The Report: Egypt 2013
The wealth of the Nile River and its fertile banks and delta, together with Egypt’s location at the confluence of Africa, Asia and Europe, have made the country a valuable prize for centuries, as well as a centre of trade and ideas. The Arab world’s second-largest economy, with a GDP of $257.3bn in 2012, according to the World Bank, has undergone more than two years of political transition that has yet to be resolved. An economy that was growing at a rate of 7% has given way to a more modest GDP expansion of 2.2% in the 2011/12 fiscal year, while foreign direct investment fell from a net LE6.76bn ($971.96m) in 2009/10 to just LE2.19bn ($311.64m) in 2010/11 and is likely to remain subdued until the political situation has stabilised. Nevertheless, 2012 saw Egypt’s exchange recover the ground it lost in 2011, growing by 51% year-on-year to become one of the fastest expanding in the world.
Country Profile
Home to one of the oldest civilisations in the world, Egypt remains the most populous and one of the most influential countries in the Arab world. Over the past two years, a state of transition has become a more or less permanent feature of Egypt’s political scene. Popular protests starting on January 25, 2011 represented Egyptians from a wide spectrum of backgrounds and originated in calls for increased economic equality and transparency. The country’s first free and fair democratic elections in November 2011 resulted in a win for the Freedom and Justice Party in Egypt’s lower house of the bicameral parliament. However, protests against Mohammed Morsi’s presidency gathered momentum in mid-2013, resulting in the military acting to remove Morsi from office and suspend parliamentary proceedings. Despite the political events of recent years, the country remains a key player in the region.
This chapter contains interviews with Osama Saleh, Minister of Investment, and Chairman, General Authority for Investment and Free Zones; and Zafer Çağlayan, Turkish Minister of Economy.
Explore chapterEconomy
Economic reforms introduced beginning in 2004 have had a noticeable impact on the economy’s performance. In the three years prior to the global financial crisis, GDP growth averaged 7% per annum and FDI peaked at $13.2bn in 2007/08. However, the events of the past two years have underlined the fact that Egypt’s growth over the previous years has not been shared by all sectors of society, although the subsequent turmoil has dramatically complicated attempts to overhaul or reform some of the more delicate issues facing Egypt’s economy. Recent political upheaval has adversely affected key sectors: tourism receipts fell by 29.6% in 2011 and FDI saw a net outflow, contributing -0.2% to GDP in the same year. With the IMF cutting its 2013 forecast for GDP growth to 2% and predicting unemployment to hit 13.5%, combined with the budget deficit reaching 11.8% of GDP in the first 11 months of the 2012/13 fiscal year, according to the Ministry of Finance, the challenge remains a significant one. This chapter contains interviews with Anis Aclimandos, President, American Chamber of Commerce in Egypt; and Walid El Nohazy, Executive President, Arab Mediterranean Free Trade Agreement (Agadir Agreement).
Explore chapterBanking
Although the summer of 2013 saw increased political risk and uncertainty in the country’s broader macroeconomic environment, the positive financial results of Egypt’s banking sector over 2012 and into 2013 attest to its overall resilience. A history of conservative regulation has enabled the sector to ride out the economic crisis and most in the industry expect it to successfully weather the current political challenges. Public sector banks continue to play an important role. There are five state-owned banks, three of which control around 40% of the sector’s total assets. Since the 2011 uprising, the credit rating of Egypt’s domestic banks has been repeatedly downgraded, largely as a result of their perceived overexposure to sovereign debt. However, the sector’s funding and liquidity profiles garner a stable outlook from most agencies, thanks to the high proportion of customer deposits in relation to local and foreign funding. In the longer term, the macroeconomic fundamentals that have attracted Gulf banks to the market are expected to remain in place – a diverse economy, a large and young population, an anticipated 3.3% growth rate in 2014, and an underleveraged market. This chapter contains interviews with Hisham Ramez, Governor, Central Bank of Egypt; and Ali Al Kuwari, Acting Group CEO, Qatar National Bank (QNB).
