V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS 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 such as vacuum cleaners. Most foreign firms, however, rely on Egyptian companies for effective wholesale and retail distribution, ensuring their effectiveness through staff training programs in Egypt and abroad, supply of short-term home office personnel to work with the Egyptian firm in Egypt, and frequent visits by marketing and 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 firms who know what they are doing and how to market products in which they specialize. Egyptian commercial agents are required for foreign firm bids 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. Most retailers of consumer goods tend to do their own importing, rather than pay high markups to wholesalers. A corollary is that many Egyptians would prefer getting quotes directly from the overseas supplier instead of the local agent, on the theory that the price will be better. This requires that U.S. principals be sensitive in describing the role (and presumed cost) of their Egyptian agent if the U.S. firm refers customer inquiries back to the Egyptian agent, or to a regional representative outside Egypt. Some agents specialize in government tenders. Often such persons have retired from the government agency they now specialize in selling to. This is especially common among agents selling to the military, security and police agencies. In the extreme, some of these agents literally operate out of their homes and have neither office nor staff, but they can be effective. In Egypt as elsewhere, the artistry of appointing a representative requires a blend of many concerns and decisions. Will your company and its product line be prominent in the attention of the prospective agent, or just be added to a dusty shelf of many other product lines? If the prospective agent is a one-man band, can you find him/her when you need him/her; does he vacation all summer in Cannes or on the Red Sea? Is his influence with government decision makers generational, and therefore subject to decline as his years pass? Does he have children or trusted staff being groomed for responsibility? 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. no 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 be private firms and individuals. Although distributors with any foreign ownership interest cannot directly import unless they are investment law companies importing for the purpose of their own production, in contrast to commercial agencies, do not have to be 100% Egyptian-owned in the following circumstances, although they cannot perform the import operation per se: (A) 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. (B) 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 2 shareholders or partners and the capital of the company is not less than LE 50,000 (approx. $15,100). A distributorship company of this type also cannot be an "importer", nor act as commercial agent. (C) 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 L.E.250,000 and there are at least 3 shareholders. Again, a distributorship company of this type may not import nor act as a commercial agent unless it is at least 100% Egyptian owned and managed. Foreign firms which 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 distribution/marketing within Egypt. USE OF AGENTS/DISTRIBUTORS Egyptian law concerning commercial agency agreements is among the most liberal in the Middle East from the foreigner's perspective. The law is neutral concerning exclusivity, compensation is not required to cancel an agency, and there is no minimum notification period for cancellation. There is no requirement that the agent authorize the import of the foreign principal's products into Egypt, nor that the importation take place through the agent. (Importers of any product must be separately registered, under another law.) Commercial agents must register the fact of their agency with the Ministry of Economy and Foreign Trade's Commercial Registry Department, giving basic facts about the agreement including the amount of commission to be received on sales. The foreign firm itself faces no local registration requirement. The law is also neutral about dispute settlement procedures (leaving this to the parties to decide, preferably in writing at the time of appointment of the agent, and in advance of a dispute), and on the amount of commission due an agent. Commission rates vary with the volume of sales; five percent is common and typical, but the rate can be less than 1% for high- volume sales or 10% in special cases. The commission rate must be reported in bid packages for government tenders, with the government reserving the right to reduce any commission it deems extravagant. As previously noted, commission rates also must be noted in the Ministry of Economy and Foreign Trade commercial registry documents signed by the Egyptian agent. Although exclusivity is not required by law, in practice most Egyptians expect or at least