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1. Introduction to Egypt

Egypt, officially known as Arab Republic of Egypt, is situated in the northern portion of Africa with the Sinai Peninsula organizing a land span with West Asia. Egypt is strategically located with its land mass connected to the Gaza Strip and Israel on its north east boundary and to Sudan and Libya on its South and west boundary lines, severally. Egypt ‘s seashore line encompasses the Mediterranean Sea to its North and Red Sea to its E. The Suez Canal, which connects the Red and Mediterranean seas is one of Egypt ‘s most strategic assets supplying a critical connexion between Europe and Asia.

1.1 Demography

Egypt is the thirty-eighth largest state in the universe in footings of land country and measures 1001,450 square kilometers ; most of the state is desert except for the Nile Valley. Egypt is the most thickly settled Arab and the 2nd most thickly settled state in Africa. The great bulk of its estimated 83.1 million dwellers live in an country of about 40,000 square kilometers near the Bankss of the Nile River, where the merely cultivable agricultural land is found. Large countries of Egypt are dominated by the Sahara Desert and are intelligibly sparsely inhabited. About half of Egypt ‘s occupants live in urban countries, with the bulk spread across the densely-populated Centres of greater Cairo, Alexandria and other major metropoliss in the Nile Delta.

Egypt has a comparatively productive and cost-efficient work force of more than 22 million. Egyptian bargainers are renowned as seasoned business communities with extended experience in covering with local Egyptian and neighboring markets. Apart from Egyptian subjects, the work force comprises Middle Eastern, African, European, North American, Asian and Latin American subjects.

1.2 Political Development

Egypt has maintained basically the same political province construction since 1952. It became a constitutional monarchy in 1922 and, following the revolution in 1952, declared itself a Republic in 1953. The first President, Mohamed Naguib, was ousted by Gamal Abdel Nasser, whose leading over the following 18 old ages left a durable political, economic and societal imprint on Egypt. His replacement was Anwar El Sadat ( 1970-1981 ) who was subsequently followed by the current President, Mohammed Hosni Mubarak.

During President Nasser ‘s presidential term, extended agricultural and industrial development undertakings were initiated. Progressive economic and societal reforms were besides implemented. With the decease of President Nasser in September 1970, Anwar El-Sadat assumed office. The Sadat period witnessed alterations in the political, societal and economic spheres and at the same time the private sector was granted greater engagement in the state ‘s economic system through the execution of the “ Open Door Policy ” .

Hosni Mubarak assumed power in October 1981. He undertook economic reforms that succeeded in imparting finance towards productive investing in industry and agribusiness. A major push of Egypt ‘s national economic policy under President Mubarak is an attempt to broaden the economic base by advancing local, Arab and foreign investing.

President Mubarak was re-elected on 7 September 2005 for a 5th consecutive term. This was the first contested presidential election in Egypt, following a alteration to the fundamental law in May 2005. President Mubarak ‘s National Democratic Party ( NDP ) holds the bulk, with 311 of the 454 seats in the People ‘s Assembly. The largest resistance axis, the Muslim Brotherhood ( nominally mugwumps ) holds 88 seats.

Although Egypt has changed its fundamental law to let the resistance to contend presidential polls, possible campaigners must run into rigorous standards for engagement. Religious political parties continue to be banned.

1.3 Economy

Egypt possesses one of the most diversified and vivacious economic systems in the Middle East and North Africa ( MENA ) part, with a Gross Domestic Product ( GDP ) of US $ 162.1 billion in 2007-08. Since 1991, a series of ambitious domestic economic reform plans have been introduced to cut down the size of the populace sector and spread out the function of the private sector. The gait of structural reforms through financial and pecuniary policies, denationalization and new concern statute law, has helped Egypt ‘s advancement towards a more market-oriented economic system taking to an increased influx of private and foreign investing in the economic system. These economic reforms ushered in a period of high economic growing ( 7.2 % in 2007-08, compared with 3.1 % growing in 2002-03 ) .

Egypt ‘s economic system is dominated by the services sector followed by the turning industry sector. Due to the nature of its geographics, the part of agribusiness is the lowest among the three sectors of the economic system. The economic development of the state is preponderantly along the Nile Delta.

Key industries that drive the growing of the economic system are:

Chemicals, Cement, Hydrocarbons, Textiles, Tourism

Egypt had a robust Export and Import ( EXIM ) trade worth US $ 61.5 billion in 2008 accounting for 37.9 % of the GDP. The EU and the US are the top trading spouses for Egypt. Petroleum merchandises and fabrics account for a major portion of exports, while machinery and equipment lead imports.

