Sainsbury’s debacle likely to haunt Egypt for years

Published April 18th, 2001 - 02:00 GMT

A sad chapter in the history of the Egyptian economy was closed recently with the announcement by the British Sainsbury’s supermarket chain that it would be selling its stores in the country to the Al-Nasharty Group.  

 

Sainsbury’s declined to reveal the price it was getting for the sale, but the British company estimated that the loss incurred from its withdrawal from Egypt would range between £100 million and £125 million. 

 

The Sainsbury’s debacle, as it reasonably can be called, will most probably leave a visible scar on the Egyptian economy. For, although blame certainly can be laid at the British chain’s feet for poorly planning its Egyptian venture, the fact that its departure from Egypt was hastened and largely precipitated by its becoming a scapegoat for anti-Israeli and anti-Western sentiment in the country, will undoubtedly cause other foreign business interests to think twice before investing in the Egyptian market. Also likely to be a factor is the perception, on the part of the Western business community, that the Egyptian government extended the supermarket chain only lukewarm support during the affair. 

 

According to economists, the Egyptian economy requires about four billion dollars a year in foreign investment. At present the country is only receiving about a quarter of that amount, and that predicament is unlikely to be helped much by widely publicized Sainsbury’s affair. 

 

Speaking to the Middle East Times, Britain’s ambassador to Egypt, Graham Boyce, played down the political reasons for Sainsbury’s decision, suggesting instead that the main reason for the company’s failure to establish a foothold in Egypt was the country’s notorious bureaucracy. Getting licenses to open new stores was a constant problem, he said, with one in particular taking a year to obtain. And then, added the ambassador, after the store was ready for business and its shelves stocked, the Sainsbury’s management was told that the license was incorrect, and they had to remove the stock from the store and lay off their staff. 

 

Sainsbury’s arrived in Egypt in April 1999 promising to revolutionize Egypt's underdeveloped food retailing industry. The company said it had picked Egypt because of its regional base, its 65 million-strong population, the country’s political stability and considerable encouragement from the government. The company’s initial investment came to 550 million Egyptian pounds, and it was committed invest another LE 500 million during the course of 2000 and 2001.  

 

Sainsbury's began its Egyptian venture by purchasing 25.1 percent of the local food retailer, Edge, which operated about 90 stores in the Cairo area. That holding was later increased to 80.1 percent. In June 1999 it purchased 100 percent of ABC Supermarket Expo, which owned five larger stores catering to an upscale market. 

 

In January 2000 Sainsbury's opens its first retail outlet on Giza's Pyramids Road. Customers, some of which had to wait in line before entering the store, expressed surprise at the variety of choice and lower-than-expected prices, but many of Cairo’s traditional grocers were shell-shocked. Goods were being offered on Sainsbury’s shelves at prices lower than they could be bought at wholesale, several of them told the Egyptian press. 

 

As Sainsbury’s opened one store after another, the traditional grocery trade saw its turnover plummet. A number of newspapers denounced Sainsbury's pricing policy as a foreign attempt to win a market monopoly by driving out Egyptian-owned competitors.  

 

Thus was created the nucleus of a popular backlash against the Western “invader.” When, in October 2000, anti-Israeli violence broke out in East Jerusalem, and spread like wildfire through the Palestinian areas of the West Bank and Gaza, the false rumor that Sainsbury's was Jewish-owned fell on ready ears in Egypt. Student-led demonstration protesting Israeli action in Gaza and the West Bank were characterized by the vandalizing of several of Sainsbury's stores. 

 

The British-owned Sainsbury's then discovered itself unwittingly part of popular boycott on American products, called because of what was perceived locally as the United States’ non-committal position regarding Israeli attacks on Palestinians. And so the company, which once believed it had the potential for a chain of more than 250 stores in Egypt that would process twice as many customers as in its homeland operation, began looking for a way out of the maze into which it had wandered.  

 

Early in 2001, Egyptian Prime Minister Atef Ebeid did make a last-ditch attempt to convince the Sainsbury’s management to change its mind about leaving the country, meeting with the British ambassador and company representatives. But company officials and others in the Egyptian business community were clearly upset that the government had waited more than three months to react, rather than condemning from the outset the rumors about the Jewish identity of the company’s owners—some of which were printed in the official press—and by not doing enough to end the boycott against American products. 

 

Foreign investment in Egypt has been encouraged since the late President Anwar Sadat declared the Open Door Policy in the early 1970s. And, ever since the first phase of President Hosni Mubarak’s economic reform program was launched, in the early 1990s, successive governments have said that attracting foreign direct investment is a top priority.  

 

But, as the Sainsbury’s debacle proved, the process of globalization is going to be a painful one in countries like Egypt, as numerous local interests are prepared to forgo the benefits of foreign investment in order to prevent competition from the outside. — (Albawaba-MEBG)

© 2001 Mena Report (www.menareport.com)


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