A long-simmering demand for international brands has been unleashed in Egypt, transforming its retail industry.
H&M opens in Egypt in style
When news broke that the Swedish retailer, H&M, was to open in Cairo in May, dozens of groups instantly formed on Facebook, the social networking website, to celebrate the store's arrival in Egypt. More than 14,000 once fashion-deprived men and women of all ages attended the store's grand opening. An ease in government regulations, coupled with the influx of international retailers and developers, has led to a transformation of Egypt's retail industry, with residents of Cairo and Alexandria welcoming dozens of new malls and foreign brands in recent months.
With the recent relaxation of trade duties - which were dropped from nearly 150 per cent to 20 per cent last year - a pent-up demand for international consumer brands has been unleashed. "For many years, we had banned international brands and luxury goods and accessories and all kinds of interesting shopping items, because there was a logic then that we should not spend our foreign currency on this kind of business," said Rachid Mohammed Rachid, Egypt's minister of foreign trade and industry. "But they realised that people go outside and buy their shopping and bring it back, or smuggle it back without paying any customs or taxes. Nobody benefits from that."
Egypt's gross domestic product is forecast to grow by eight per cent by 2012, with total retail and leisure expenditure in the primary and secondary trade areas projected to reach 28.5 billion Egyptian pounds (Dh19.25bn) next year, rising to 79bn pounds by 2016, according to research by Colliers International. The Egyptian retail sector does not benefit as much from tourism as it does in the UAE, but Mr Rachid said this was one of the government's biggest goals. "At least 40 per cent of tourism around the world is shopping tourism," he said. "When people come here to visit, they want to shop, especially the [Gulf] tourists, who always like to do their shopping while they travel."
As many as 15 malls have opened in Cairo alone in the past few years, with many more still to come. Majid Al Futtaim Shopping Malls (MAF) from Dubai has purchased 400,000 square metres in central Cairo for five new malls. The group also plans to expand existing centres in Maadi and Alexandria. MAF has also begun work on Cairo Festival City, a 154,000-square-metre indoor-outdoor shopping and entertainment centre, similar to its namesake in Dubai. The mall will feature 250 shops and services, as well as 85 restaurants and cafes.
According to a study recently released by the management consultancy, AT Kearny, Egypt and Saudi Arabia are among the ripest countries in the region for international retail penetration. Egypt ranked fifth in the world after Vietnam, India, Russia and China. Saudi Arabia ranked seventh in the study, while the UAE was 20th. In the meantime, Egypt continues to welcome brands from all over the world; Starbucks, regionally owned by the Kuwait-based AlShaya Group, has opened 14 branches across Cairo, Alexandria and the Red Sea resort town of Sharm El Sheikh. Other retailers to make their debut in recent years include mango, based in Spain, and the German supermarket chain, Metro.
"Many believed that these international brands would hurt local retailers, but of course we believe that the competition is a good thing," said Mr Rachid. A concern, however, is that Egypt's high poverty levels will stunt further retail industry growth. A UN study found that some 44 per cent of the nation's nearly 80 million residents live on less than $2 per day. However, the government estimates that at least 10 per cent of Egypt's population can afford to shop at malls, and as many as 25 to 30 per cent can shop at hypermarkets.
"Even if only a quarter of Egypt's population can afford to shop at Carrefour, that still leaves us with 20 million potential consumers in the market," said Richard Reid, the senior vice president of MAF, which owns the Carrefour brand in the Middle East. "It's probably a little bit less than that, but it is essentially equivalent to the population of the whole of Australia."