By Courtesy of Meuble El-Chark Contemporary designs mixed with classical foundations are a hallmark of Egypt’s emerging modern furniture industry. Displayed: Pieces by Meuble El-Chark Close Up Marginal Investment This country is home to millions of Sudanese migrants, a community that experts believe has the potential to stoke economic development — if someone would let it By Courtesy Laroche Furniture Thoroughly modern pieces like those in this collection by Laroche are selling like hotcakes in Europe. By Courtesy Laroche Furniture These pieces by internationally acclaimed designer Karim Rachid have been a hit for Laroche and were star attractions at Furnex 2007 in Cairo. Egypt turned heads at the Milan Furniture Fair thanks to designs by Karim Rashid. Above center: Rashid’s acclaimed “Endless Nile” table. Egypt turned heads at the Milan Furniture Fair thanks to designs by Karim Rashid. Above center: Rashid’s acclaimed “Endless Nile” table.

Ihab Derias sets the scene for a well-practiced pitch by pulling up a simple image on a flat-panel desktop monitor. The picture is of a beautifully designed piece of modernist furniture: a chair slung low to the ground in minimal cubist lines, all flat edges and smooth, squared-off planes, glowing in a dull yet somehow lustrous golden hue. It looks like the kind of set piece that wouldn’t seem out of place in a trendy fusion restaurant.

“This chair is 2500 years old, and you can see it in the Egyptian Museum,” he says, choosing not to pause for effect as he begins to list off the selling points of Egypt’s increasingly successful furniture industry: History. Craftsmanship going back generations. Location.

Derias knows how to sell it; the Egyptian furniture business is a beloved topic. And when he begins speaking, it is clear that he is well practiced in explaining the ins and outs of one of the country’s most promising export markets. Derias wears two separate hats: one as managing director of LaRoche, a major local producer and exporter of modern furniture, and one as Vice President of the Furniture Export Council, the peak body that oversees and supports the growth of the industry.

Ahmed Helmy, President of the Furniture Export Council and head of local producer and exporter Meuble El-Chark, lists a similar set of advantages, stressing on a base of artisanal knowledge and human capital that few can compete with.

One thing neither emphasize is cost — although an incredibly cheap country to do almost any kind of business in, neither see Egypt succeeding as an outsourced low-cost manufacturer. “We will never be able to compete with China based on cost,” says Derias. “Whatever you do, China will do cheaper. No matter what.”

Egyptian industries that aim to produce internationally competitive goods are fast learning that poor quality control, minimal infrastructure investment and subsistence-level salaries are not the pathway to success. Striking workers at the monolithic state-owed factories are being paid unbelievable, China-like salaries of less than LE 300 per month — and the quality of their company’s management and output is reflective of this. Egyptian industries with global ambitions need skilled and semi-skilled workers, who attract correspondingly decent salaries.

This is particularly true of the furniture business, where, although it is hard to believe, factory owners are struggling to find the skilled workers needed for their business. “We don’t feel as a private factory that there is an unemployment problem,” says Derias. “We have a shortage of workers of all calibers, for so many reasons. Maybe there [aren’t] enough skilled workers, maybe they are leaving Egypt and working in the Gulf, or maybe younger workers just aren’t interested in this type of factory work — although it pays well, very well. You can’t even compare a guy in one of our factories to someone in the government-run mills — our people need more skills and get a better pay.”

The guarantee of Chinese firms being able to do it cheaper, faster and in greater volumes has played a useful role in pushing the domestic furniture industry toward a more quality-focused segment of the market. Chinese firms have the scale, labor costs and freewheeling attitude toward intellectual property needed to destroy any purely cost-based competition. “We have to have a value-added,” says Derias, “if we want to make it in international markets.”

That value added is design, something that until recently was a low priority for much of the industrial and manufacturing sector here. Since the days of the Open Door Policy, local companies have been focused predominantly on production — making and selling as many units as possible. The companies would copy the designs of foreign brand leaders, leaving little role for local designers in the manufacturing process.

“Industry seeks engineers, technicians, managers,” says Derias, “but not designers.” This state of play may have worked in the days of a sheltered domestic market producing primarily for disinterested local buyers, but in the era of global competition, it is industrial suicide.

