Consulate General of the Arab Republic of Egypt in Chicago
Egypt’s Economic Recovery & Investment profile
Egypt is a central country in the Middle East. With some 90 million inhabitants, Egypt represents 25% of the Arab population. Thirty percent (30%) of the population are among the age bracket of 15-24 years old. Throughout the last century Egypt has always enjoyed significant political, economic and cultural influence within its region. It serves as the trend setter for the Arab nations, a role that has been reemphasized by the 25th of January 2011 revolution.
Egypt is a solid partner of the United States. Since the peace agreement with Israel in 1979, Egypt has been an anchor for stability in the ME receiving 1.3 billion dollars of military equipment from the US annually.
The U.S. is among the top three trade and investment partners with Egypt, with a yearly volume of trade that amounts to 8.2 billion USD; the majority of which is American exports to Egypt (6.2 billion USD). American investments in Egypt amount to 14 billion USD representing 24% of American investments in Africa.
The biggest share of Egyptian imports from the US is primarily heavy machinery, equipment, and spare parts (2.5 billion USD out of the 6.2 billion USD).
The Egypt-USA Trade and Investment Framework Agreement (TIFA) signed in 1999, continues to be the legal framework for trade and investment between the two countries. The Agreement provides favorable conditions for long term development and diversification of trade between both countries. Additionally the Qualifying Industrial Zones (QIZ) arrangement provides another avenue for greater US market access for Egyptian textiles.
H.E. President Abdel Fattah Al -Sisi was sworn in on the 8th June 2014 as the 7th president of the Republic, Thus ushering a new phase in the political sphere since 2011 revolution. The political structure of the Egyptian Third Republic will be completed early next year when a new parliament is elected.
The election of President Al-Sisi marks a new beginning for the Egyptian people to initiate a monumental task of rebuilding the country, achieving stability, solidifying good governance, and delivering equitable economic growth.
Since then the government has been addressing Egypt’s short-term challenges while bolstering long-term economic goals, through creating a foundation for sustained development and fiscal stability. Egyptian government is also embarking on a plan to stimulate growth, create jobs and invest in infrastructure that will expand the economy and attract investment in particular in renewable energy, housing, and upgrading transport networks.
The new budget for 2014-2015 fiscal year endorsed by President Al Sisi on 29th June 2014 included deep cuts in energy subsidies, a first step toward reducing the deficit after three years of political turmoil that have battered the economy. Some 40 billion pounds ($5.5 billion) worth of savings were made by curbing planned spending on energy subsidies to 100.3 billion pounds in the next fiscal year.
The tightened budget that seeks to reduce the deficit to 10 percent of gross domestic product in the next fiscal year, from an expected shortfall of 12 percent in the 2013/14 fiscal year that ended on Monday .The budget deficit was around 14 percent in the fiscal year ending June 2013.
Egypt's economy grew a meagre 2.1 percent last fiscal year, ending June 2014 and Gulf countries Saudi Arabia, United Arab Emirates and Kuwait have since contributed billions in grants, loans and petroleum products totaling over $12 Billion. Growth rate for 2015 is expected to reach 3.5 % (1USD= 7.4 LE). Revenue in the new budget is expected to rise by 8 percent to 548.6 billion pounds for the fiscal year ending June 2015, according to the minister of finance, while spending will climb by 7 percent to 789.4 billion pounds.
Policies adopted for short term stability:
Policies and investments geared at upgrading infrastructure, education and smart social services to alleviating the burden of subsidies on the budget, included:
A new budget was passed in June 2014 that eliminates more than $5.5 billion USD out of the $22 Billion that is being spent annually on energy and food subsidies (a step that successive governments avoided since 1977).
A second $4.3 Billion stimulus package was launched January 2014.
Projects to upgrade transportation, schools, hospitals and public utilities has been commissioned, including building 350 new schools, 100 new hospitals, doubling capacity of grain silos, new railway structures and signal systems, upgrading 3000 KM of highways, as well as a $500 million energy generation projects.
Amendments to the tax code geared at encouraging small and medium enterprise growth giving them a simple and reduced tax system, while increasing taxes on gross earnings exceeding 1 million pounds annually by 5%. Additionally enhancing the application of Value Added Tax shall increase the revenue by broadening the range of taxable companies.