Explore chapterCapital Markets
Since the start of the nation’s political transition in 2011, Egypt’s capital markets have faced a number of challenges. Nevertheless, 2012 saw Egypt’s exchange recover the ground it lost in 2011, growing by 51% year-on-year to become one of the fastest expanding in the world. Its path to recovery has been a volatile one, which has demonstrated the influence of political events on market sentiment, but just as importantly, the return to form displayed the bourse’s ability to attract capital when circumstances allow. In 2009 the Cairo and Alexandria Stock Exchange was rebranded as the Egyptian Exchange (EGX). As of June 2012, 212 companies were listed on the exchange, with a nominal capital of LE150.1bn ($21.4bn) and market value capital of LE339.8bn ($48.4bn). Egypt’s ongoing political transition is the single biggest factor affecting the bourse’s performance, and until the prevailing unsettled economic backdrop has stabilised, it is unlikely that the EGX will show the type of sustained growth that its management and regulator have been working assiduously to engender. This chapter contains interviews with Mohamed Omran, Former Chairman, Egyptian Exchange (EGX); and a viewpoint from Hussein Choucri, Chairman and MD, HC Securities & Investments.
Explore chapterInsurance
The Egyptian insurance industry is characterised by considerable competition on price, low market penetration and the continued dominance of the state-backed Misr Insurance. Total insurance premiums, including inward reinsurance and direct written premiums, rose to $1.57bn in 2011/12, an 8.7% increase over the previous year. Total investment by insurance firms amounted to $5.5bn in 2011/12, up 9.4% year-on-year, and income from investments rose to $477m. There are 30 companies active in the market. Of these, 18 are property and casualty firms, while 10 are life and personal insurance groups, with the remaining two an export credit guarantee company and a cooperative insurance society. With insurance uptake low even by North African regional standards, there is ample room for growth. This chapter contains an interview with Ashraf Kadry El Sharkawy, Former Chairman, Egyptian Financial Supervisory Authority (EFSA).
Explore chapterIndustry & Retail
Long a regional heavyweight, Egypt’s industrial sector boasts a variety of segments that have helped make the country one of Africa’s biggest cement producers and its second-largest steel manufacturer. Still, industry, in particular light manufacturing, has had to grapple with the turmoil that followed the 2011 revolution, in the form of issues such as labour unrest and a deterioration in the security environment. Given its proximity to major export destinations such as Europe and the Middle East, as well as its huge domestic market, the country remains highly competitive in many sectors. Moreover, various trade agreements bolster its attractiveness as an export centre. The outlook for overall industrial performance will depend to a large extent on economic growth in key export markets such as Europe. Despite being home to the largest population in the Arab world, Egypt hosts comparatively few modern large-scale retail supermarkets, hypermarkets and malls – and almost none away from the major cities of Cairo and Alexandria or tourist areas – making for enormous growth potential. In 2011/12 the value of activity in the sector was $23.66bn at current prices, and wholesale and retail trade accounted for 10.6% of GDP by factor costs. Growth in the retail sector has closely mirrored wider economic growth in Egypt in recent years and the development of the sector is likely to depend heavily on broader economic trends. This chapter contains interviews with Mounir Fakhry AbdelNour, Minister of Trade and Industry; Osman Saifullah Khan, CEO, SAIF Group; and Mohamed Farag Amer, Chairman, Faragalla Group.
Explore chapterTransport
Egypt has long served as one of the world’s oldest transport hubs. For millennia, its position, straddling major trade routes between Asia, Africa and Europe, has made the country a commercial and cultural crossroads, and since 1879 it has been home to the Suez Canal, through which 10% of the world’s total trade volume passes. Thanks largely to the canal, the transport sector has helped to buffer the country from worst-case scenarios amidst recent political upheaval. However, investment was down in early 2013 at $647m, 35% lower than the same period of 2012. While the transport sector in Egypt continues to suffer from the cumulative effects of years of underinvestment, there is a new awareness of its importance to the rest of the economy and a keenness to incorporate more private investment to the sector’s development. This chapter contains an interview with Simon Brown, Managing Director, Maersk Line Egypt.
