Country Profile:
Egypt
Egypt
With strategic positioning at the north-eastern tip of Africa, Egypt has long played a pivotal role in Middle Eastern and African politics. It has the Arab world’s largest population at 82m, and a quickly expanding youth demographic. Blessed with hydrocarbons resources as well as rich mineral deposits, the country has attracted high levels of foreign investment in recent years. Egypt is also home to what is arguably the world’s most important waterway – the Suez Canal, linking the Mediterranean Sea with the Indian Ocean.
ISBN: 978-1-907065-17-0
ISSN (Online): 1759-9415
ISSN (Print): 1759-9407
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides an overview of the country, its population, languages, natural resources, geography, climate, religion and history.
POLITICS
Formerly a British protectorate, Egypt became a republic in 1922. The current president, Hosni Mubarak, successor to Anwar Sadat, is a member of the National Democratic Party, which has dominated politics since its founding in 1978. Legislative and parliamentary elections are scheduled for May and November 2010, followed by presidential elections in September 2011. Mubarak won the first competitive election in 2005 with 89% of the vote. In response to the global crisis, his administration passed several stimulus packages in 2008 and 2009 targeting infrastructure construction in order to create jobs quickly. With strong ties to Arab Africa, Egypt has cultivated a role as regional leader, and remains allied with the US, which provides nearly $2bn per year in assistance. Strong ties with France have resulted in increasing trade between the two countries, while the French Development Agency provides financial assistance for infrastructure projects. Egypt is also one of the few Arab states to have full diplomatic ties with Israel.
This chapter provides interviews with Ahmed Nazif, Prime Minister of Egypt; Amre Moussa, Secretary-General of the Arab League; and Michel Laurent, Chairman of IRD. President Hosni Mubarak provides a viewpoint on mitigating the effects of the downturn. Wen Jiabao, Prime Minister of China, provides a viewpoint on bilateral ties.
ECONOMY
Economic reforms implemented since 2004, including reducing corporate income taxes, liberalising foreign trade and investment, and increasing banking supervision, helped Egypt to pull through the global crisis relatively unscathed. GDP grew by 4.7% in the 2008/09 financial year, a slight decrease from the previous three years, when growth averaged 7%. Several sectors maintained high growth rates in 2008/09: ICT posted 15%, followed by construction (14.6%) and trade (6.2%). A fiscal stimulus package worth LE15bn (€1.92bn) resulted in a budget deficit of 6.9% of GDP in 2008/09, with the World Bank and the African Development Bank as key sources of financing. The government is still targeting to decrease that figure to 3% by 2012. A value-added tax (VAT) is expected to be implemented by 2012, replacing the current sales tax. In an effort to keep costs down and prevent property values from rising too high, the Ministry of Trade and Industry banned cement exports in April 2009. Unemployment currently stands at about 9%, down from 11.2% in 2004. The government has targeted reducing subsidies on fuel, food and other goods, which now account for a quarter of its budget.
This chapter provides interviews with Youssef Boutros-Ghali, Minister of Finance; Mahmoud Mohieldin, Minister of Investment; Paul Fletcher, Senior Partner at Actis; Marwan Elaraby, Managing Director and Executive Member of Citadel Capital; and Gamal Moharam, President of the American Chamber of Commerce in Egypt.
BANKING
With limited exposure to toxic securities, Egypt’s banks have remained relatively insulated from the crisis. Net foreign asset positions, deposit base and profits remained stable during 2009. As an anti-crisis measure, the government has issued three stimulus packages totaling €4.34bn, while the Central Bank of Egypt (CBE) lowered interest rates six times, bringing down the deposit rate from 11.5% to 8.25% and the overnight lending rate from 13.5% to 9.75%. As of the end of 2009, the CBE intended to hold these rates. A five-year reform plan launched in 2004 focused on banking sector privatisation and consolidation – as a result, 39 banks are now operant in the country, three of which are public sector banks. The CBE is continuing to divest its stakes in banks to reduce the number of players in the market. The banking reform programme also includes upgrading supervision at the CBE itself, enhancing risk management practices at banks and improving the IT used in the financial system. Retail banking penetration remains low at only 9% of GDP due to social stigma against debt and lacking of banking options in rural areas. One potential avenue of growth for banks is financing small and medium-sized enterprises (SMEs), which are also able to attract funds on the NILEX or the bond market.
