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Turkish Businesses Extend Operations to Egypt to Escape Economic Hardships at Home

December 8, 2023
Photo credit: Prin Adulyatham/ Shutterstock.

Turkish companies are flocking to Egypt to escape the higher production costs, growing inflation, and economic uncertainty in their home country.

Last July, Cairo and Ankara chose to mend strained relations, putting an end to a decade of political contention and regional rivalry. Since then, bilateral economic ties have shown consistent signs of growth and collaboration.

This positive trajectory in economic relations has been particularly evident as Turkish companies seek new avenues amidst challenges in the domestic economic landscape. 

A key concern for these companies has been the prolonged impact of Turkish President Recep Tayipp Erdogan’s low interest rate policies, contributing to a notable surge in inflation, currently standing at 62 percent. The confluence of high fuel costs and uncertainties surrounding central bank interest rate policies has further exacerbated economic challenges.

Despite the efforts of Turkey’s newly appointed Finance Minister, Mehmet Simsek, and the recently appointed head of the central bank, Hafize Gaye Erkan, to steer the country towards a more conventional economic policy, stability remains elusive. 

Simsek and Erkan have expressed optimism, forecasting a return to stability and single-digit inflation rates by 2025 or 2026. However, this optimistic outlook has not fully alleviated concerns, particularly among businesses facing heightened economic uncertainty. Many companies appear hesitant to embrace this timeframe.

As Turkish companies grapple with mounting production costs, surging fuel prices, and the unpredictability of foreign exchange and interest rate policies, a growing number are contemplating the prospect of relocating abroad. 

Egypt, in particular, has emerged as an appealing destination, offering significantly lower labor and production costs compared to Turkey. Additionally, in April, The Egyptian government  eliminated visa requirements for Turkish citizens entering the country, further facilitating potential business ventures.

Turkish companies injected a total of USD 2.5 billion (EGP 77 billion) into the Egyptian economy this year. Projections indicate that this figure could reach USD 3 billion (EGP 92 billion) by the conclusion of 2023.

Beyond cost advantages, Turkish enterprises operating in Egypt stand to benefit from tariff-free trade opportunities with third-party countries. This strategic advantage positions them to explore and enter new markets, enhancing their global reach and diversifying their business portfolios.

The Turkish Ambassador to Egypt, Salih Mutlu Sen, highlighted his government’s support for economic cooperation in both the public and private sectors, emphasizing a commitment to fostering strong economic ties between Turkey and Egypt. 

The head of Egypt’s Commercial Representation Authority, Yahya El-Wathiq Billah, told Al-Ahram that over 800 Turkish companies have entered the Egyptian market.

“Dozens of Turkish companies every month show interest in investing in Egypt,” he explained, adding that some of them have already agreed to invest USD 200 million (EGP 6 billion).

The disparity in labor and fuel costs between Turkey and Egypt has become a driving force for major Turkish companies to shift their production to Egypt. While the average monthly labor cost per worker in Turkey is approximately USD 500 (EGP 15,450), it is notably lower in Egypt, standing at a mere USD 150 (EGP 4,600). This cost advantage has prompted companies like Arcelik, Sisecam, Temsa, and Yildiz Holding to relocate their production operations to Egypt.

Temsa, specializing in buses and vans, exports its products globally from its Egyptian production base. Yildiz Holding’s confectionery brand, Pladis, has found substantial success in Egypt. Yesim Textil operates apparel factories in Cairo, Alexandria, and Ismailia, supplying renowned sports brands worldwide. Arcelik, recognized in Europe for its Beko brand, recently invested USD 100 million (EGP 3 billion) in a new Egyptian factory set to commence operations by year-end. Additional investments have been announced by Iskefe Holding, LC Waikiki, Eroglu Group, and others.

The economic shift has resulted in approximately 70,000 Egyptians working for Turkish companies, excluding those employed by suppliers. Turkish factories now contribute to producing a third of all textiles and clothes in Egypt, showcasing the substantial impact of these investments on both employment and the manufacturing sector in the country.

Despite the flow of investments and expansions of Turkish companies in Egypt, a challenge has surfaced in the form of a foreign currency shortage. This scarcity of dollars in the local market poses difficulties for Turkish firms engaged in producing goods for Egypt’s domestic market, leading to delayed payments.

“The central banks of both countries will discuss how to conduct trade in local currencies to reduce the demand for US dollars,” El-Wathiq Billah said

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