Brighter days for Egyptian economy. Entrepreneurial spirit blossoms, reflecting new private sector confidence

A ``made in Egypt'' campaign is beginning to pay off. If the government's year-old program continues to work, it could bring some long-needed fundamental changes to the Egyptian economy and put it on the path to recovery, economic analysts here say.

In recent years, imports in Egypt have grown to four times the value of exports. The country imports more than 50 percent of its food needs. As Egypt's traditional sources of foreign currency - oil revenues, Suez Canal tolls, and tourism - began to dwindle in 1985, it became increasingly difficult to finance the country's imports or to pay on its $40 billion debt.

Egypt faced a major obstacle to economic recovery: the lack of local industries that could satisfy domestic demand and produce for export.

But now, things are changing. Scores of Egyptian businessmen who once might have gone into the import trade have begun to manufacture consumer goods locally - some in large factories, some in cottages, and others in tiny home workshops. Though the results are still limited, they are economically significant.

This local manufacturing trend - mostly visible in consumer goods like finished textiles and processed foods - indicates that entrepreneurs here have new confidence both in the government's resolve to curtail imports and in the vast market that Egypt's 50 million people represent.

Now, not only are new consumer industries sprouting, but also factories established a few years ago using available raw materials and cheap labor are beginning to sell their products abroad. They could be the vanguard of a new trend moving toward self-sufficiency.

``We have won in convincing business that we are serious in protecting and encouraging the private sector,'' says Atef Ebeid, minister for Cabinet affairs, one of the officials involved in economic decisionmaking. The government wants to expand private-sector production - now one-third of total production - because it is more efficient than the sluggish public sector.

``This year, it's the year of made-in-Egypt,'' says Marilene Ashba, a partner in Mobaco, one of the overnight success stories in ready-to-wear Egyptian clothing. ``There is a huge market here and people are realizing it.''

An Egyptian clothing industry has existed for perhaps a decade, and imports of foreign-made clothing have been banned for about five years. But still, local entrepreneurs had been hesitant to invest, even though Egypt produces what's said to be the best cotton in the world.

European clothing imported tax-free into Port Said's free zone was smuggled into the rest of Egypt. And because the Egyptian pound was kept artificially strong, it was easy for Egyptians to purchase clothing on trips abroad. Only the lower middle classes bought the ruffled, frilly, locally made outfits that were usually out of date. A highly publicized campaign by President Hosni Mubarak, in which he visited local factories, had little effect.

But the devaluation of the Egyptian pound by almost 100 percent in May, done to win credit from the International Monetary Fund, changed all that. European clothing became too expensive for most Egyptians, and the demand for locally produced clothing began to soar.

All over Cairo these days, middle and upper class Egyptians are sporting what appear to be alligator shirts made by the Lacoste Company, that retail for about $50 a piece. But on closer inspection, the emblem on the right breast is not an alligator but a logo that resembles the word ``gym.'' The all-cotton shirt, produced by the Egyptian firm Mobaco, retails for 14 Egyptian pounds, the equivalent of about $6. It's the current rage.

Mobaco, a family business with 200 employees, each earning the equivalent of $52 a month, can no longer meet demand and is planning to open a second factory. The company, which produces loose-fitting polos, skirts, and stylish French-inspired pants, finishes 1,000 pieces a day.

Ms. Ashba says that new customers are turning up every day and that, despite a growing religious trend in Egyptian society, secular Egyptians are a huge market. Even rural Egyptian villagers - who traditionally wear the galabaya, or long robe - are buying the Mobaco styles, she says. They had never before been offered something other than the galabaya. This fall, Mobaco will begin a drive to export to the US.

Mobaco is not alone. Boutique windows now display both stylish Egyptian-made men's wear and locally made baby clothing modeled on the styles of the US company, Oshkosh.

The Ismailia Company, which produces men's wear in a venture with an Italian firm, retails summer suits for the equivalent of $25. It is also looking overseas, and plans to begin exporting to the US this fall.

``We have the raw materials and the experience in spinning and weaving,'' says company chairman Mohammed Abul Enein. He used to be an importer, but five years ago he realized that Egypt would no longer be able to afford imports. So he bought the ready-to-wear know-how.

``There's confidence in this market,'' he says, ``and there are possibilities for export for the old manufacturers.'' The company is targeting turnover at the equivalent of $10 million this year, a 100 percent increase over 1985.

According to Dr. Ebeid, Egyptian export of finished textiles in the first six months of 1987 equalled the total of the previous year.

Besides limiting imports (the government says imports dropped by 25 percent in 1986-87) and devaluing the currency, the government is offering other incentives to local manufacturers: a 10-year tax exemption for new factories and customs exemptions for the import of machines. It has also tried to eliminate the mounds of bureaucratic red tape involved in exporting.

``Labor costs are very low,'' says Ray Seamer, manager for Lloyds International Bank in Cairo. ``The cost factor has swung so much in favor of exporting that people are ready to put up with the bureaucracy to do it.''

``There's interest outside of Egypt in importing Egyptian clothes,'' he adds. ``There are bureaucratic problems, but the fundamentals are still right.'' Mr. Seamer says other local industries could also face bright prospects now that the Egyptian pound is so cheap. Processed food is a good example, he says.

In fact, the local food industry has recently experienced a boom, with new producers getting into the production of juices, yogurts, and biscuits. Ebeid says that Egyptian strawberries, harvested in winter, are now being sold at the chic London specialty store, Harrods.

The trend toward local production has taken its toll on private sector importers, who began to thrive under President Anwar Sadat's open door policy, and on foreign banks who have financed them.

Not only have imports become exorbitant, but importers can no longer buy dollars through the banking system to finance the goods nor to repay prior dollar loans. Some of the black-market dealers who used to sell dollars have been arrested and others intimidated.

While devastating to the foreign banks, the situation has made local producers ebullient. They still lack the confidence that they can compete in foreign markets with Korea, Hong Kong, and the Philippines. The Egyptian work ethic is still lacking, the bureaucracy staggering, they say. But there's hope.