hope for it. The majority of U.S. firms have one or two Egyptian agents, although a few have more. Agencies can be split geographically, although this is generally avoided in a country like Egypt centralized around the capital city of Cairo. If there is a geographic split, it is generally Alexandria with or without the Delta cities on one hand, and Cairo and the Nile valley on the other. Agencies also can be split between private and public customers, with one agent specializing in tenders and one or more others handling private sector customers. Agents often appoint subagents to cover the smaller cities in Egypt. FRANCHISING Franchising of fast-food restaurants and clothing stores is a growing business in Egypt. Franchises in other business lines are rare to nonexistent, however, probably because of (a) fears of cost and (b) the assumption that a locally managed business can offer good enough product or service to meet customer expectations, thus the "extras" proffered by a franchise are not needed. There are no special laws governing franchising, and no unique trade or legal barriers to overcome. Egyptians themselves have begun franchising their own retail businesses to others, particularly clothing stores. This suggests that the franchise business concept per se is acceptable in the Egyptian cultural milieu, and could be replicated in other business lines by an interested firm. All but one Egyptian franchise known to the U.S. Embassy is the fruit of an Egyptian initiative approaching the foreigner, rather than a marketing effort by the foreign firm. This proves that Egyptians know their market better than anyone else, of course, and also indicates an attention gap on the part of foreign franchisors. DIRECT MARKETING Direct marketing within Egypt is covered above under distribution and sales channels. Other forms of direct marketing such as catalog sales or television sales are problematical and not yet used. This is because the use of credit cards or checking accounts drawn on foreign banks is not common in Egypt (although it is increasing), and the mailing of goods into Egypt faces the risks of mail theft, loss in the netherworld of the airport mail warehouse, and arbitrary and high customs duties. JOINT VENTURES/LICENSING Egyptian entrepreneurs like the comfort factor in having a foreign partner in a joint venture in Egypt. The foreigner supplies and ensures quality of the technology as well as the "cachet" necessary to gain customer acceptance. Thus, foreign equity in joint ventures can be as low as a few percentage points depending upon mutual agreement. Egyptian law allows foreign investors to own any amount, up to 100%, in an approved project involving industry, reclamation and cultivation of barren and desert land, tourism, housing, and real estate development. There are currently some 50 U.S. joint ventures with private and government partners. Some include third-country partners from Europe or other Arab countries. The details of joint venture or licensing agreements between Egyptians and their foreign partners are a matter of mutual agreement, defined by their contract, not by special law. Liberalized foreign exchange regulations since 1991 permit the free transfer abroad of profits and dividends, and invested capital may be repatriated with prior approval of the government's investment authority, the General Authority for Investment and Free Zones-GAFI (without restriction if the investment is under Investment Law 230; with some what different restrictions if under Companies Law 159/1981). Technology licensing that is part of an Investment Law 230 investment application is no longer part of the now streamlined, 2-page application form. Technology licensing that does not involve "investment" in Egypt by the foreigner but that does involve using "process secrets" for manufacturing in Egypt may be approved by the Ministry of Industry's General Organization for Industrialization (GOFI). Approval is not required for licensing agreements involving trademarks and technical know-how other than "process secrets." A stiff withholding tax is levied on royalty payments unless a double taxation treaty exists. (There is a U.S.-Egyptian treaty for the avoidance of double taxation treaty which limits tax on royalty payments to 15% of the gross amount of such royalty.) Numerous government and private companies have licensing agreements with foreign firms under which royalties and other fees are freely transferred abroad pursuant to individual corporate agreements. Examples of licensed production in Egypt include name-brand clothing, personal care consumer products, kitchen utensils, pistols, laser alignment equipment, and military vehicles. Service licenses include diving training, and franchised services include personal care and restaurants. Inadequate patent protection has been the biggest barrier to licensing in Egypt. This hopefully will change with passage of a new patent law, a draft of which was under debate within the government as late as