Egypt ‘s trust on EXIM trade topographic points it at some hazard as a consequence of planetary economic fluctuations. For illustration, the latest recession has significantly impacted Egypt ‘s economic growing motivating the Government to present a multi-billion dollar stimulation bundle to back up cardinal economic sectors.

1.4 Significance of Egypt as a Cardinal Market and Political Driver in the Region

Egypt ‘s foreign policy is comparatively moderate. Factors such as its population size, history, military strength, diplomatic expertness and a strategic geographical place give Egypt a alone political influence throughout Africa and the Middle East.

Egypt fought three wars with Israel. However, its battle in the peace procedure resulted in its ejection from the Arab League until 1989. President Mubarak has maintained Egypt ‘s committedness to the Camp David peace agreement, while at the same clip re-establishing Egypt ‘s place in the Arab universe. The lasting central office of the Arab League is situated in Cairo and the Secretary General has traditionally been an Egyptian. Today, Egypt militias a function as a go-between in deciding differences between Arab provinces, and in the on-going Israeli-Palestinian difference.

Egypt is besides one of the cardinal influencers of trade and development in the part. The state enjoys first-class relationships with neighbouring states and has signed legion trade understandings. Key trade understandings like the Pan Arab Free Trade Area ( PAFTA ) , the AGADIR ( Agreement between Morocco, Egypt, Tunisia and Jordan ) , Common Market for Eastern and Southern Africa ( COMESA ) and the Qualifying Industrial Zones have helped place Egypt as a cardinal influencer in economic development and trade in the part.

2. Egypt – Economic Growth and Trade Development

2.1 Economic Overview

Egypt began its passage to a market-oriented economic system in 1991, by establishing the Economic Reform and Structural Adjustment Program ( ERSAP ) , which aimed to make sustainable economic growing implemented in clearly defined stages. The first stage of the ERSAP was focused on betterment in public finance, exchange rate policies and rising prices stabilization. The 2nd stage addressed trade liberalization, market reforms, private sector engagement, export fight and the induction of financial steps to increase recognition flow. Importantly, ERSAP initiatives led to important external debt alleviation, which helped Egypt to achieve macroeconomic stableness during the 1990s.

The societal, spiritual, and historical standing that Egypt enjoys in the Gulf Cooperation Council ( GCC ) , North Africa and Europe has helped excite touristry, labour supply and Foreign Direct Investment ( FDI ) . This has helped its economic system grow significantly, peculiarly, in the past decennary. In this clip, Egypt has besides strengthened its international trade dealingss by come ining into bilateral and multi-lateral trade understandings with the United States and states in Asia, Africa, the Middle East and Europe. Key understandings are:

The US-Egypt Partnership for Economic Growth and Development

EU Partnership Agreement

The Common Market for Eastern and Southern Africa Agreement ( COMESA )

The Greater Arab Free Trade Area ( GAFTA )

Asia is an progressively of import part for the Egyptian Government. Exports to non-Arab Asiatic states accounted for 17.2 % of Egypt ‘s entire volume of trade in the twelvemonth 2008. The Ministry of Trade and Industry has clear programs to increase exports to these markets and better balance trade shortages. The Ministry is besides concerned with obtaining free market entree for Egyptian merchandises in foreign markets with important Arab populations, including Cardinal Asia ( Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan and Afghanistan ) and China, Malaysia and Thailand. Furthermore, treatments are underway between Egypt and Singapore sing a proposed free trade understanding. Ongoing understandings with Asiatic states include a discriminatory trade understanding with India, a free trade understanding with Sri Lanka and besides a trade understanding with Kazakhstan.

In footings of economic public presentation, Egypt has in recent old ages emerged as one of the fastest developing economic parts in the universe and one of Africa ‘s most comfortable economic systems.

The World Bank ‘s ‘Doing Business 2010 ‘ study ranks Egypt 106 of 183 states surveyed. The state was ranked 116 in the 2009 study. The survey once more placed Egypt among the universe ‘s prima reformists in the universe in footings of cardinal business-friendly steps such as the easiness of get downing a concerns, turn toing bureaucratic holds – particularly for building licenses, and the proviso of one-stop store services to bargainers at ports every bit good as leting better entree to recognition for concerns.

2.3 GDP Growth

While Egypt ‘s Fifth Five-year program ( 2002-2007 ) set a GDP growing mark of 6.2 % , the achieved rate was 5.5 % . The initial stage of the program was characterised by slow growing, while the ulterior phase showed accelerated enlargement of about 7.5 % – with all cardinal sectors transcending their single planned growing rates.