Helmy sees design as a key opportunity to differentiate Egypt from low-cost producers. “One of the key problems between buyers in Europe and producers in the Far East is copying,” he says. We make sure that we deliver the message across the world that we are serious about design. “

In the past, bad quality, poor order fulfillment and a questionable commitment to respecting intellectual property all hammered the sector, causing apprehension among international buyers. Although memories linger and horror stories can still be found, Derias says that the council has employed a number of strategies to keep exporters in line and keep buyers coming back for more. For a start, the council, which manages the official Egyptian delegations to international fairs and meetings, makes sure that any company pushing its wares abroad owns the intellectual property behind the designs it is selling.

“Just one piece of stolen design being shown at an international fair is all it takes,” says Derias, recalling a recent case where an Egyptian exhibitor displayed locally purchased bed sheets as part of a bedroom display at an international fair. Word quickly got out that the bed sheet designs were an unlicensed knockoff of a well-known British design. “It was an issue,” says Derias, and although not a major one related to the furniture being displayed, it brought back unwelcome memories of the rampant copying that once characterized the industry.

Steps have been taken to rid that image once and for all, with the council working hard to raise awareness about the importance of design. A consortium of local furniture makers has come together to promote local and international designers, and recently commissioned a series of pieces by internationally acclaimed industrial designer Karim Rachid — the Egyptian-born, New York-based style guru, whose designs have been used by iconic brands such as Prada and Miyake.

Rachid’s collection was a star attraction at Furnex 2007 in Cairo and has garnered acclaim from buyers around the world. Industry weekly Furniture Today praised the collection, saying that it “blends ultra-modern forms, colors and materials with ancient Egyptian motifs.” Among the highlights of the collection is the “Endless Nile” table, a curving, knotted strip of iPod-white molded plastic, that wraps and flows around itself into a complicated tangle of lines and curves. Beautiful, space-age — if slightly impractical — it is as far as you could imagine from the intricately carved golden pieces of ‘Louis Farouk’ found in every respectable Cairo salon.

“We also want to raise awareness of the design profession here at home,” says Derias. While the job is well paying, creatively fulfilling and internationally respected, it still lacks the prestige of the more traditional careers here.

Signs of a nascent community of local design aficionados waiting to emerge from a long slumber are increasingly apparent. When Rachid visited Egypt in February, he gave a lecture at the Cairo Opera House on the importance of industrial design. The event filled up with over 1000 aspiring designers and business people, all keen to learn more about a seriously under-discussed profession.

Like many promising niches of the economy, it is easy to get worked up over the potential of the sector. There remain, however, several fundamental challenges that will need to be overcome if local furniture makers wish to grow into global players. Chief among these is the almost total reliance by local manufacturers on imported components. Firstly, and most importantly, the vast majority of wood used by the industry must be imported, predominantly from Northern and Eastern Europe.

Such a situation would be fatal to furniture producers in far-flung, deforested corners of the globe, but thanks to Egypt’s prime geographic location and lower cost structure, such imports have remained feasible until now. Along with wood, the industry must also import paints, veneers and polishes, fabrics and coverings, accessories — even sandpaper.

This dependence on foreign supplies obviously makes the industry highly vulnerable to rising international prices and currency fluctuations, both of which have serious impacts on end prices. With major wood producing countries implementing sustainable forestry practices that limit their total wood production, and a hungry China desperate for all the natural resources it can acquire, wood prices are in a particular squeeze.

Local press reports in August, a summary of which was published in Business Today Egypt’s “Nation in Brief” news wrap-up for September, relayed the news that a global spike in wood prices had led to major contractions in the local industry, with exports down by 60%, resulting in 80% of the workshops in Damietta, the traditional heart of the furniture business here, closing their doors.

These reports raised the ire of Derias and colleagues at the Council. Although well aware of the pressure this price rise placed on producers, the figures quoted in the press, they were quick to point out, were completely wrong. According to official statistics (see graph), exports have continually risen throughout 2007, and are set to reach an all-time record by year’s end.

There are over 30,000 individual workshops in Damietta alone, with most employing fewer than 10 workers and many being one-man operations. It is difficult to find reliable data regarding workshop openings and closings, but Derias believes that a figure of 80% for workshop closures is hard to believe. What is clear is that the rising prices charged by local wood importers have a disproportionate effect on small workshops. Large factories have direct import contracts with foreign suppliers, meaning they pay the international, rather than local, price — meaning, as is often the case, that small businesses pay the biggest price for rampant cost inflation.