Explore chapterTourism
It has been a difficult few years for Egypt’s economically vital tourism sector, in the wake of the 2011 revolution and with civil unrest continuing to occur in the summer of 2013. However, the country still managed to attract millions of foreign visitors, even discounting the number of arrivals who were not tourists per se. However, 2013 may prove tough. The disturbances earlier in the year, and the removal of the Freedom and Justice party-led government of Mohammed Morsi and its aftermath, are not good advertisements, even if the vast majority of foreign visitors remain unaffected. But Egypt’s ability to bounce back strongly from setbacks is well documented, and this should be the case again. The country has ample competitive advantages – its long coastline, the Red Sea, thousands of historical sites, welcoming people and a centuries-old reputation as a choice destination. This chapter contains interviews with ElHamy ElZayat, Chairman, Egyptian Tourism Federation; and Richard Solomons, Chief Executive, Intercontinental Hotels Group (IHG).
Explore chapterEnergy
As the largest non-OPEC oil producer in Africa as well as the continent’s second-largest natural gas producer, Egypt’s hydrocarbons resources and production play a central role in the nation’s economy. While the sector was nationalised in the 1960s, more recent reorganisations have created separate authorities for oil, gas and petrochemicals, which has allowed the private sector to play a bigger role. At the end of the 2000s, around 80% of oil and gas services were operated by the private sector and 90% of exploration activity was conducted by multinationals. Exploration activities have continued even amidst the ongoing political transition, with several recent discoveries adding to both oil and natural gas production. However, a number of long-standing challenges remain. These include an oil production level that has stayed flat in recent years and a rapidly rising demand for energy in the domestic market that has placed increasing pressure on Egypt’s exported gas supply. This chapter contains interviews with Sherif Ismail, Minister of Petroleum; G Steven Farris, CEO, Apache Corporation; and Ahmed Mostafa Emam Shaaban, Minister of Electricity and Energy.
Explore chapterIT & Telecoms
One of the country’s biggest magnets for foreign investment, Egypt’s ICT sector is well positioned to enjoy long-term growth. Internet penetration has been growing steadily, thanks to increasing accessibility, rising demand and more diverse content. More than 33m Egyptians access the internet, with broadband connections comprising over 90% of all internet connections. As of mid-2013, internet penetration stood at around 40%. Similarly, demand for IT products and services should continue to rise from the government and private sector alike, though the pace of growth will be linked to economic recovery. The telecoms sector is one of the most competitive and dynamic parts of the economy. Egypt has 94.5m mobile subscriptions for a population of around 85m, indicating a penetration rate of 113.5%, according to the Ministry of Communications and Information Technology. The market is internationalised – the three existing GSM operators are all majority foreign-owned, all by large global players, indicating the appeal of the market to the world’s biggest telcos. While other sectors have been hard hit by Egypt’s tumultuous post-revolutionary years, telecommunications companies have continued to invest and expand. The major development of the next year is likely to be the issue of universal licences, which at the time of writing was going ahead despite political uncertainty. This chapter contains an interview with Ashraf Sabry, CEO, Fawry.