June 1994. FINDING A PARTNER There is no special Egyptian secret to finding a partner. It is as difficult and personal in Egypt as anywhere. Advance networking and lengthy investigation by the interested principal is necessary. There are plenty of reputable, dynamic, educated, and far-sighted Egyptian entrepreneurs available in Egypt, and some reside overseas in London, Paris, or the United States. The best have intellects more than a match for senior management of major U.S. corporations, and they should never be underestimated in one's evaluation of them or in negotiating with them. In this search, the U.S. Mission in Egypt can be helpful through its network of contacts with the Ambassador, the U.S. & Foreign Commercial Service, Foreign Agriculture Service, U.S. Agency for International Development, Office of Military Cooperation, the U.S. Information Service, the Embassy's Economic and Political offices, and others. Recommended business networks in Egypt include the over 600-strong American Chamber of Commerce in Egypt, and various associations of Egyptian entrepreneurs including the Egyptian Businessmen's Association, the Alexandria Business Association, and similar groups in Port Said, Ismailia, and some other cities. There are also investor committees in the large industrial cities of Tenth of Ramadan, Sixth of October, Borg El Arab, and a new one in Ismailia promoting projects in the Sinai and in the Canal Cities. STEPS TO ESTABLISHING AN OFFICE As in any other country, seek early legal counsel from one or more attorneys and tax counsel from a professional accounting/auditing firm. Egypt is a country in which the bureaucracy has been honed since the time of the Pharaohs. A newcomer's biggest and never-ending challenge is to learn, preferably in advance, what laws affect him/her and how to cope with them. Many of the laws reflect Egypt's socialist government of the 1950's-1970's, and, if interpreted literally, do not favor private enterprise. However, newer laws issued in the past decade and the policy of today's government favor entrepreneurship and the free market economy. Tension between alleged political desire favoring entrepreneurs and bureaucratic reliance on old laws-on-the-books marks the everyday challenge of business persons today in Egypt. There are two alternative legal route for a foreign company to invest in Egypt: One route is through Law 159/1981 or, alternatively through Law 230/1989. Companies Law 159 offers fewer privileges to foreign investors than Investment Law 230. However, Companies Law 159 may be a better root where speedier and more certain approval of an Egyptian corporate subsidiary is desired. (Note: in 1994, both these laws are to be combined into a single new company/investment law, which may also cover regulations (Law 203) governing public sector companies.) Investment Law 230 is outlined in Chapter VII. PROCEDURAL STEPS FOR INVESTORS To enjoy the privileges of Investment Law 230, the first step is to apply for investment approval from GAFI. GAFI's initial approval takes a maximum of two days, but approval by the Higher Committee (without which an investor cannot enjoy tax and other benefits) takes several months, up to a year. To precede under Companies Law 159/1981, an investor should first apply for formation of a limited liability or a joint stock company to the Companies Department. It takes an average six months for approval to be given. Part of the delay results from scrutiny of the application by two Egyptian government security agencies. It is also recommended that investors seek legal and tax counsel from Egyptian-based attorneys and accountants, and consider applying for political risk insurance from the U.S. Overseas Private Investment Corporation (OPIC). LEGAL FORMS OF BUSINESS ORGANIZATIONS IN EGYPT Several forms of business organization are possible in Egypt and choices include joint stock companies (corporations), limited liability companies, several varieties of partnerships, branches, and representative (also called liaison) offices. Sole proprietorships are primarily for Egyptian merchants. Joint ventures per se do not have a legal identity, but must adopt one of the following legal forms: Joint Stock Companies (Shareholder Companies) Joint stock companies under Companies Law 159 must have capital of not less than LE 250,000 if closed, or LE 500,000 if shares are offered to the public. A quarter of the capital is normally paid- in upon start-up, and the rest over a ten year period. There must be at least three shareholders. The articles of incorporation must follow a model issued by Minister of Economy Decree No. 7 of 1982, provided that at least 49% of the shares are offered to Egyptians for a one month period, foreign share ownership is at most 51% at the outset and increases to any percentage thereafter through share purchases. Limited Liability Company The limited liability company is the form of legal entity usually chosen by foreign investors in Egypt. It is equivalent to the French