This chapter provides interviews with Tarek Hassan Ali Amer, Chairman, National Bank of Egypt (NBE), and Hala El Said, Executive Director of the Egyptian Banking Institute.
CAPITAL MARKETS
As a result of the financial crisis, the Egyptian Exchange (EGX) 30 recorded an all-time high single-year loss of 56.4% in 2008, but has since rebounded, closing 2009 up 38%. The biggest winner by sector over the first half of 2009 was real estate, which gained 53%. Foreign investors decreased their weight in the market, representing 18% of the total value of trading in H1 2009, down from 29% a year earlier. The Egyptian Financial Services Authority (EFSA) was launched in July 2009, consolidating the Capital Market Authority with the authorities in charge of the non-banking financial services. The CASE 30, the country’s main stock exchange, was overhauled in 2009 and rebranded the EGX 30. As a first step towards developing a bond market, Egypt’s Finance Ministry gave its approval in September 2009 for brokerage companies to purchase government debt. Some 20 companies are expected to list on the NILEX, the exchange for SMEs, by the end of 2010. Orascom Development Holding listed Egypt’s first depository receipts on the EGX in December 2009.
This chapter provides interviews with Gerald L Hassell, President of the Bank of New York Mellon Corporation, and Maged Shawky Sourial, Executive Chairman of the Egyptian Exchange (EGX). Karim Helal, Group CEO of CI Capital Holding, provides a viewpoint on the role of investment banks.
INDUSTRY & RETAIL
Following a 2005 campaign promise to raise GDP growth to 6% annually, President Hosni Mubarak has specifically targeted industrial development. Under the 2006 Industrial Development Strategy (IDS), direct government investment is planned to increase from €383.68m to €1.4bn by 2025. At the same time, the state will decrease its total investment share by 15% to make room for the private sector’s contribution. In the first quarter of the 2009/10 fiscal year, industrial production contributed 15% of total GDP, putting it on par with the oil and gas sector. After years of decline and underinvestment, the textile industry has benefitted from trade agreements with the EU and US. The government banned cement exports in 2009 after demand from construction caused prices to escalate. As the primary infrastructural pattern for the industrial sector, the IDS calls for the construction of specialised “investment zones”. A growing number of free trade agreements, including the Common Market for Eastern and Southern Africa, are making it easier for Egyptian fast-moving consumer goods exporters to get their products to Asia and Africa. Having faltered in the onset of the economic crisis, Egypt’s non-oil exports rebounded by 22% in the first quarter of 2010. Reduced tariffs have led to a surge in automobile purchases, while the government has established a finance plan to enable taxi drivers to replace their cars.
After a series of regulatory changes in 2004, international consumer goods entered the market in force, mainly as a result of reductions in Customs duties and service fees. A new influx of high-end mall space has also transformed the retail landscape. The contribution of retail to GDP more than doubled to LE113.7bn (€14.54bn) between the 2004/05 and 2008/09 financial years. Retail franchises account for around 50% of total franchises in Egypt and are growing rapidly. Egyptian retail spending reached $63bn in 2009, with the spending power of the population growing by an estimated 7.2%.This chapter provides interviews with Rachid Mohamed Rachid, Minister of Trade and Industry; Ahmed El Bakry, Chairman and CEO of Olympic Group; and Rajeev Chaba, Chairman and Managing Director of General Motors Egypt.