In 2007-08, Egypt achieved GDP growing of 7.2 % , its highest rate in recent old ages. The fact that all the nucleus sectors contributed to this growing reflects the state ‘s progressively diversified economic base.

2.4 Unemployment and Inflation

On the domestic forepart, unemployment fell from 11.1 % in 2003-04 to 9.1 % in 2006-07. Harmonizing to the Egyptian State Information Service, approximately 95 % of the work force is employed in the little and average endeavor ( SME ) sector. The rising prices rate declined from its peak degree of 12.9 % in 2003-04 to 4.2 % in 2005-06 before lifting to 10.9 % in 2006-07. The crisp rise during 2006 is attributable to several factors: the eruption of the avian grippe, which impacted meat and egg monetary values, higher universe trade good monetary values, and increasing domestic demand. Although Egypt ‘s Central Bank has on several occasions intervened to maintain rising prices under control, inflationary force per unit areas remain a challenge for the Government as domestic demand grows.

2.5 Foreign Reserves and Foreign Direct Investment ( FDI )

Egypt has a favorable balance of payments, with a US $ 5.3 billion payment excess in 2008. Foreign exchange militias besides showed impressive growing and reached a degree of US $ 30 billion. With foreign trade accounting for 37.9 % of GDP, Egypt is demoing marks of increasing integrating with the planetary economic system.

In 2008, net FDI touched US $ 13.2 billion compared to US $ 11.1 billion in 2007. This meant Egypt was the taking FDI receiver in North Africa and 2nd among African states. However, as the planetary economic system slowed, FDI in 2009 was down 39.7 % to US $ 8.1 billion, harmonizing to the Central Bank of Egypt.

2.6 Growth Drivers of the Economy

Important factors that are expected to supply drift to the Egyptian economic system include:

Continued aggressive economic policy reforms

Investing inducements

Tourism – driven by Egypt ‘s rich history

Strategic place of the Suez Canal to take advantage of addition in trade between developing markets such as India and Southeast Asiatic economic systems every bit good as the European Union and United States

3. Government Policies, Regulations and Key Challenges

3.1 Local Governments

Administratively, Egypt is divided into 26 governorates, each headed by a governor appointed by the President. These governorates are responsible for pull offing public public-service corporations, supplying civic services, and developing industrial countries.

3.2 Economic Policies Outline

Fiscal Policy

In recent old ages, Egypt ‘s encouraging economic policy public presentation has been reflected in the state ‘s turning GDP and worsening financial shortage ( as a per centum of GDP ) and through greater investings by both foreign and domestic companies. A alteration in focal point is evident where investings are being encouraged by responsibility cuts and revenue enhancement decreases. Subsidies, societal benefits and employee rewards have received more important support, which indicates the Government ‘s purpose to equilibrate economic and societal growing.

Although the absolute financial shortage increased from US $ 10.0 billion in 2007 to US $ 11.2 billion in 2008, its portion of GDP declined from 7.5 % to 6.8 % .

Despite cuts in customs responsibilities, company and income revenue enhancement rates, overall populace grosss grew by 22.9 % to US $ 40.6 billion for 2008. While they were expected to fall, revenue enhancement aggregations of US $ 25.1 billion represented a rise of 20.0 % compared to the anterior twelvemonth. This is believed to be a consequence of better imposts and revenue enhancement aggregations every bit good as parts from the private sector. For 2008, the overall grosss were 24.7 % of GDP.

Between 2002 and 2007, public outgo accounted for about 30.4 % of GDP. Due to increases in oil monetary values, passing on subsidies and societal benefits increased from US $ 10.7 billion in 2007 to US $ 15.4 billion in 2008, which at 29.8 % made it the largest subscriber to pubic outgo. This was closely followed by disbursement of US $ 11.5 billion on rewards and employee compensation, which accounted for 22.3 % of overall outgo.

The budget shortage has systematically declined from 2003 degrees. However, the Government faces considerable challenges to cut down the budget shortage to a mark of 3 % of GDP by 2011. Tight control of Government disbursement and cut downing public debt without compromising economic growing would assist accomplish this.

Monetary and Credit Policy

The Central Bank of Egypt ( CBE ) has taken progressive stairss to guarantee monetary value stableness while keeping flexible exchange rates. In June 2005, it introduced an intercession model for supervising inter-bank involvement rates within a set decided by the pecuniary policy commission. This has helped the CBE in commanding involvement rates. Banking disposal has improved due to reforms aimed at consolidation within this sector.