SARL, German GMBH, or British Private Company. Minimum share capital is LE 50,000. A minimum of two and maximum of 50 shareholders is permitted. Shares may not be sold to the public. It can be established as a 100% foreign owned company without Egyptian partners, although at least one manager must be Egyptian. There may be a number of managers, however, and the general manager may be a foreigner. An incorporation model issued by Ministry of Economy Decree No. 7 of 1982 must be followed. Partnerships 1. Partnership Limited By Shares Joint partnerships are subject to provisions of Companies Law 159 affecting joint stock companies except that the 49% Egyptian ownership requirement is waived, as are certain other provisions. In this form, one or more partners assumes unlimited liability; the others enjoy limited liability. 2. General Partnership Egyptians must own more than 51% of general partnership companies, unless the firm is registered as a Investment Law 230 company. All partners are liable for partnership debts without limit. 3. Simple Limited Partnership Unlike general partnership, the simple limited partnership includes one or more general partners who are liable without limit, and one or more limited partners whose liability is limited to their capital contribution. Branch Companies Law 159 stipulates that branch offices are for the purpose of executing a contractual obligation between a foreign company and its private or public Egyptian client. Without a contract to implement, one cannot open a branch in Egypt. Branches can perform commercial, financial, industrial and contractual work related to the scope of their contract. To open a branch, approval must be obtained from GAFI, the Minister of Internal Trade and Supply and the "competent" Minister pending upon the branch's field of endeavor, before the office can be registered in the commercial register office, which registration permits the branch to do business in Egypt. Documents needed include the articles of incorporation, a certified balance sheet for the most recent year, corporate resolutions authorizing the Egyptian branch, and a copy of the contract. Branches may not employ foreigners in excess of 10% of their work force without special permission from the Ministry of Manpower. For tax purposes, branches are treated similarly to subsidiaries, joint stock or limited liability companies. Branches are often used for free-zone activities and oil sector investments but are not limited to these activities. Representative (Liaison) Offices Companies Law 159 permits representative offices to undertake market, economic, technical, or scientific studies. Such firms can market or advertise their products as a representative office, but they cannot trade, sell, import or otherwise conduct business as such in Egypt. As a result, such offices are not subject to taxes except for salary taxes and social insurance paid in respect of their employees. Representative offices are registered in the Companies Department of the Ministry of Economy and Foreign Trade. Documents needed include details of the office's purpose, articles of incorporation of the headquarters company, corporate resolutions authorizing the opening of the Egyptian office, and other information. In some cases, such as when a rep/liaison office must have a service facility for its products in Egypt, the firm must appoint an Egyptian commercial agent and be registered under the Commercial Agencies law instead of Companies Law 159. A 1994 decree exempts rep/liaison offices from the 10% foreign labor ceiling normally applicable to all companies in Egypt. Holding Companies Firms registered under Investment Law 230 also can function as holding companies for subsidiary projects outside the scope of Law 230, provided such holding does not exceed 40% of the company's capital. Such projects, however, do not benefit from Law 230 benefits. Land Ownership Issues for Investors Law 15 of 1963 says that no foreigners may own agricultural land, but Law 143 of 1981 permits ownership of desert land by partnerships and joint stock companies at least 51% owned by Egyptians. Companies registered under Investment Law 230 having foreign ownership may own land needed and approved to implement their objectives as many companies formed under other laws which obtain the approval of the Prime Minister. Foreign individuals receiving approval of the Prime Minister may own a limited amount of Egyptian real-estate for residential purposes. Leasing beyond 50 years is viewed as ownership. SELLING FACTORS/TECHNIQUES The Egyptians with whom an American will deal in business are typically trilingual (English-French-Arabic), well traveled sophisticates who pride themselves on ferreting out good deals at decent prices. Mid-level government officials with whom a foreigner may deal may be less sophisticated and less well traveled, but no less able to negotiate. Cairo is the cultural capital of the Arab world. Thousands of affluent Arab tourists and investors travel to