INSURANCE
While gross written premiums now stand at just below 1% of GDP, the government has targeted ramping up insurance penetration by 2013. Rising income levels and awareness-raising campaigns are all contributing to a strong outlook for growth. The Egyptian Financial Services Authority (EFSA) went online at the start of 2010 as a regulatory authority for non-bank financial services. Following a market restructuring programme in 2006, state insurers saw a drop in overall market share from around 75% to 53%. Minimum capital requirements were effectively doubled to LE60m in May 2008. The total for life and non-life premiums rose to (LE7.84bn) in fiscal year 2008/09, lead by motor comprehensive (LE878.59m); oil and gas (LE530.95m); and engineering (LE491.85m). In 2009 the Central Bank stopped granting new licences for bancassurance until more legislation is drafted covering the segment.
This chapter provides an interview with Mahmoud Abdallah, Chairman of Insurance Holding Company.
ENERGY
Despite having 4.4bn barrels in proven reserves, Egypt is a now a net importer of oil due to increased domestic consumption. Oil production is 700,000 bpd, down from a mid-nineties peak of 922,000. Starting in 2007/08, long-standing subsidies for petroleum products were recalibrated and those for industries like cement and steel were phased out. The government is courting investment from international oil companies for exploration and production. Following major discoveries in recent years, Egypt has become a major player in the natural gas segment. In 2009, production reached 45.8m tonnes, making the country a net exporter of gas, much of which is transported through the Arab Gas Pipeline to Syria. A nuclear programme is gaining pace, with two nuclear reactors already on-line in Egypt. Australia’s WorleyParsons was chosen in mid-2009 for work on a 1200-MW nuclear plant in El Dabaa. With electricity demand rising at around 6% annually, the Ministry of Electricity is looking to add 9250 MW of installed capacity to the grid by 2012, mostly in the form of gas-fired plants. Given the country’s substantial wind and solar power potential, the government has set a target to generate at least 20% of the country’s power from renewable sources by 2020.
This chapter provides interviews with Sameh Fahmi, Minister of Petroleum; Ahmad Atallah, Chairman of Shell Egypt; and Lady Barbara Judge, Chairman of the UK Atomic Energy Authority.
CONSTRUCTION & REAL ESTATE
Construction’s contribution to the economy became increasingly significant during the crisis. Over the 2008/09 financial year, the sector grew over 13%, driven by multiple economic stimulus packages aimed at improving the nation’s infrastructure. A range of public-private partnerships (PPP) have been initiated in power, telecommunications and transport. Construction spending is expected to increase to about $7.3bn by 2015. However, low-income housing demand continues to be unmet, with many developers focusing on class-A housing and luxury units. Increased construction exerted upward pressure on prices for building materials – in April 2009, the government to banned cement exports for four months to accommodate domestic demand. Some 14 new cement licences are expected to be granted over the next decade, eight of which have already been tendered.
In line with the global trend, investment in real estate plummeted to around 5% of the total in late 2008. However, there are signs of renewed growth after the slowdown. By the first quarter of the 2009/10 financial year, investment had expanded 9%. Though lending levels remain low, the mortgage market is currently worth €511.6m. Prime real estate is mostly concentrated in Cairo, including gated communities in the suburbs. With the influx of international brands to Egypt in recent years, many new mixed-use developments aim to tap into the growing demand for high-quality retail space. A real estate tax law targeted at higher-end properties is expected to be implemented in 2010.This chapter provides a round table with Samih Sawiris, Chairman and CEO of Orascom Development; Maher Maksoud, CEO and Managing Director of Sixth of October Development and Investment; and Yasseen Mansour, Chairman and CEO of Palm Hills Developments.
TELECOMS & IT
Posting 27% annual growth in 2009, the ICT sector is one of the fastest-growing sectors in the economy, due to the government’s strategy to increase the nation’s teledensity and teleaccessibility. The Egyptian competitive mobile sector has three operators vying for market share among a subscriber base of 53.43m. Mobinil currently has around 50% share, with Vodafone holding about 43% and newcomer Etisalat 7%. State-run Telecom Egypt (TE) has a monopoly on fixed lines, which have decreased in number with the growing popularity of mobile phones. At the end of 2009, the Ministry of Communications and Information Technology (MCIT) opened bidding for two new triple-play licences, which will break the monopoly of TE Data. The business process outsourcing sector is performing successfully, and is expected to have a compound annual growth rate of 20% by the end of 2010.
