Samsung Bets Big On Egypt

South Korean consumer electronics firm Samsung plans to build its first Middle East and North Africa (MENA) factory in Egypt. The EGP1.7bn (US$280mn) facility is expected to start production in the first half of 2013 and will serve the firm ' s growing customer base in the region. BMI analyses the implications of this move for Samsung as the company seeks to consolidate its position in the region's consumer electronics market and, perhaps more significantly, investor confidence in Egypt as the country emerges from political and economic crisis.

Samsung ' s first factory, to be located in Beni Suef, 90km south of Cairo, will create about 1,400 direct jobs and a further 2,000 indirect opportunities. It will reportedly be followed by several more factories, with total investments of up to US$1.5bn. The facility will build flat-screen TVs and computer monitors, two of Samsung ' s strongest-performing products in the region.

Samsung claimed a 45.5% market share of the region ' s flat-screen TV market in H112 , outperforming Japanese rivals Panasonic and Sony . The new facility in Egypt is expected to produce around 2mn flat-screen TV units by 2017 for the local market in Egypt and other Arab countries. BMI sees this development as a major step for Samsung in its bid to consolidate its position in the region's consumer electronics market .

In addition to dominating the audio/video and computer segment of the consumer electronics market, Samsung will be keen to see its major push into the region boost demand for its handsets and other mobile devices. The firm ' s handsets lag Nokia and Huawei handsets in the low-end of the market, while its smartphones and tablets are yet to break the dominance of RIM ' s BlackBerry and Apple ' s iPhone and iPad devices. BMI believes the subsequent factories Samsung reportedly intends to build will focus on mobile devices to improve its competitiveness in that market segment.

BMI believes Samsung ' s investment is a long - term strategic bet on consumer spending in MENA. There have been significant increases in private consumption as a result of increases in government spending and public sector wages. This, in turn, is driving demand for high-value products, especially consumer electronics products. Other key growth drivers that are present in most countries in the region include investment in next generation mobile and fixed access networks and the increasing convergence of telecoms, IT and broadcasting services. BMI notes that Samsung ' s range of smart TVs has proved popular in the region, as the firm is building partnerships with leading telecoms operators and content providers to embed their IPTV and internet applications on its smart TVs.

As for Egypt, BMI believes this investment, coming on the heels of similar announcements by some leading telecoms operators, is a massive vote of confidence i n its investment climate. In September 2012, mobile operator Etisalat announced a US$500mn investment to expand and modernise its network while France Télécom -backed Mobinil secured a EGP2.9bn syndicated loan to repay some debts and finance investments in network infrastructure development.

We had expressed concern s about Egypt ' s competitiveness as a key destination for major ICT investments following the political uprising and consequent economic crisis in the country during 2011. However, we identified its large and relatively educated population , geographic location and strong potential for economic growth as key factors that potential investors in the region will find difficult to overlook. Following the successful transition, albeit fragile, of political power from the military to an elected government, there is renewed confidence that the country is on the path to political and economic stability. This development bodes well for Egypt ' s ICT sector, which we expect to play a key role in the country ' s economic recovery.

Egypt ranks low on BMI ' s MENA Risk/Reward Ratings for the consumer electronics, IT and telecoms sector analysis. However, we note that the renewed investor confidence and improving political and economic environments could push the country up our ratings table in subsequent updates.

MENA Q412 Consumer Electronics RRR Table
Rewards Risks
Scores out of 100, with 100 highest. The Risk/Reward Rating comprises two sub-ratings 'Rewards' and 'Risks'. Scores are weighted as follows: 'Rewards': 70%, of which Industry Rewards 65% and Country Rewards 35%; 'Risks': 30%, of which Industry Risks 40% and Country Risks 60%. The 'Rewards' rating evaluates the size and growth potential of a telecoms market in any given state, and country's broader economic/socio-demographic characteristics that impact the industry's development; the 'Risks' rating evaluates industry specific dangers and those emanating from the state's political/economic profile, based on BMI's proprietary Country Risk Ratings that could affect the realisation of anticipated returns. Source: BMI
Industry Rewards Country Rewards Industry Risks Country Risks CE Rating Rank Previous Rank
UAE 53.3 80.0 65.0 54.1 61.4 1 1
Kuwait 48.3 77.5 55.0 54.4 57.4 2 2
Israel 53.3 45.0 65.0 78.3 57.2 3 3
Qatar 45.0 75.0 70.0 50.6 56.4 4 4
Saudi Arabia 53.3 47.5 55.0 73.6 55.8 5 5
South Africa 53.3 47.5 50.0 67.5 54.1 6 6
Bahrain 40.0 65.0 50.0 56.6 50.3 7 7
Iran 48.4 52.5 30.0 42.7 46.2 8 8
Oman 39.2 45.0 60.0 51.5 45.3 9 9
Egypt 38.4 22.5 50.0 57.1 39.2 10 10
Average 47.3 55.8 55.0 58.6 52.3
This article is tagged to:
Sector: Telecommunications, Consumer Electronics
Geography: Egypt

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