Cairo often throughout the year, soaking up the cinema, theater, television, live performances, and relaxed lifestyle not generally available in some other Middle East countries. Many of these persons have second or vacation homes and apartments in Egypt, as well as factories and real estate investments. Foreign suppliers/ marketers have not yet learned to take advantage of Egypt as a locale from which to market to an essentially captive but willing audience of wealthy Arab visitors. One fourth of the estimated 60 million Egyptians live in Cairo, the capital. Three million live in Alexandria permanently, and its population increases by 50% in the summer as holiday makers flood in. There are numerous important secondary cities which offer market opportunities for agricultural, industrial, and consumer goods in the Delta (Tanta, Damietta, Mansoura, Mehalla el Kubra, Damanhour, Benha, Zagazig); along the Suez Canal (Port Said, Ismailia, and Suez); and along the Nile south to Upper Egypt (Assiut, Minia, Qena, Luxor, Aswan). Negotiations for a sale, whether with a government agency or a private individual, will be bound by certain unspoken Egyptian cultural requirements. One is that there is no final best price that cannot be reduced further by haggling. A corollary is that only a fool would offer one's best price, or anything close to it, early in negotiations. Government employees are judged on their ability to suck the final penny from the lowest bidder. This happens repeatedly, at every level of decision making. For example, during negotiations to buy a privatized government firm, after months of talks to reach a difficult agreement on a final price, the minister concerned -- until that moment not personally involved in the negotiations -- demanded and received the foreigner's agreement to pay still more. A marketing problem in Cairo is that it is difficult to find out who offers what for sale, and where to find them. The city is splayed across the Nile about 15 kilometers (10 miles) in diameter, with several distinct marketing districts that are an hour apart in normally heavy traffic. This means that the average consumer may only find a product he/she wants by attending a trade show or fair, as it is too hard to find the single or handful of outlets maintained by official agents, distributors and dealers. ADVERTISING AND TRADE PROMOTION (INCLUDING LISTS OF NEWSPAPERS/JOURNALS) Egypt has one of the highest literacy rates in the Middle East (over 50%). For this part of the world, people read newspapers voraciously, and all literate people will see or hear about advertisements placed in Al Ahram daily (at a minimum). Thus, strategically placed newspaper/magazine ads can produce good results. Television is watched by all Egyptians, literate or not. Advertisements reach and influence wide audiences. Other forms of advertisement in Egypt consist of roadside billboards, flashing neon signs on building roofs, building walls completely painted with advertising signs, "junk mail" advertisements (most Egyptians do not view these as mass-mailed or junk, but each recipient assumes someone has specially sought him out), faxed junk mail advertisements (as prevalent in Egypt as they are in the U.S.), and messenger/courier-delivered direct mail campaigns. Electrified street sign advertisements are popular in the cities. Flyers/stickers plaster Cairo's walls and lampposts just as in America. Street peddlers and hawkers shout the praises and prices of consumer products they offer for sale. Trade promotion is becoming more sophisticated. True trade shows are common, aimed either at segregated business audiences or at the general public; several take place each month at one or more of the downtown hotels, or the new Cairo International Conference Center. Most of these shows consist exclusively of Egyptian distributors/dealers/agents of foreign suppliers, or local manufacturers -- not because they purposely exclude foreigners but for lack of good marketing and last-minute preparations. FCS Egypt is working with some of the better trade show organizers to offer advance publicity to U.S. firms, help the organizers target Egyptian customers, and provide an opportunity for U.S. technology to be displayed at an Embassy-staffed information stand that includes catalogs of American suppliers relevant to the show's theme. The annual Cairo International Trade Fair is the historical sine qua non of Egyptian trade promotion events. It has evolved along with government economic policy changes from its beginnings as a "required" government annual extravaganza at which foreign attendees were favored with procurement, to today's version of a county fair aimed at consumer purchasers. U.S. firms offering products as diverse as office and business equipment, telephone credit cards, courier services, saunas and swimming pools, satellite dishes, educational toys, car care products, lawn furniture, and recreational equipment all do extremely well at the annual U.S. Pavilion at the Cairo