Introducing 10% tax on stock market gains.
Reducing budget deficit below 9% of the GDP during 2014-2015 fiscal year.
Reforming the grain subsidy system to achieve 25% reduction of the Wheat subsidies (totaled $ 3.15 billion in 2013-2014 budget).
Liberalizing the market for renewable energy investments in particular solar energy including the introduction of feed-in-tariff system.
Reducing unemployment levels below 20% by the end of 2015.
Global financial institutions have welcomed these developments. Bloomberg project real GDP growth expectation was raised to 3.5 percent in 2014/2015 .The Economist Group put growth forecast for 2015 to 5.4 percent. On December 19th 2014 Fitch Ratings upgraded Egypt’s long term foreign and local currency Issue Default Rating IDR to B from B- with “Stable” outlook. The World Bank which holds in Egypt its largest portfolio in the Middle East and North Africa (21 projects totaling $4.1 Billion) has also applauded the plan along with the IMF.
Long term growth targets:
Through structural reform, efficient social services and a more responsive economy, measures include:
Establishment of a transparent, market based economy through essential legal and political frameworks. More efficient use of public sector and existing social services. Introducing a value added tax while reforming the current income tax law.
Reform energy subsidies through the application of smart system that render support to vulnerable segments of the society instead of across-the-board system of subsidization with a view to remove fuel subsidies over a 5 year period.
Cooperation with international partners and multinational corporations to modernize Egypt’s economy and expand economic opportunity bearing in mind the sizable young work force.
Prospects for Corporate Expansion in Egypt:
Despite the political developments in Egypt since 2011, there is now a solid ground to conclude that turbulence is over. A new president is elected and a new constitution has been endorsed by popular votes. The new Administration has embarked in a new phase of reconstruction. Significant steps have been taken to reduce rampant subsidies and rein in budget deficit. A series of mega projects has been commissioned with secured funding. Stable revenues from exports as well as the Suez Canal, coupled with the rising domestic demand give solid ground for optimism.
During the last 3 years, and despite the political change, American and European firms operating in Egypt has in fact increased their investments in Egypt in particular in energy sector and food industry. Large multinational companies like Kraft, Coca-Cola, Pepsi Co., Mars, and Nestle all have increased their capital investments in Egypt.
Egypt enjoys several free trade agreements including with the European Union, the Common Market for Eastern and Sothern Africa (COMESA) which allows products manufactured in Egypt to be exported to 20 African states with zero customs, the Agadir Agreement which allows products manufactured in Egypt with 40% Egyptian input to be exported to Tunisia, Morocco, and Jordan with zero customs.
Advantages for Business in Egypt:
Doing business in Egypt continues to be highly profitable for foreign corporates. With the underway reform of political and economic environment, the potential will be even greater. In view of the current reforms towards increased transparency and more streamlining of bureaucracy, the chances of doing business in Egypt will certainly increase steadily in the coming few years. This is why financial institutions such as Goldman Sachs, have for years, classified Egypt among the NEXT11 and CEVETS signifying emerging markets with the highest potential.
The medium size market in Egypt consists of a young dynamic population comfortable with foreign languages and decent work skills. These makes Egypt a serious competitor in markets such as outsourcing, call centers, and has created a home for many global IT and technology firms including IBM, Cisco, Google, Microsoft, and many others.
The new government has initiated work in a mega industrial project on the northern eastern bank of the Suez Canal. China, India, and Arab Gulf States have all pledged to inject capital needed. Ambitious plans by both national and Arab countries will certainly represent a window of opportunity for engineering, heavy equipment firms, energy and those in the service sector. In addition, the new government is expected to invest heavily on infrastructure, housing and food industry in the coming years.
Tools for New American Investments and Trade Opportunities:
Overseas Private Investment Corporation (OPIC): supports U.S. private sector to gain a foothold in emerging markets through capital finance, guarantees and political risk insurance. OPIC is currently involved with several American investors operation in Egypt including APACHE Oil, and Citibank. OPIC’s portfolio in Egypt currently totals over $577 million in the fields of SME credit, investment funds, energy, infrastructure, manufacturing, and consumer goods.
