     USAID Alexandria
     American Center
     3 Pharaana Street
     Alexandria
     Tel:  +20 (3) 486-9301
     Fax: +20 (3) 487-8830

     Ministry of International Cooperation
     Department of Economic Cooperation with USA
     48-50 Abdel Khalek Sarwat, Cairo
     Tel:  +20 (2) 390-5100/5125
     Fax: +20 (2) 393-8187

INFORMATION GIVEN TO EGYPTIAN BUYERS AS TO HOW THE PRIVATE SECTOR CIP PROGRAM WORKS

- Apply for a credit facility at any Egyptian participating bank.
- Fulfill all the bank requirements.
- Get quotations from a reasonable number of U.S. suppliers, or one offer can be submitted if you are an agent, representative or distributor for the supplier, and fill out the transaction form.
- After the approval of your credit facilities by your participating bank, your transaction form and related documents are sent to USAID/Cairo to be reviewed and approved.
- Once assured that all requirements have been fulfilled, USAID/Cairo sends a letter to your bank, usually within 48 hours, authorizing the issuance of a letter of credit.
- A letter of credit is opened by your bank and advised by the U.S. correspondent bank to the U.S. supplier.
- The interest-free grace period starts from the date the payment is made to the U.S. supplier.
- The exchange rate is fixed at the time the letter of credit is opened.
- You can qualify for a maximum limit of $8 million per year, according to the type of transaction.

Web Resources

Export-Import Bank of the United States: http://www.exim.gov
Country Limitation Schedule: http://www.exim.gov/tools/country/country_limits.html
OPIC: http://www.opic.gov
Trade and Development Agency: http://www.tda.gov/
SBA's Office of International Trade: http://www.sba.gov/oit/
USDA Commodity Credit Corporation: http://www.fsa.usda.gov/ccc/default.htm
U.S. Agency for International Development: http://www.usaid.gov

MULTILATERAL INSTITUTIONS ABROAD:
Multilateral Development Bank Office
U.S. Department of Commerce
International Trade Administration
Room 1107, 14th and Constitution, NW
Washington, DC 20230
Tel: 202-482-3399, Fax: 202-273-5179

African Development Bank
ADB temporary relocation agency (Tunis)
Angle des trois rues: Avenue du Ghana, rue Pierre de Coubertin, rue Hedi Nouira
BP. 323, 1002 Tunis belvedere, Tunisia
Tel: 216-71-333-511, 216-71-103-450, Fax: 216-71-351-933
Email: afdb@N0SPAM.afdb.org

International Finance Corporation (IFC)
2121 Pennsylvania
Washington, DC 20433
Tel: 202-473-7711, Fax: 202-974-4384

World Bank
Office of the U.S. Executive Director
1818 H Street, N.W.
Washington, D.C. 20433
Tel: 202-477-1234, Fax: 202-477-6391

MULTILATERAL INSTITUTIONS IN EGYPT:

African Export Import Bank (AFREXIM)
Mr. Christopher Edordu, President
World Trade Center Bldg., 3rd & 8th Floors
1191 Corniche El Nil, Cairo
Tel: +20 (2) 578-0281 (6 Lines), Fax: +20 (2) 578-0276/9

African Development Bank
Egypt Country Office (EGCO)
Mr. Omar Awu, Resident Representative
1, Al-Gazayer Square, 1st floor, New Maadi, Cairo
Tel: +20 (2) 516-0906, Fax: +20 (2) 516-0868

International Finance Corporation (IFC)
Mr. Michael Essex, Director Middle East & North Africa
World Trade Center, 1191 Corniche El Nil St., 12th Fl., Cairo
Tel: +20 (2) 579-6565, +20 (2) 579-9900, Fax: +20 (2) 579-2211