On his second day on the job as managing director of General Motors Egypt, Don Butler was somewhat surprised earlier this year to find himself meeting with Foreign Trade & Industry Minister Rachid Mohamed Rachid.
Rachid, the first international business executive to take an Egyptian Cabinet post in recent memory, is a man in a hurry. He wants to boost Egypt's exports and employment. So he began talking with GM about an idea for a pilot project involving its Egyptian parts supplier network. Within four weeks of the first meeting, both sides had agreed to undertake a "gap analysis" of the top 20 of GM's 103 Egyptian suppliers to figure out how to bring them up to world-class standards. The benefits would be twofold: GM Egypt, which makes 20,000 cars a year, would get better-quality parts, and the Egyptian companies "could become candidates to supply GM on a global basis," Butler says.
Rachid's overarching goal is to complete Egypt's transition from a public-sector-dominated economy to one where the private sector drives development. The initiative may help President Hosni Mubarak's reelection campaign. Mubarak resisted reform for years but has recently embraced it.
Yet when Prime Minister Ahmed Nazif called a year ago to ask him to join the Cabinet, Rachid was reluctant. He had never wanted to be a Minister, and becoming one, he judged, would mean "sudden death" for a prospering international business career. Overnight, he had to resign his position as president of Unilever Group's food business in the Middle East, Africa, and Turkey, as well as 26 other board seats. Rachid had joined Unilever in 1991 after selling a majority stake in his family's food business, Fine Foods, to the Anglo-Dutch company.
Now Rachid is a key player in what has turned out to be one of the most economically liberal cabinets Egypt has seen. He is helped by a warm personal touch and a willingness to do what is expected of a Minister, including receiving supplicants in his downtown Cairo office until late in the evening. Executives say he is always available to troubleshoot. "In the past, it took almost literally three years to meet a Minister," says Tarek Kabil, chairman of Pepsi-Cola Egypt. "I can meet him today if I have any issue."
Rachid, 50, says his business experience has given him the knowhow to sell the major reforms that Egypt needs. These range from changes to the customs and taxation codes to privatization and reductions in barriers to investment. Unlike the technocrats and bureaucrats often found in senior Egyptian posts, Rachid has helped manage large-scale, complicated projects. For example, he was on the team that integrated Bestfoods of the U.S. into the global Unilever empire after it was acquired in 2000 for $24 billion. His predecessors, he suggests, had no idea how to pull off such transformations: "If you want to execute change, you have to make sure the winners speak up and are part of the lobby to help you get it through."
A few months into his term, Rachid pulled off a huge coup by persuading Egyptian manufacturers to support Egypt's bid for Qualifying Industrial Zone (QIZ) status. QIZs give 445 Egyptian companies, including makers of plastics, shoes, and leather goods, duty-free access to the U.S. if their products have at least 11.7% Israeli content. The assumption had been that adopting such a program would be political dynamite in Egypt because of anti-Israeli feeling. Instead, the opposite happened. Workers at companies outside the zones, furious at being left out, rioted in December, 2004. The program helped boost Egyptian exports to the U.S. by 56% for the fiscal year ended June 30.
Rachid has used his savvy to help push through a package of other measures aimed at stimulating exports and investment. In the past year, the government has cut the corporate income tax rate from 43% to 20% and has simplified tariffs, at the same time reducing them by around 60%. Important companies, including Egyptian Telecom and the Bank of Alexandria, are likely to be privatized later this year, assuming Mubarak and his National Democratic Party win national elections scheduled for September.
ON THE UPSWING
Already, the flurry of reforms appears to be bearing fruit. For the three quarters ended Mar. 31, exports were up 31% compared with the period a year earlier, to $9.75 billion. Foreign investment has jumped 1,000% (though it was still only $1.9 billion for the three quarters). The economy grew 4.8% in the year ending June 30, and the pace is expected to quicken to 5.1% this fiscal year, says Hany Genena, an economist at EFG-Hermes, a Cairo investment bank. Unemployment, however, remains stuck at around 10%.
Despite the recent bombings in the resort town of Sharm el Sheikh, executives in Egypt say they are seeing a degree of confidence on the part of consumers and investors that has been absent for several years. Butler of GM Egypt, for instance, says the company's car sales are likely to double this year in an overall market that may be up 60% or more.
It isn't just the car industry that's getting the Rachid treatment. His pet project is furniture manufacturing, which employs 1 million Egyptians yet exports just $200 million in goods. Rachid would like to see that figure quintuple -- a realistic target, he figures, given that the U.S. and the European Union combined import around $70 billion in furniture per year. To aid the industry, Rachid persuaded tax authorities to grant manufacturers quick rebates on import duties paid on raw materials shipped in from abroad to be turned into exports. Before Rachid arrived on the scene, "we had been debating this for three or four years with several ministries," says Adham Nadim, chairman of furniture maker Nadim Industries. "It always came to a dead end."
Rachid also deputized Mohammed Fathi, an executive he brought with him from Unilever, to help the biggest furniture makers step up their marketing efforts and improve their designs. It's paying off. Nadim says he recently surveyed 10 companies besides his own and found they were adding 3,000 workers and investing $50 million. While Rachid doesn't think Egypt will ever be able to compete with China on wages, he believes his country can be a profitable exporter of labor-intensive, high-value goods such as locally designed furniture and textiles.
This is all encouraging for Egyptian executives, but their fear is that the old slogging, bureaucratic Egypt will reassert itself, and Rachid and other pro-business Cabinet members will get frustrated and go back to the private sector. Although Mubarak will almost certainly be reelected, the end of the 77-year-old leader's hold on power is approaching, and it's far from clear who will succeed him. "Stability and continuity are the two key words that need to be emphasized," says furniture mogul Nadim.
Egypt is now on a reform track. The question is, will it last?
By Stanley Reed in London