The MCIT continues to develop the nation’s ICT infrastructure, attract foreign investment and promote Egypt as an outsourcing centre in the global market. A number of multinational ICT companies use Egypt as a base for regional operations, including Hewlett Packard, Oracle and Siemens. The public-private partnership (PPP) model has proved instrumental to growth – one successful PPP is Smart Village Cairo, a 3m-sq-metre IT park housing a number of global ICT firms. In Q2 2009, to increase PC penetration, the government purchased 10,000 notebooks for distribution to students and teachers. Egypt’s internet penetration reached 18.4% in 2009, representing 14.04m users. Internet costs have also dropped as a result of the government working with internet service providers. Arabic content online is being promoted via the government’s e-content programme, while e-government has been instituted in many state departments.
This chapter provides interviews with Tarek Kamel, Minister of Communications & Information Technology (MCIT); Hassan Kabbani, CEO, Mobinil; Hatem Dowidar, CEO of Vodafone Egypt; and Saleh Abdooli, CEO of Etisalat Misr; and Hazem Abdelazim, CEO of Information Technology Industry Development Agency.
TRANSPORT
While the government strategy targets upgrading and integrating all modes of transport and improving external links, the main focus recently has been on investment in inland transport routes. Investment in the transport sector spiked recently as a significant proportion of the state anti-crisis stimulus package was earmarked for infrastructure projects. Egypt plans to nearly double its existing cargo capacity at its commercial ports from the 125m tones in 2008 to 244m tonnes by 2025. Traffic through the Suez Canal dropped 20% in 2009, according to government estimates, with the global slowdown also taking a bite out of air travel and logistics revenues. Congestion is a pressing problem on Egypt’s road network, which supports 80% of all internal goods movement. Upcoming investments on roads include a €400m transformation of the Cairo-Alexandria Highway, while rail projects are also part of a long-term plan to take pressure off the nation’s roads. Cairo’s metro system is also undergoing an upgrade, with construction under way on a route connecting to the Cairo International Airport, which opened a third terminal in 2009 to accommodate rising passenger throughput.
This chapter provides interviews with Ted Muttiah, Managing Director, APL Egypt, and Hussein Massoud, Chairman and CEO, Egyptair Holding Company.
TOURISM
Hard hit by the global slowdown, Egypt’s tourism sector staged a recovery in the second half of 2009. Overall the country posted a 2.4% annual decline in visitors, falling from 12.8m in 2008 to 12.5m. Russian, British and German visitors represented the bulk of tourist arrivals. Despite the contraction, the long-term forecast for the tourism industry looks promising, as the sector showed double-digit growth in 2007 and 2008. Some 200,000 new hotel rooms are currently under construction, with the aim of increasing the country’s room capacity by around 5% per year, reaching a total of 240,000 by 2011. Marsa Matrouh on the Mediterranean coast has been targeted for development – as of March 2010, there were 29 tourism projects under way in the area. Government anti-crisis stimulus packages targeting large infrastructure projects will help to improve the tourism sector’s long-term competitiveness. While most visitors come to Egypt on package tours, the number of independent travellers is rising, expanding route networks of low-cost carriers such as Air Arabia and EasyJet. The Ministry of Tourism has increased efforts to attract travelers from high-income Middle Eastern countries, while Asia and Eastern European markets are also being targeted.
This chapter provides an interview with Zoheir Garranah, Minister of Tourism.
MEDIA & ADVERTISING
The media sector has been gradually moving towards liberalisation and privatisation. Press freedom remains a challenge, although Egypt jumped three places from 146 to 143 in the 2009 Reporters Without Borders Press Freedom Index. Television is the most popular medium, with Egypt having one of MENA’s highest numbers of TVs per capita and more than 460 satellite channels. There are over 500 magazines and newspapers operant in the country, though readership is small due to low literacy rates. Five new radio stations are set to launch in 2010, pending state approval. Part of a government plan to open up the sector to private investment, the Media Public Free Zone outside Cairo offers tax exemptions to media companies. New media and online social networking has evolved with the spread of the internet – in mid-2009, the internet penetration rate stood at 16%.