In 2008, recognition to private and household sectors decreased marginally from the 2007 degrees of 44.9 % to 44.2 % . Inflation rose aggressively between March 2006 and March 2007 making a extremum of 12.9 % before the Central Bank increased involvement rates to control rising prices. The rising prices rate stabilised at 11.7 % in 2008.

3.3 Investment Policies and Thrust Areas

Institutional Model

In 2004, the Egypt Government created a ministry to advance investing in the state. The Ministry of Investment oversees the investing policy and difference colonies for domestic and foreign investors through assorted administrations such as the Capital Market Authority, the Egyptian Insurance Supervisory Authority, the Mortgage Finance Authority, the denationalization plan, and the General Authority for Investment and Free Zones ( GAFI ) .

Acting as a one-stop-shop for investing, the GAFI is positioned as a proactive investing publicity bureau instead than a traditional regulator. In coordination with the World Bank ‘s Multilateral Investment Guarantee Agency ( MIGA ) , GAFI is seeking to ease investing through its Research and Market Intelligence, Promotion and Facilitation, and Investor-Care organic structures.

Investing Law

During the past two decennaries, Egypt has made cardinal amendments to investing ordinances to promote greater engagement from foreign companies every bit good as the local private sector in the state ‘s industrial, economic and trade development. Today, it is much easier to get down new concerns and obtain blessings. The two most of import pieces of statute law that govern the investing environment are:

Investing Incentives and Guarantees Law 8 ( 1997 ) 1.

Companies Law No. 159 ( 1981 ) and their amendments.2.

Investing Incentives and Guarantees Law 8 of 1997

Law 8 ( 1997 ) repeals Investment Law 230 ( 1989 ) . Under this jurisprudence, the GAFI is now responsible for explicating and regulating the execution of investor inducements and warrants. The new jurisprudence besides paved the manner for grouping revenue enhancement freedoms under a incorporate jurisprudence and specified activities, which would straight profit investors. The jurisprudence now makes it possible for foreign companies to keep 100 percent ownership of ventures and to remit any income earned in Egypt.

Other cardinal commissariats include protection against arrogation, land ownership, opening and care of foreign currency bank histories, absence of monetary value control or limitations, and equal intervention regardless of nationality. Under Law 8, investings are approved automatically for undertakings in 16 distinguishable Fieldss that include sectors such as:

Refrigerators for the saving of agricultural merchandises, manufactured merchandises, groceries, container terminals and grain silos.

Air conveyance and related services.

Deep-sea maritime transit.

Petroleum services back uping boring and geographic expedition operations, and the conveyance and supply of natural gas.

Infrastructure including imbibing H2O, sewerage, electricity, roads and communications.

Undertakings approved by GAFI under the Investment Law 8 autumn into two classs:

Inland investing.

Inland investing includes undertakings that are commissioned in any of the 40 industrial Parkss developed by the Government. These Parkss have common industry bunchs and are located within 19 governorates. Egypt gives high precedence to industrial Parkss for the transportation of engineering and invention. In Upper Egypt ( South of Cairo ) , land is allocated free of charge after production has commenced.

2. Free Zones.

Free zones are portion of the national Territory of Egypt, but are considered outside the horizon of import, pecuniary, duty-related issues and imposts boundaries of the state. They offer alone advantages to foreign investors in footings of pecuniary and fiscal minutess. Free zones are classified as: Private free zones and Public free zones

There are 10 state-developed public free zones. These are managed by a board of managers responsible for supplying all installations and services. Public free zones in Egypt are:

Alexandria ( El-Amreya ) , Damietta, East of Port Said, Ismailia, Keft, Media Production City, Nasr City, Port Said, Port Tawfik and Adabbia ( Suez ) , Shibin El-koum.

Key privileges and warrants available to liberate zone investors:

Absence of lower limit and maximal bounds for invested capital

Freedom to reassign invested capital and net incomes of the undertaking abroad

Freedom to make up one’s mind pricing of merchandises and net income borders

Protection against arrogation of undertakings

Exemption of all capital assets, production, imports and exports from imposts responsibilities or revenue enhancements on gross revenues or other sorts of revenue enhancements even if these activities exist outside the free zone for impermanent periods

Exemption of all constituents produced in free zones undertakings from imposts responsibilities when sold to the local market

Exemption of land enrollment, contracts and loans from the revenue enhancement cast enrollment fees for five old ages

The Government has created a new authorization to pull off the development and operations of the Suez Special Economic Zone ( SEZ ) , where many manufacturers of fertilizers, Fe and steel, pharmaceuticals, edifice stuffs and petrochemicals, have well-established operations. The SEZ integrates imposts and revenue enhancement disposal every bit good as difference colonies.

