EgyptAir has announced that it will resume direct flights to Kenya as it seeks to deepen its business ties with East Africa. The resumption date will be set after negotiations.

At a business forum between Kenya and Egypt held in Nairobi last week, discussions were held on areas of co-operation for development in the business sector.

Kenya’s national carrier stopped flying to Cairo in 2010 because of inadequate traffic on the route. Kenya Airways used to fly the Nairobi–Khartoum–Cairo route in a sharing agreement with EgyptAir.

Karim Sadek, the managing director Qalaa Holdings, a leading investment company in Africa, said, “For EgyptAir, the mainstay of this route are European transit passengers. There are few business travellers on that route,” he said.

Trade negotiations between the two countries are expected to focus on at least 10 Egyptian companies expected to partner with Kenyan enterprises in investment ventures. Kenya and Egypt will also form a joint business council, which meets quarterly, to monitor the business progress between the two countries.

Through bilateral visits and diplomatic missions on the continent, Egypt has been growing trade and economic relations. Sectors looking for immediate partnership with Kenyan companies include home appliances, agricultural equipment, pumps, central conditioning, ventilation systems, irrigation systems, generators, automotive feeding, security systems and educational labs.

“Egypt believes in the importance of co-operation between countries of the African continent to achieve the wellbeing of their people, and enhance the competitiveness of the Comesa economic bloc,” the Egyptian Minister of Foreign Affairs, Sameh Shoukry, said.

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Kenyan business analysts say East African countries will only benefit if they focus on technology transfer, especially in the fields of agriculture, manufacturing and energy.

“If we partner with the Egyptian countries only for trade in terms of exports and imports, we are likely to lose because production costs in Egypt are low,” said Emmanuel Manyasa, an economist at Kenyatta University.

East African Business Council executive director Andrew Luzze said trade between East Africa and Egypt is likely to be skewed towards Egypt.

“We export raw materials to Egypt, and Egypt sells them back to us as finished products. Opening up the market to them will increase their exports into the region,” said Mr Luzze. “Even if they form partnerships, they stand to benefit more. Partnering with our local companies is just an entry point for them into the region.”

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Until the issue of Rules of Origin, which has been a setback in trade between EAC and Egypt, is cleared, there will be trade imbalance between the countries.

“Some sectors like the edible oils will be affected because there will be unfair competition from Egypt,” said Mr Luzze.

EAC manufacturers exporting to Egypt are required to observe the 35 per cent threshold of value addition to qualify for free access to Comesa, of which Egypt is a member. However, Egypt uses a 45 per cent rate that it introduced.

Vimal Shah, the chairman of the Kenya Private Sector Alliance (KEPSA), said Egypt repackages goods like sugar from Brazil, electronic equipment and paper materials from other countries, and exporting them as their own goods. In 2011, Egypt raised its local value addition requirement for East African goods to 45 per cent.

Mohamed El–Hamzawi, the Egypt’s deputy assistant minister for Nile Basin countries Affairs said the issues of trade imbalance and rules of origin are being addressed.

“We have to look at this partnership from both sides and how each of us will benefit,” said Mr Hamzawi.

Laila El Maghraby, the executive director of the Engineering Export Council of Egypt (EEC-EG) said, “Egyptian companies are looking at forming business partnerships in Kenya that can link us to the entire East African region in the long run, because Kenya is the trading hub of the region,” she said.

Ms El Maghraby said they aim to export $60 million worth of engineering products into Kenya by the end of the year through trade partnerships, up from the current $23million.

“EEC–EG plans to establish a big commercial and logistic centre in Mombasa and Nairobi in the next two years as a strategy to cement our exports into the region,” she said. “Kenya is strategically placed because of the sea, and therefore it is better placed to start.”

Eric Musau, an analyst at Standard Investment Bank, said Egyptian companies have the competitive advantage of cheaper electricity, oil and gas.

“The issues of energy, high cost of raw materials, infrastructure and bureaucracy raise the cost of production in East Africa,” said Mr Musau, adding that technology in the region is not advanced enough to produce goods for a large market.

Colgate Palmolive, Procter & Gamble, Eveready and Cadbury moved their manufacturing operations from Kenya to Egypt because of the low cost of production. Egypt gives a 30 per cent subsidy to its industries, lowering the cost of production.