High GDP growth in recent years has led to increased foreign investment in the advertising sector. Expenditure on advertising reached $1.2bn in 2009, up from $1.14bn in 2008, making Egypt the third-largest advertising spender in the Arab world. Newspaper is the most popular advertising medium, receiving $509m in adverts, followed by television ($348m) and on magazines ($54m). Many companies devote a substantial percentage of their annual ad spend to the month of Ramadan, when people watch more television. Online advertising is a growth business – the government signed a $10m agreement with Google in June 2009 to develop an online platform to advertise Egyptian products.
HEALTH & EDUCATION
Investment in the health sector totaled LE4.5bn (€621.7m) in 2008/09, up from LE3bn (€414.5m) in 2007/08. Increased health care spending has seen the infant mortality rate drop and life expectancy rise. However, a rise in non-communicable, lifestyle-related diseases such as diabetes and hypertension has been seen in recent years. A long-term reform plan is in the works for Egypt’s free health care system, which is considered overburdened. As of early 2010, a plan was under discussion in the People’s Assembly, targeting primary health care. The government allocated LE15bn (€2bn) for health care in the 2009/10 budget, or 4.7% of the total budget. A new health insurance bill was proposed in 2009 that will reduce the out-of-pocket spending of individuals. A new system for drug pricing was also instituted in 2009, pegging pharmaceutical prices to the world market. To prevent the “brain drain” of medical professionals, Egypt is trying to encourage its best doctors to remain in the country.
Egypt has the MENA’s largest education system, totaling 18m students enrolled on all levels. Spending on education increased by 16% in the 2009/10 budget over 2008/09. A large-scale reform programme is expected to be instituted in 2012, adding more autonomy and independent thinking in the school system. Around 10% of students attend private primary and secondary schools, most of which offer instruction in English. The government is working to improve the quality of tertiary schools, including the vocational education segment, and boost employment levels among graduates. This plan involves training better-quality teachers and increasing private sector involvement, to reduce overcrowding at universities.This chapter provides an interview with Lisa Anderson, Provost of American University in Cairo.
AGRICULTURE
Food security has become a top priority in Egypt, which is largely a desert nation. The National Development Plan 2030 aims to boost agricultural output by 5% annually by reclaiming and cultivating new farmland and increasing the per-unit productivity of land, water, capital and labour. In addition, the state is focusing on the production of high-value crops for export. Egypt is the continent’s largest exporter of rice – cotton and potatoes are also key agricultural exports. A new agreement signed with the EU will eliminate tariffs and quotas on Egyptian imports of agricultural products. The private sector, which accounts for 99.9% of total agricultural production, is dominated by small farms. Sector growth was just under 4% in 2007/08, contributing 13.4% to GDP. A draft bill was presented in 2009 to restructure the state-owned Principal Bank for Development and Agricultural Credit, which provides investment loans for farmers. Investors in the agricultural sector receive a 10-year tax exemption, free access to irrigation water and subsidised energy. As agriculture consumes 85-90% of scarce water, the government is encouraging farmers to switch to drip irrigation or sprinkler systems.
THE BUSINESS GUIDE
OBG introduces the reader to the different aspects of the legal system in Egypt, in partnership with Helmy, Hamza & Partners. Taher Helmy, Partner at Helmy, Hamza & Partners, provides a viewpoint on Egypt’s reform programme.
In conjunction with Deloitte, OBG explores the taxation system, examining Syria’s investor-friendly environment. Kamel Saleh, Managing Partner, Deloitte – Saleh, Barsoum & Abdel
Aziz, provides a viewpoint on increasing spending and implementing taxes.
THE GUIDE
This section includes articles about Egypt’s national football team, as well as information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
