Egypt’s economy depends heavily on agriculture, tourism and cash remittances from Egyptians working abroad, mainly in Saudi Arabia and the Gulf countries. However, rapid population growth and the limited amount of arable land are straining the country’s resources and economy, and political unrest has often paralysed government efforts to address the problems. The economy is gradually improving with annual rates of GDP growth reaching 4 percent in 2014/15 and 2015/16, up from an average of only 2 percent during the period 2010/11-2013/14. Responding to large fiscal imbalances, the government has introduced a bold fiscal consolidation program. The program includes measures to increase tax revenues, control the civil servants’ wage bill, shift spending from commodity subsidies to targeted cash transfer programs as well as undertaking the much needed infrastructure investments. The macro imbalances still persist despite efforts to correct exchange rate misalignments that led to emergency of the parallel exchange rate that emerged in 2013. International reserves are quite low and according to The Central Bank of Egypt (CBE) foreign exchange reserves stood at about $28.5 billion March 2017, the highest level since March 2011. Egypt’s GDP growth was forecasted at 3.3 percent in 2016, representing a drop from 4.2 percent the previous year. The country’s GDP is expected to rebound in 2017, reaching a growth of 4.3 percent. Egypt’s economic slowdown is mainly attributed to the foreign exchange shortage the country has suffered resulting from the reduced number of tourists and investors. The drop in global oil prices that slowed down Gulf economies are expected to negatively affect Egypt’s economic performance. Remittances sent from Egyptian migrant workers in Gulf countries back to Egypt will be negatively affected resulting in reduced domestic consumption in Egypt.
Why invest in Egypt?
Egypt is among the top 10 signatories of Bilateral Investment Treaties (“BITs”) worldwide, with a total number of over 100 BITs. It is also ranked second, after Angola, in the list of top African countries with foreign direct investment. This growth of FDI has been driven mainly by the expansion of foreign affiliates in the financial, pharmaceutical, energy, construction and transport industry. The country also capitalises on Suez Canal with special zone.
A new constitution was adopted by popular referendum and presidential elections were held in May 2014. Parliamentary elections were completed in December 2015. However public criticism of the government remained effectively banned in Egypt since 2016. Parliament also proposed a new law regulating non-governmental organizations (NGOs) that effectively ended independent human rights work in the country. A 2013 decree that effectively banned all anti-government protests remained in place, though it was subject to an ongoing legal challenge before the Supreme Constitutional Court. The government has therefore taken several measures to ensure activists’ acts that presumed to be harmful to national interests are controlled.
According to the World Fact book the population of Egypt was estimated at 95 million people with a growth rate of 2.51% in 2016. It is also estimated that about 28 percent of the population lived below the poverty line in 2015 with highest poverty rates being in rural Egypt. The country has achieved significant improvements in human development indicators over the last three decades but more needs to be done to address disparities that exist in the areas education and health.
The population growth of between 2.2- 3% combined with rural to urban migration have led to almost 4% annual increase in Egypt’s urban population. It was estimated that over 43% of the total population of Egypt lived in urban in 2015.
Doing business in Egypt
The highlights of World Bank score of doing business in Egypt is summarised as follows;
|Topics||World Bank 2017 Rank||World Bank 2016 Rank||Change in Rank|
|Starting a Business||39||70||
|Dealing with Construction Permits||64||63||
|Protecting Minority Investors||114||129||15|
|Trading across Borders||168||157||-11|
The government is in the process of creating conducive environment for doing business.
In 2017 Standard & Poor’s credit rating for Egypt stands at B- with stable outlook. Moody’s credit rating for Egypt was last set at B3 with stable outlook. Fitch’s credit rating for Egypt was last reported at B with stable outlook.
Since 2011 Egypt’s foreign exchange reserve have deteriorated and is currently quite low and business community therefore experiences some difficulty accessing hard currency for business purposes. It is also difficult in repatriating profits. Businesses that do not operate in priority sectors have continued to encounter significant difficulties.
The Egyptian Arbitration Law (EAL), Law 27 of 1994, governs the proceedings of any arbitration that takes place in Egypt including both domestic and international arbitrations. The EAL is based on the UNCITRAL Model Law. Egypt has been a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1959. Egypt has been a signatory to the Washington Convention (Convention on the Settlement of Investment Disputes between States and Nationals of Other States) since 1972.
Key development challenges
- The inadequacy of foreign currency has affected industrial production;
- The unemployment rate in the region of 10% is high;
- Headline inflation reached 9% in February 2016;
- The acts of terrorism are negatively affecting tourism.
In 2016 Egypt ranked 108 out 176 countries that took part in the corruption perception survey by Transparency International. It got a score of 34 out of 100. This was a deterioration compared to the rank of 88 got in 2015.
There is the risk of terrorism but government has put in a lot of effort to contain it. Travellers are advised to co-operate fully with security officials when in Egypt. The tourist areas are however reasonably safe.
Unemployment and skilled labour
The unemployment stood at 12.5 percent in mid-2016 up from 9 percent prior to 2011. Unemployment will climb slightly to reach 13 percent in 2016 compared to 12.9 in 2015 but is expected to drop to 12.4 percent in 2017. The higher rates of unemployment are among the youth and women. This is calling additional for reforms to generate economic growth that will create employment opportunities. The increases in the population growth rate are also complicating the situation.
Attitude to Foreign Direct Investment
Foreign investment is a top priority for the government of Egypt. A number of pro-business reforms have been carried with the aim of creating a conducive investment climate. In March 2015 Egypt organized the Egypt Economic Development Conference (EEDC) that highlighted reforms and upcoming investments and was seen by many as an affirmation of the country’s new pro-investment policy. In 2015, Egypt issued Presidential Decree 17/2015, reforming many of Egypt’s investment-related laws, including the companies’ law, general sales tax law, investment guarantees and incentives law, and income tax law. The decree refined Egypt’s one-stop shop system, stating that the Ministry of Investment’s General Authority For Investment (GAFI) will serve as a liaison between investors and government agencies when applying for business licenses.
Restrictions on Foreign investment
The hard currency controls and shortages impede the repatriation of profits and the importation of inputs necessary for domestic manufacturing and production. The law prohibits foreign individual or corporate ownership of agricultural land.
Intellectual Property (IP) Rights.
Egypt is a signatory to the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, the Berne Copyright Convention, the Paris Convention for Protection of Industrial Property of 1883, the Madrid Agreement Concerning the International Registration of Marks 1954 and the Nice Agreement Concerning the International classification of goods and services, the Stockholm Act of 1967, the Hague Agreement, the Geneva Act 1999, the Patent Cooperation Treaty (1970 as modified and amended), and the Trademark Law Treaty. In May 2002, Egypt enacted a new comprehensive IPR law (Law 82 of 2002) that met certain key TRIPS requirements, including providing data exclusivity and exclusive marketing rights for pharmaceuticals and enacting a patent mailbox. The law also addressed IPR protection in areas such as patents, copyrights (with enhanced protection for sound and motion-picture recordings and computer software), trademarks, plant varieties, industrial designs, and integrated circuit layout designs. Egypt’s new 2014 constitution includes new language (article 69) that calls on the state to protect intellectual property rights in all fields and to establish a body to regulate these rights.
The countries natural resources include iron ore, phosphate, limestone, manganese, talc, zinc, asbestos, gypsum, gold, salts, crude oil, natron, brine and soda.
Investment Climate in Egypt has been summarized to include the following
Sources of information