Egypt wants an Apple hub despite ongoing fight over iPhone prices

Egypt would like to see a more direct physical presence from tech giant Apple even as the two are caught up in conflict over local iPhone sales, the country’s Prime Minister Mostafa Madbouli said Wednesday.

“I think Egypt is a big market and attractive for Apple to exist in directly. Apple has been in Egypt but through indirect agents, suppliers … But really, we discussed yesterday (with Apple), the idea really (is) to have Apple be in Egypt to be one of its industrial hubs and a destination to serve the whole region,” the prime minister told CNBC’s Hadley Gamble at the World Economic Forum in Davos, Switzerland.

The smartphone maker has angered Egyptian authorities over its selling practices in the country, which the government says is causing iPhone prices to skyrocket. Egypt’s Competition Authority on December 11 gave Apple a deadline of 60 days to resolve “unfair restrictions” over marked-up phones, whose price tags put them at as much as 50 percent higher than iPhones in other Middle Eastern countries.

The Competition Authority says this is because Apple is breaking the law by preventing its Middle East distributor from selling to local Egyptian distributors, deterring “intra-brand competition” and isolating the country from the broader regional market. While their threat doesn’t include a permanent ban on sales, they have promised legal action if nothing is fixed by the 60-day deadline. Apple has reportedly not publicly responded to the claims.

Madbouli, who was named as prime minister by Egyptian President Abdel Fattah al-Sisi in June of last year, said that while talking to Apple representatives at the Forum he floated the idea of collaboration toward reforming Egypt’s education system.

He hoped Apple’s engagement with the country of 97 million would manifest itself “specifically with our very ambitious program in reforming education, and how we are introducing now the technology for our students and children, and I believe here Apple can play a substantial role in that respect.”

Education in Egypt is an area in desperate need of reform, regional analysts say. The Spectator Index and World Economic Forum ranked Egypt 129th out of 137 states in overall education quality, up one notch from its rank of 130th in 2017. In math and science, the country ranked 122.

“Egypt is enjoying the privilege of having a very good-skilled, educated youth people, they are very cheap in terms of labor forces comparing with any other destination … So this could present a very attractive market for any supplier to consider Egypt as a hub,” Madbouli said.

Sahar Nasr, Egypt’s minister of Investment and International Cooperation and a professor of Economics at the American University in Cairo, sees promising signs for foreign investment into Egypt.

“We’re now in the phase of investing in human capital, education, healthcare, but also bringing more private sector participation into this sphere,” Nasr told CNBC on Tuesday.

“We did the reforms when the global economy was in a better situation and when things were really flourishing, so we took these bold reforms on fiscal consolidation, monetary policies, but also improving the business environment, and the effective targeting in terms of subsidies on energy,” she said. “And that helped us a lot to bring in the private sector and achieve growth.”

Egypt has seen significant macroeconomic improvement since the Arab Spring revolution and successive coups and terrorist attacks that rocked the country from 2011 onward. Structural reforms and subsidy cuts recommended by the International Monetary Fund have brought the Middle East’s most populous country its highest economic growth in a decade, and it’s now targeting 5.8 percent growth for 2019, up from 5.3 percent last year.

But the cost of these austerity measures has been steep. Basic costs for Egyptians have skyrocketed while wages have stagnated.

Private sector engagement will be crucial to support Egypt’s burgeoning population, currently facing unemployment of around 10 percent. Some investors remain wary of a still-tense political situation, a fragile banking sector, regional insecurity and insufficient infrastructure.

Egypt nonetheless remains the top recipient of foreign direct investment (FDI) in Africa, with its FDI stock between 2016 and 2017 increasing from 102 to 109 billion dollars, according to Santander Trade. Egypt’s 2017 Investment Law is expected to aid FDI inflows by adding investor incentives, facilitating registration procedures, improving infrastructure and reducing the heavy red tape for which the country has long been known.

Nasr described Egypt as a strategic location and a “gateway to Africa,” adding that thanks to the free trade agreements Egypt has signed with other African blocs, investors are seeing the country as a portal not simply to its domestic market of 100 million, but to a broader market of 500 million.

But time is of the essence for Egypt. Poverty is on the rise, currently estimated to be near 28 percent, up from 25 percent in 2010, according to the World Bank, and wages have not kept up with the rise in living costs. Crime, corruption and pollution, as well as inadequate social services provision, continue to plague the country’s surging population. The World Bank cites high inflation and the erosion of real incomes as having “taken a toll on social and economic conditions.”

“We’re driving the growth but we’re very ambitious, we’re still not there yet,” Nasr said. “We know we have to do more reforms to do even better in the coming period.”

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