Distribution and Sales Channels in Egypt

An Expert's View about Forms of Business Ownership in Egypt

Last updated: 13 Mar 2011

Foreign firms can sell directly within Egypt if they are registered to make direct sales. Many do so as part of a manufacturing or assembly operation in Egypt. A few foreign firms use free zones or bonded warehouses to store goods and hire their own employees to sell door-to-door consumer goods. Most foreign firms, however, rely on Egyptian companies for wholesale and retail distribution, ensuring their effectiveness through staff training programs in Egypt and abroad, supplying short-term home office personnel to work with the Egyptian firm, and making regular visits by marketing and technical support staff. Although the concept of "marketing", as compared to simply selling, or waiting for the customer to find and come to you, is new to Egypt and weakly practiced, there are a growing number of good Egyptian marketing firms who know how to market the products in which they specialize.

 

Egyptian commercial agents are required for foreign firms to bid on most civilian government tenders. By contrast, commercial agents cannot be used to bid on military tenders, although use of Egyptian "consultants" may be allowed if the arrangement is properly structured. Commercial agents are optional when bidding on tenders issued by the petroleum companies, when selling to the private sector, or when selling under USAID-financed programs.

 

There are many choices for distributors, dealers, and agents in Egypt. There are a few firms with modern management, including "profit center" staff responsible for success in specialized departments. There are more traditional "general trader" type companies, some of which have developed a certain specialization (e.g.: lumber, building products, canned goods, fresh and frozen meats), and some of which handle "everything." Also, there are smaller firms specializing in only a few product lines or only a handful of foreign suppliers.

 

According to Egyptian Customs authorities and the Ministry of Industry & Foreign Trade, in 2007 (the latest statistics available) Egypt had 5,800 registered importers, 9,600 exporters, 4,330 commercial agents representing 106,200 foreign firms, and 4,250 factories licensed to import components. Most of these firms are privately owned, but the government sector includes some 279 separate companies affiliated with 16 holding companies; nearly 30 military factories that also make civilian products; and 1,500 companies owned by one of the 26 provincial authorities.

 

Many retailers of consumer goods tend to import their own needs directly rather than pay high markups to wholesalers - sometimes a suitcase or trunk load at a time. A corollary is that many Egyptians prefer getting quotes directly from the overseas supplier rather than from the local agent on the theory that the price will be better. This habit suggests that U.S. principals be sensitive to the role and presumed cost of their Egyptian agents. One way to strengthen that role is to refer customer inquiries back to the Egyptian agent or to a regional representative outside Egypt.

 

Only registered commercial agents can work on government tenders. Often such persons have retired from the government agency to which they are now specialized in selling. This system is especially common among persons selling to the military, security, and police agencies. In the extreme, some of these people literally operate out of their homes and have neither office nor staff, but they can be effective.

 

Egyptian law requires that all commercial agents and importers have Egyptian nationality. If it is a company, the chairman and all members of the board must be Egyptian, and it must be 100% Egyptian-owned. Agents also must have resided continuously in Egypt for at least five years with specified exceptions for expatriate Egyptians having an overseas work permit; be certified by a local chamber of commerce or professional association; not be a civil servant or worker in a public sector company (i.e., not moonlighting), nor a member of the People's Assembly; not be a "first grade relative" (i.e., a member of the immediate family, or uncle, aunt, niece, or nephew) of a civil servant of the rank of Director General or higher, or of a member of the People's Assembly. This prohibition against agents with family members in government is rarely enforced. Public sector firms can be agents, as can private firms and individuals.

 

Distributor-type companies with any foreign ownership can market goods, including imported goods, in the following circumstances (although they cannot handle the import operation, per se):

 

(1) General Partnership Companies, or Limited Partnership Companies: In these types of companies, there may be a foreign partner, provided that the Egyptian partner(s) have at least 51% of the capital and the general manager or head of the company is an Egyptian national. In these instances, such a distributorship company cannot be an "importer" nor act as commercial agent unless it is 100% Egyptian owned and managed.

(2) Limited Liability Company: A foreign partner in this type of distributorship company faces no limit on the percentage of ownership, provided that at least one manager of the company is an Egyptian national (there can be one or more managers depending upon the articles of incorporation), there are at least two shareholders or partners, and the capital of the company is not less than LE 50,000 (approximately $9,000). A distributorship company of this type also cannot be an "importer", nor act as commercial agent.

(3) Joint Stock Company: Provided that at least 49% of the shares are offered to Egyptians upon formation, foreign shareholders ultimately can own up to 100% of the company, provided that a majority of the board of directors are Egyptians, the capital of the company is not less than LE 250,000, and there are at least three shareholders. Again, a distributorship company of this type may not import or act as a commercial agent unless it is 100% Egyptian owned and managed.

 

Foreign firms that form a distributorship as mentioned above often permit the Egyptian partners to form a separate company to act as "importer" or agent. The latter delivers the goods to the distributorship company for marketing within Egypt.

 

Products enter Egypt through the main ports of Alexandria, Dekheila, Damietta, Port- Said, and the comparatively new port of Ain Sokhna. Goods are then cleared by the importer or end-user and are stored in the main distribution centers located in Alexandria and Cairo. From there, well-organized distribution companies with networks covering the entire country will distribute to wholesalers and retailers.

 

 

 

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Posted: 07 June 2010, last updated 13 March 2011

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Expert Views    
Distribution and Sales Channels in Egypt   By U.S. Commercial Service Egypt