International Fair. SELECTED MEDIA LIST (those of likely interest to U.S. advertisers): Daily Newspapers Al Ahram (circulation 650,000 - 700,000) --Egypt's most prestigious daily and most prosperous of the country's five largest publishing houses. In addition to publishing, the company has interests in many business services including computerization, billing services, and ID card services. Al Akhbar (circulation 780,000) --- more informal news (crime, human interest) than Al Ahram. Al Gomhouriya (circulation 200,000) ---established by Sadat but now with more local and sports news than other dailies. Al Wafd (circulation 150,000 - 180,000) ---mouthpiece of the New Wafd opposition party. Egyptian Gazette --- the English-language daily. Cairo Mail --- new English-language daily as of June 1994. Weekly Newspapers/Magazines Akhbar al yom newspaper (circulation 1 million) --- Saturday edition of Al Akhbar has many special interest sections, particularly women's and sports. Akher Saa magazine (circulation 35,000) --- current events, sports, economics, history, arts, cinema, theater. Rose al Youssef (circulation 50,000) --- political magazine with human interest stories. Al Ahram Weekly --- English-language weekly newspaper summarizing key features originally published in Al Ahram Arabic-edition, as well as original stories. Al Ahram Hebdo --- new French-language weekly to begin mid-1994 Economic Publications Al Ahram Al Iktisadi weekly magazine (circulation 30,000) --- Egypt's leading economic magazine, modeled after the British "Economist", is read by academics and government economic officials. Al Alam Al Yom daily newspaper (circulation 5,000 in Egypt, 50,000 in Saudi Arabia). ---economic, commercial and Arab affairs. Nosf al Donia weekly magazine (circulation 45,000) --- women's issues. Hawaa weekly magazine (circulation 50,000) --- Egypt's original women's magazine, first published in 1892. Al Kawakeb (circulation 30,000) --- Egypt's cultural magazine, specializing in cinema, theater, radio and television. PRICING PRODUCTS Egypt traditionally is a price-sensitive market, where quality consideration often takes second place to cost. Government tender rules require that low bids win regardless of quality. American firms sometimes do not believe this and mistakenly quote "better value" than is required by tender specifications. This is ineffective and produces losing bids, although it is acceptable as a second "alternative" optional bid alongside a bid that directly meets requested specifications. Tender specifications are frequently unclear and sometimes poorly written, which allows wide divergence in interpretation of needs by various bidders. Elaborate bid proposals often fail because they will be passed over for cheaper, practical alternatives. U.S. firms that succeed in Egypt tailor their products to customers' specific needs. Exceptions to the generalization that price sells are sales financed by USAID and other foreign/international donors such as the African Development Bank. Since funds are provided by these donors, Egyptian decision makers can afford (and the foreign donors often require) quality, efficiency, and endurance considerations to play heavily in buying decisions. Another exception is consumer goods; people will pay for quality if they perceive it. However, the same affluent Egyptians who may buy a Mercedes car will tend to outfit their new factories with used equipment if they can transplant cheaply a "complete" factory from abroad. Another pricing issue that causes some U.S. firms to fail in Egypt is that greedy foreign or U.S. suppliers inflate their prices when quoting to USAID-financed projects, since they know such projects are restricted to U.S. firms. Egyptians who get cheaper quotes for the same products on non-AID related projects network with one another and will refuse to deal with such suppliers. SALES SERVICE/CUSTOMER SUPPORT U.S. sellers should aim to create and support a sales/service network in Egypt by training their distributors and dealers. Firms that sell directly to government agencies need to do the same thing -- ensure training of the work-force using the product or it will fail through ignorance of proper maintenance and the foreign supplier will be blamed for poor quality. SELLING TO THE GOVERNMENT In selling to the Egyptian Government one will of course deal directly with the client agency. Egyptian procurement is either done with national budgetary funds, or by using aid funds from USAID or other bilateral or multilateral donors. In the case of USAID-funded procurement, project announcements are made in the U.S. "Commerce Business Daily," published in Chicago. This journal publishes U.S. Government procurement needs, and is available in hard copy for $324 per year from the Superintendent of Documents, Government Printing Office, Washington, D.C. 20402- 9371, phone 202-783-3238, fax 202-512-2233, or on line from Mead Data Central, Arlington, VA, phone 800-843-6476. Other donor-funded projects open to