Egypt has developed two dedicated state-of-the-art port and logistics installations to function the SEZs at Suez and East Port Said. Strategically positioned to function as a transportation and logistics hub between the EU and Asia, the Red Sea port of Ain Sokhna ( located adjacent to the Suez SEZ ) has been hailed by cargo industry observers as a quiet revolution in Egyptian logistics. Located 40 km South of the Red Sea entryway to the Suez Canal, the port handles more than 20,000 vass via the Suez Canal each twelvemonth.

East Port Said is located at the northern entryway of the Suez Canal on the Mediterranean Sea. The installation ‘s nucleus aim is to be an international distribution Centre, which leverages its alone location and employs the latest technological solutions and multimodal transit systems.

Companies Law 159 of 1981 and its Amendments

Law 3 ( 1998 ) , amending Law 159 ( 1981 ) , applies to investors in any sector non covered by Law 8 ( 1997 ) , including stockholders, limited liability companies and representative offices. It allows for automatic enrollment by the Companies Department and grants rights to register requests in instance of denial of incorporation. It besides removes the limitation that 49 per centum of stockholders must be Egyptian, leting 100 % foreign representation on the board of managers, and redefines accounting criterions.

3.4 Regulative Constraints

While Egypt has made impressive advancement on economic reforms, regulative restraints remain.

Blessings

Some undertakings still require anterior blessing from relevant ministries in add-on to the General Authority for Investment ( GAFI ) . This includes investings in Sinai, all military merchandises and related industries, every bit good as baccy and baccy merchandises. Law 15 ( 1963 ) prohibits foreign ownership of countries designated as agricultural land, except for desert renewal undertakings.

Duties

There have been far-reaching alterations to the import responsibility government but incompatibilities remain. In 2006, for illustration, the duty rate on domestic fowl was reduced from 32 % to zero, but was restored to 32 % in 2007.

Customss Procedures

Although Egypt has adopted the World Trade Organisation ( WTO ) imposts rating system ( 2001 ) , it is non yet to the full implemented. This means importers still encounter struggles between the old ( cite monetary value ) and new ( invoice based ) systems.

Import Restrictions

Passenger vehicles can merely be imported within one twelvemonth of production.

Prohibitions applied to the import of natural merchandises, vitamins and nutrient addendums in finished signifier – merely local mills are allowed to bring forth these merchandises and to import natural stuffs for fabrication.

Dietary merchandises require an import licence and the blessing procedure takes anyplace between four and 12 months. Furthermore, if a similar dietetic merchandise is available locally, enrollment of the imported merchandise will be rejected.

3.5 Key Challenges in Pull offing Economic Growth

In add-on to policy issues that need to be addressed to optimize the conditions for making concern, there are specific macroeconomic barriers to Egypt ‘s continued economic growing, including:

The Government ‘s ability to prolong public investing in substructure if debt additions significantly

The current status of Egypt ‘s substructure

Management of Debt. For case authorities debt – domestic and external – surged to 91.5 % of GDP in 2008.

The service and managing of debt is critical to reflect founded macro-economic basicss in order to pull more private investings in cardinal substructure undertakings.

3.6 Legal Issues and Robustness of Legal Framework

Legislation sing investings in Egypt has changed significantly in recent old ages. The current pro-business mentality has simplified and streamlined the procedure of puting in Egypt, authorising administrations such as the GAFI to be a one-stop-shop for investors who wish to register and run their concern in Egypt. Corporate revenue enhancement has been reduced from 40 % to 20 % , which has in bend increased overall gross aggregation degrees. The current legal system in Egypt is considered one of the most attractive in the part. The Government allows up to 100 % FDI in most industry sectors.

The legal system nevertheless should help faster execution of cardinal substructure undertakings.

Another issue is the deficiency of a incorporate codification of jurisprudence associating to specific concern sectors such as substructure development. There are a figure of old Torahs, which have been capable to alter through assorted presidential and ministerial edicts, triggered on a instance by instance footing. A amalgamate Companies Law, which combines all the assorted alterations, would heighten the easiness of making concern in the state.

Some evident incompatibility in the Government ‘s mentality on certain cardinal policy and legal issues is another country of concern. For illustration, in mid-2008, the Government abolished free zone position for certain energy-intensive industries. Overnight this changed the concern scenario for those sectors. Companies had to waive cardinal benefits such as a five-year revenue enhancement freedom. Although the Government revised the list of industries that would lose free zone position, this resulted in major undertakings being delayed or cancelled.

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