Explore chapterConstruction & Real Estate
Aided in part by the large domestic market, a spate of new industrial facilities, competitive labour costs and increasing urbanisation, the fundamentals of the Egyptian construction market look promising. The Egyptian real estate sector has continued to see growth, which has helped to support some contractors, but companies relying on work in the infrastructure segment, particularly those dependent on government contracts, have been suffering. Although the sector has been buoyed by positive population demographics and a mild backlog of public projects, rising costs and disputes over land ownership continue to pose challenges. However, the continued and long-term need for investment in housing and infrastructure means that diversified construction groups will certainly survive, if not thrive, over the medium to long term. The real estate market continues to exhibit potential, despite facing many challenges in the near term. Some of these, such as uncertainty, are the result of the turbulence following the 2011 revolution, while others, such as issues relating to the availability of land, date back several decades and will require sustained government action to resolve. In spite of an uncertain macro environment, the Egyptian real estate industry has managed to thrive over the past year and looks set to continue doing so. This is thanks to very propitious demographic fundamentals and a trend towards using property as a safe haven investment. This chapter contains interviews with Dasha Badrawi, Managing Director, Sixth of October Development and Investment Company (SODIC); and Magued Sherif, CEO, Hyde Park.
Explore chapterAgriculture
Agriculture directly accounts for about one-third of employment and provides income for over half of the population. Exports have risen rapidly in recent years and there is large potential for growth. The total value of exports of foodstuffs was estimated at $1.08bn in 2011/12, a decline from the $1.18bn recorded during the previous year. This will, however, require better harnessing the potential of the small-scale farmers who dominate the sector but suffer from problems like fragmentation of land use and a lack of access to market intelligence. Traditional farming is conducted largely along the Nile River at some 4m mostly small-scale farms. These operations comprise over 95% of the sector. In terms of production value, rice was the second largest crop in 2011, at $151m. Some 4.25m tonnes were produced in 2011/12.
Explore chapterHealth & Education
After decades of improvements, Egypt has some of the region’s best public health indicators, and in some cases it delivers international-standard care. However, the precarious political and economic situation means that progress on reform has been patchy. With population pressures, new and old health care challenges – including rising non-communicable diseases rates and a high level of hepatitis infections – alongside a scarcity of resources, there is no doubt that the current system is stretched. With public funds limited, an increasing role for the private sector is looking likely, creating new opportunities for international participation in health financing and provision. With 20m people in some form of education, Egypt has the largest student body in the MENA region. However, after several decades of progress, the system now lags behind international standards. Due to a shortage of resources, top-heavy administration, the difficulty of recruiting good teachers and out-dated curricula, schools and universities are not producing the qualified graduates Egypt needs for economic development. Factors including patchy standards at government institutions, rising incomes among the middle classes and a growing number of jobs that require higher levels of education have seen an increase in the number of private schools in the past 20 years. This chapter contains an interview with Hossam Badrawi, Managing Director, Nile Badrawi Hospital, and Professor, Cairo University Medical School.
Explore chapterMedia & Advertising
The Egyptian media scene continues to undergo rapid change in the two years since the start of the revolution. The media has become much more diverse, and a number of new outlets have opened across all genres. The largest media organisation in the country is the Egyptian Radio and Television Union, which has a staff of over 40,000 people and runs nine television channels and six regional television stations. Egypt’s media is likely to continue to witness rapid change, with new outlets continuing to open but perhaps not nearly as many surviving. New media and the rise of smartphones are likely to stimulate competition, but over the near term content does not look set to shift focus noticeably. A large media market in its own right, the Egyptian advertising industry is bouncing back from the events of 2011 and 2013. The country’s media has experienced a flowering as some restrictions on freedom of expression have loosened considerably, and several new media outlets, both broadcast and print, have been launched, winning market share across the Arab world. Television will continue to dominate the spending, but other media, particularly radio and outdoor ads, could see strong growth. The sector looks set to see further recovery in 2013, and the rapidly changing media environment is likely to bring forward as many opportunities as challenges.
Explore chapterTax
In conjunction with Deloitte, OBG explores the taxation system, examining Egypt’s investor-friendly environment.
Explore chapterLegal Framework
OBG introduces the reader to the different aspects of the legal system in Egypt, in partnership with Helmy, Hamza & Partners. This section includes a viewpoint from Mohamad B Talaat, Partner, Helmy, Hamza & Partners, on laying the legal groundwork for continued economic expansion.
Explore chapterThe Guide
This section includes information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
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