Czechs in Egypt's first post-Mubarak foreign direct investment

Czech Pegas, the second biggest producer of synthetic textiles in Europe, is expanding abroad. And the first country the company picked for its FDI premiere is – wait for it – Egypt.

And what is Pegas’s maiden foreign adventure is also – wait for it again – Egypt’s first foreign direct investment since the January revolution.

The initial investment of €55m-60m is linked to a key business deal – a long-term sale agreement with a local customer who will buy what the new plant produces.

Without the client, the investment would not be going ahead, as the up-front costs are significant for Pegas (PGSNSP:PRA). While labour is relatively cheap in Egypt, the capital investment, which includes the land acquisition, is not.

Ond?ej Kou?il, the spokesperson for the company, said: “The construction expenses are higher than they would have been if we decided to build a new plant in the Czech Republic, purely because we have to start from the scratch. But given the partnership opportunities, it is worth it.”

Moreover, at present, Egypt doesn’t have a foreign direct investment incentive programme, so Pegas will have to follow same rules and tax regimes as local investors, according to the company.

Who is the un-named customer, who justifies the decision to go into a fairly risky environment, Kou?il refused to say. “The partner in Egypt is our current customer, one of the most important players of the market,” Kou?il said.

Pegas has already purchased land in an industrial zone near Cairo and is now all set to start with the construction. The new plant, which will employ about 80 local workers, should be completed and open by the mid-2013.

If things go well, a second plant could follow in 2015 or 2016, the company said.

The decision to follow the investment through was a big deal in Egypt, as Pegas became the first to pour money into the country since the revolution. Although, as Pegas admits, it was more of a coincidence than a purpose.