Export-Import Bank of the United States (Ex-IM Bank): provides risk and credit protection as well as insurance to small business exporters of U.S. made goods and services. It has an impressive history with financing Boeing and Carbon Holdings sales to Egypt. Moreover, the Bank guarantees over $200 million in line of credit annually for Egyptian companies for the purchase of U.S. goods and services.
Investment and Trade Headlines:
1-At the close of a three-day international economic summit in Sharm El-Sheikh (13th-15th of March 2015), attended by 2,000 delegates from 112 nations, including 30 heads of state and executives of multinational companies, Egyptian Prime Minister Ibrahim Mahlab announced that Egypt signed deals worth a total of $60 billion during the conference. Investment deals worth $36.2 billion were signed, in addition to $18.6 billion for engineering, procurement and construction (EPC) contracts and loans totaling $5.2 billion. Saudi Arabia, the United Arab Emirates, Kuwait and Oman pledged an additional $12.5 billion in aid and investments. Announced investments went to the energy, real estate, agriculture and industry sectors. The largest deal was signed with energy giant British Petroleum, which will invest $12 billion in natural gas fields. The government has also revealed plans for a new Egyptian capital to be built on an area of 700 square KM east of Cairo, at a total cost of $45 billion. The city will be located between Cairo and the planned Suez Canal hub north west of the Gulf of Suez, flanked on both sides by two of Egypt’s
major highways, the Suez Road and the Ain Sokhna Road. The city will include 1.1 million residential units to house five million inhabitants and an administrative area with a presidential palace, ministries, government bodies and embassies, as well as a financial district. The government also elaborated on the investment opportunities within one of two large projects linked to the Suez Canal: the Suez Canal industrial and logistics hub. The project, to stretch across the three governorates of Port Said, Ismailia and Suez, will require $15 billion to be spent on utilities. The project is expected to attract $220 billion of investments over 15 years, according to earlier statements. The second large project linked to the Suez Canal is a new parallel waterway expected to more than double the canal’s revenues by 2023.
2-European Bank for Reconstruction and Development EBRD raised its investments in Egypt during 2014 to $ 593 million up from $151 million during 2013. The Bank is expected to expand its capital investments in Egypt in particular in energy and infrastructure sectors.
3-An American trade and investment delegation representing 69 companies visited Egypt (9-11 November 2014) headed by Ambassador David Thorne. The delegation held meetings with 8 Egyptian ministers including ministers of finance, trade and industry, civil aviation, supply, investment, health, electricity, and petroleum. Specific projects and topics were discussed including:
4-Coca Cola is investing $500 million in a new plant as well as additional investment with a Brazilian firm in refrigeration facilities. Food industry is one of the fastest growing sectors in Egypt. On January 2015 Kellogg’s announced acquisition of majority shares in Bisco Misr in a deal totaling $144 million; a move that reflects confidence in market potential.
5-GE is upgrading gas fired energy plants and exploring investments in renewable energy. First Solar is also expressed interest in PPP projects particularly following the introduction of feed in Tariff system.
6-Egypt Gulf States investment Forum was organized in Cairo 4th-5th December 2013 with the view to offer 60 projects to over 500 Arab and Egyptian investors and industrialists. During the Forum projects totaling $30 Billion were presented in the fields of communication, petrochemicals, infrastructure, transport, housing, power generation, and tourism. Collective Arab Gulf States investments in Egypt are over $50Billion.
7-Twenty seven countries have completely removed or substantially reduced its travel warning to Egypt in particular to destinations at the Red Sea and Upper Egypt.
8-Egypt-Saudi Arabia $1.4 Billion Electricity interconnection project tendered; a consortium of British and German companies were selected to implement the project with an initial test scheduled for early 2016. Egypt’s capital share of $600 million was met through regional banks loans. Exchange capacity will reach 3000 MW during summer rush hours.
9-A petrochemical plant contract has been inked between Egypt and South Korea. The plant that would cost $4.8 Billion will be built in Ain Sokhna south of Suez with South Korea contributing 30% of capital needed. Seoul-based SK Energy Co. Ltd. will be leading implementation in cooperation with other American and German firms.
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Consulate General of the Arab Republic of Egypt in Chicago
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