According to Derias, the prices of all raw materials have seen significant increases in 2007, but local wood prices in particular have risen disproportionately with international prices. Pine, one of the most commonly used materials for furniture, has almost doubled in price locally, despite a much more moderate rise in international prices.

Medium-density Fiberboard (MDF), a manufactured wood composite material made locally out of sugarcane fiber, has risen in price by 35% since January. As there is only one manufacturer of MDF in Egypt, such a price rise has led to buyers of the product calling for greater competition within the market. Industry figures are now working with potential investors from Spain to establish a second MDF manufacturer here. Moves are also afoot to attract foreign suppliers of key components, such as paints and veneers, to establish sales (and ideally manufacturing) operations here.

Despite efforts to mitigate the rising prices, the underlying challenge of a manufacturing industry dependent almost entirely on imported components is obvious. It may, however, also represent an opportunity. According to Helmy, producers “have the benefit of choosing between the world’s best materials. Many low-cost producers in Asia will rely on cheap locally produced parts — luckily, we do not have this choice. We work with the best.”

The global market for furniture is estimated to currently stand somewhere north of $250 billion per year, and the Council plans to see Egypt take a $1 billion share of it by 2010. Exports currently stand at a little under $250 million, and grew by 390% in 2004-2006.

Egypt’s core strength remains in producing classical-style furniture, a segment that accounts for roughly 10% of the global market. “The future is with modern designs,” says Derias, “but the classical market is one that will remain huge for a long time to come. Just 1% of that market would be fantastic for us.” With an enormous base of skilled wood craftsmen centered in Damietta, classical woodworking is a competitive strength that cannot be ignored, even though the fastest growing markets across the world are in modern styles. This is particularly the case in the highly lucrative ‘contract’ segment of the market, where companies are engaged to create custom furnishings for venues such as hotels, offices and entertainment facilities.

In the classical market, Egypt’s biggest export destination is to the Arab world, particularly the GCC countries. Well-developed Western European markets like France, the UK, Ireland and Germany are the leading destinations for modern designs, with emerging markets such as Russia and the Central and Eastern European region showing promising signs. On a macroeconomic level, wherever incomes are rising, demand for furniture is likely to be growing even faster. This is because furniture is a commodity that has a high correlation between demand and income levels — it has a positive income elasticity of demand, as our economist friends would say. Put simply, as incomes rise, demand for furniture rises at a faster rate. Although the specific figures for income elasticity change in different markets, industry analysts have estimated the global average to be 1.5 — that is, if incomes rise by 10%, demand for furniture will rise by 15%.

As a sweetener, Egyptian furniture exports to Europe are completely tariff-free, thanks to the EU–Egypt Association Agreement that came into force in 2004. Along with shipping costs that are estimated to be 15% cheaper than for competitors in Asia, highly competitive energy prices and the virtual elimination of import duties on the supplies needed for furniture manufacturing (and not to mention the ubiquitous cheap, skilled labor), it all makes for a seriously competitive industry. For international furniture buyers, assurance regarding the quality of the product they are purchasing is vital. Certifications, such as the ISO range of standards, membership of international bodies, and a track record of delivering good products on time, all help in assuaging nervous buyers. The best option to demonstrate quality, however, is specialized independent testing and analysis.

Independent testing laboratories evaluate everything from fire resistance to structural integrity, checking the piece in question against the requirements and regulations to be complied with.

A leading independent tester in the global furniture industry is the Furniture Industry Research Association (FIRA), a UK-based organization that has been central to the development of this type of testing and analysis over the last 50 years.

FIRA is establishing a testing facility right here in Egypt, the first of its kind in the region and one of the only FIRA testing centers outside of the UK. The facility will play a strong role in improving quality stands in the furniture industry here while simultaneously making it much easier for local producers to reassure international buyers.

“Whenever an importer from Europe or the USA contracts with an Egyptian supplier, certification will come from FIRA, the best name in the industry,” says Derias. “That is great news — a sign of how far we have come, and of the big opportunities ahead.” bt