U.S. bidders are from the Government of Japan's United Overseas Development Assistance (ODA), or multilateral assistance from entities such as the World Bank, African Development Bank, or Arab and Islamic development funds. The following pertains to contracting directly to the Egyptian Government. It is also relevant for donor-financed projects to the extent that Egyptian law applies to them. Tenders Law Tenders Law No. 9 of 1983, supplemented by implementing regulations issued by the Ministry of Finance (Decree 157 of 1983, as amended), governs Egyptian government procurement by all civilian and military agencies ("ministries, departments, local government units, and public and general organizations") unless they are excused from this law. Some government corporations do have their own separate procurement procedures. Law requires that all foreign bidders on public sector tenders submit bids through an Egyptian commercial agent, except in the case of Ministry of Defense tenders for which commercial agents are prohibited. ("Consultants" may, however, be used in connection with military bids.) This means that tender documents generally can be purchased from issuing government offices only by the commercial agent. U.S. firms usually cannot get the documents by writing directly to the government agency or through the U.S. Embassy. Public sector entities routinely request credit terms in their tenders for capital equipment. Typical payment guidelines for tenders worth more than $62,000 are 10% paid at contract signing, 10% against shipping documents, and the rest paid in semi-annual installments over two to five years. Egypt's tender regulations are written by the government, for the government's benefit. Obligations and responsibilities of suppliers are spelled out in excruciating detail, but there are fewer explicit requirements placed on the government client agency. A contractor/supplier's safeguards, therefore, must be negotiated before contract signing, particularly in defining force majeure, "final acceptance," and dispute resolution. What the Tenders Law says Tenders Law No. 9 requires, with specified exceptions: (A) open competition with publication for at least 30 days; (B) 15% price preference for Egyptian bidders; (C) a two-phase decision-making process: a bid opening committee that convenes a public session to which all bidders are invited and bid prices are read aloud; and a decision-making (settlement) committee that reviews the technical bids and either makes a decision or (if the value is over $62,000) recommends a decision to the minister concerned; (D) bid bonds of one or two (generally two) percent, and a performance bond by the winning firm of (generally) five percent. Favoritism is shown to Egyptian public sector companies and Egyptian cooperatives both of which are exempted from the bonding requirements provided they do the work themselves and do not request an advance payment; (E) fraud, bribery ("either personally or through a third party, directly or indirectly"), or bankruptcy by the contracting party annuls the contract and allows any outstanding bid or performance bond to be confiscated; (F) sole source decisions are permitted in special instances: monopoly sources of supply; goods whose import is monopolized; specialized products or services; and goods and services needed urgently; (G) advance payments are permitted, against a letter of guarantee. U.S. standby letters of credit (which preferably should be insured for political risk by the U.S. Overseas Private Investment Corp.) are acceptable in Egypt. Law 106 of 1976 requires that insurance be provided to meet the decennial liability of the civil code. Practical Problems of the Tenders Law There is no time limit for the decision making committees to meet, make, or announce their decision. If a bidder withdraws its bid prior to bid opening, it forfeits the bid bond. Bidders often are "held hostage" to a government agency that stalls the bid opening for varied reasons, including running out of budget for the project. Costs of extending bid bonds are borne by the bidders. If a winning firm withdraws from a project before beginning or completing a project, its performance bond similarly will be confiscated. This has happened when a client has delayed start-up because of budget shortfalls, expecting the contractor/supplier to carry the burden of maintaining the performance bond. By contrast, the government agency can cancel an order even after awarding it and after the supplier/ contractor posts a performance bond. Government agencies often delay giving the "final acceptance" of goods or works projects. This holds up final payment and final retirement of the performance bond. If award decisions are delayed beyond the validity date specified by a bidder, extra costs incurred by the delay cannot routinely be passed on. If the client adds new requirements to an ongoing contract, any extra monies requested by the supplier/contractor must be endorsed by a special "price study