Commercial Sector Background
Egypt’s retail and wholesale sector is booming: total retail sales grew from US$ 35billion in 2003 to US$ 42.6 billion in 2006, with sales projected to reach US$ 104billion(1)by 2011. With such fast paced growth, international recognition has been sure to follow. Estimates suggest that some 7.5 million people can afford to make at least one purchaseevery year at high -end shopping malls, such as Cairo’s landmark City Stars. That’s a figure equal to nearly half of the population of The Netherlands, more than half thepopulation of Switzerland and Sweden, or nearly the entire population of Denmark.
Egypt’s wholesale and retail sectors contributed a combined 11 % of GDP in 2009,employing 9% of the country’s work force. With retail demand already growing andprojected to increase at an average rate of 11 .2% until 2013, there is also greaterconsumer interest, seen in all levels of income, in value-added services, quality productsand international brands. These factors are emerging in an environment of economic deregulation to create a sectorripe with opportunities for foreign investment. International brands such as Carrefour and Spinneys have already taken advantage of Egypt’s investor-friendly, low-cost environment, establishing themselves as the number two and three players in the sectorrespectively; while every other day Egypt's retail sector sees the introduction of a newconsumer-goods brand, restaurant or clothing label.
A recent report(2)issued by the General Authority for Investment and Free Zones (GAFI(2estimated that the size of the retail sector in Egypt reached 1 million private sectorretailers, consisting mainly of traditional outdoor markets, outlets and small soletraders. In 2009 the organized retail sector represented only 1.5 percent of the internaltrade market.
Retailing is already undergoing consolidation and many leading retailers are rapidlyexpanding through increasing their outlets and selling areas. There is an interesting trend withthe increase in the share of the top 10 retailers between 2005 and 2008, graduallytaking the shares of other minor retailers rather than from each other(3).
Egypt’s population will reach 95 million by 2020 expanding at an annual 2% rate whileaverage real GDP growth is expected to exceed 6% in this period. Boston Consulting
Group project that annual consumer spending is expected to grow by an average of 12%to 2020, reaching EGP 2,600 billion, fueled by annual growth of modern trade reaching 36%.
Close to 50% of consumer expenditure in the retail sector is by Egypt’s middle class (C-class) households, who typically earn between EGP 800 and EGP 5,000 monthly. Thesuccess of modern retailing in Egypt will depend on attracting the purchasing power ofthis segment of consumers. This will mean increasing middle class households'accessibility to modern retail formats with prices geared accordingly.
The current domination of Egypt’s retail environment by scattered micro-enterprises -employing just one or a handful of retail assistants - has real implications when 75% ofretail spending is directed towards food. This fragmented supply chain, which ischaracterized by multiple intermediaries from producer to retailer, leads to high aggregate consumer mark-ups.
1. Ministry of Trade and Industry, the Internal Trade Development Strategy April 2010
2. ibid
3. Euromonitor International 2009
Despite this drawback Egypt currently stands as the region's largest market and is poisedto realize dramatic growth throughout the economy by modernizing and organizing itsinternal trade. These moves will drive growth o n a number of fronts:
• High skilled employment creation.
• Strong links with production in agriculture and industry.
• Visible signs of economic development.
• Extended purchasing power.
• Broader assortment of goods available to consumers.
Modern food retail will introduce significant cost savings to consumers across thepopulation; their retail spending power will automatically expand and these funds will beavailable for other internal trade purchasing opportunities.
Modernizing the food sector will have a broad impact across the supply chain and will bethe engine for modern trade across all sectors. The introduction of modern retailingincludes the upgrade of distribution systems, thereby setting new standards ofcompetitiveness, which leads to the modernization of traditional players who wish tocompete.
The benefits of modern trade development will generally be marked by multi-outlet chains stores or distribution centers that introduce the self-service model, large salesareas, high product turnover, efficient logistics and large volume wholesale purchases.
The Egyptian consumer will benefit from a host of advantages:
• Lower prices on the shelves
• Higher quality goods
• More pleasant shopping experience
• Quality customer service
• Effective monitoring and management of consumption associated health hazards.
ITDA will focus on implementing a national policy geared to fostering modernizedinternal trade across the country and throughout all social classes, generating sustained savings on all levels of economic activity and broadly boosting consumer real spendingcapability.
The first pillar of trade development will enable the operations of two key levers: Launching a trade modernization program geared to upgrading traditional retailers andfacilitating store openings across the country by allocating land to trade. The second pillar is focused on enhancing internal trade efficiency by encouraging the development of: enhanced supply chains; quality standards; logistics infrastructure; andby focusing on human resources development.
For the third pillar Egypt will ensure the emergence of strong national retail chains, which will involve working with all governorates and chambers of commerce to ensurethe spread of modern retail reaches the entire country. Egypt’s internal trade development is conceived as a10 year progressive vision and theambitious objectives seek to establish modern trade as 15% of the total in tern al trade.
This will require modern internal trade to grow at an average annual rate of 36%. By 2020 Egypt will have become a leading modernizing economy in the Middle East andNorth Africa. Internal trade development is part of the movement towards a modern economy that will establish Egypt as a regional industrial, trade and technological hub.