committee" which sometimes takes years to approve them. In the meantime, of course, the supplier/contractor is expected to fulfill the revised contract without delay or complaint. Elements Absent from the Tenders Law There are no time limits for making payment from the date of acceptance of a bid, nor for the decision making committee to make a decision or recommend a decision to the Minister. Bidders cannot withdraw a bid prior to an award without risking loss of their bid bond. There is no provision providing for implied or automatic acceptance of a supplied good or service. The client must explicitly acknowledge "final acceptance" before the contractor can receive final payment, retire the performance bond, and close its books. The Tenders Law makes no reference to dispute resolution, which therefore must be negotiated prior to contract signing. Arbitration in Egypt or abroad (the latter can include foreign law and foreign arbitral procedures) is preferred to the court system. If no specific dispute settlement procedure is mentioned, any future dispute will go to the government's Council of State, a government agency that both reviews the constitutionality of proposed laws and regulations and functions as a court for all non-criminal matters in which the government is a party. If the government party does not honor an arbitration decision, the tenders law does not permit the winning party to use the arbitration settlement documents to settle claims with other government entities (customs, tax, social insurance, etc.). There is no provision allowing the supplier to delay work if payments are delayed. There is no provision to reduce the performance bond progressively according to the rate of completion of the work. The law does not require publication of decision making criteria, nor that losing bidders be informed why they lost. Other Practical Considerations in Selling to the Government Poorly written specifications make bidders guess what the customer wants. U.S. firms must stay in close touch with client agencies to minimize doubts and uncertainties. Do not assume the "best" is desired, since its superior features may not be understood or its superior price may be too high. The law is silent about who writes tender specifications and neither encourages nor discourages hiring of consultants to do so. Foreign firms that are trusted by government officials often voluntarily propose tender specifications to prospective tenderers, which gives them a chance to wire the specifications. In the decision making committee, the technical representative (typically an engineer) must concur in the award decision. Such persons thus garner much influence. Government entities expect performance bonds to cover the full warranty period for the product or work in question. U.S. suppliers, by contrast, generally want their warranty limited to safe delivery and/or set-up. Therein lies grounds for much misunderstanding and complaints over alleged delays in releasing performance bonds. As for bid bargaining, although Article 16 of Law No. 9 says "no negotiations may take place with any of the tenderers to modify his tender" except in final negotiations with the lowest bidder, this is rarely practiced. Instead, freewheeling bargaining is routine with several competing low bidders, with the object being to extract maximum concessions from each bidder. Influence peddling in procurement decisions is a much-discussed phenomenon. What is certain is that decision makers must feel comfortable with a supplier. They will not select a low-bidder unknown to them. Personal friendships and frequent visits to decision makers by foreign principals and their local representatives are important marketing factors. Some sweetheart deals are known to take place. However, many Egyptian sources affirm that most decisions are openly competitive and straightforward. While the decision making process per se may be opaque, it is also porous in the sense that details of all bids are readily obtainable through back channels and become known quickly to all concerned. PROTECTING YOUR PRODUCT FROM INDUSTRIAL PROPERTY RIGHT (IPR) INFRINGEMENT Egypt is a party to the Bern Copyright and Paris Patent Conventions. However, inadequate protection and enforcement concerns about Egypt's IPR regulations have put Egypt on the U.S. Trade Representative's "Watch List" under the Special 301 provision of the 1988 Trade Act. There has been widespread piracy of sound and video recordings, computer software, and books. Egypt has moved to improve its IPR regulations and enforcement. (See Chapter VII, item A-8). NEED FOR A LOCAL ATTORNEY Like anywhere else, serious business in Egypt such as implementing a major supply or construction contract, registering a company, or pursuing investment requires that eyes be open and assumptions tested, if not eliminated. A good local attorney, of which there are many in Egypt, is vital to successful business. Names of prominent attorneys are available from the American Embassy in Cairo.