The Report: Egypt 2012
From the affairs of the ancient Mediterranean world through Ottoman times to today’s modern Middle East, Egypt has long been a dominant player in the politics and economics of the region. Egypt’s role in the Arab Spring, which began in 2011 and led to the ouster of octogenarian President Hosni Mubarak, proves that the country today is just as dynamic and forward moving as it was six millennia ago. The last year and a half have carried Egypt through a radical political transformation, but it is clear that the overhaul that began on January 25, 2011 has already made gains to ensuring greater popular representation and improving accountability in the republic.
Country Profile
This section provides an overview of Egypt’s geography, history, government, foreign relations, population and language, as well as a discussion of the most recent elections and some of the more prominent socioeconomic issues. The chapter includes a viewpoint from President Mohamed Morsy, along with interviews from William Hague, UK Secretary of State for Foreign and Commonwealth Affairs; and Nabil Elaraby, Secretary-General, League of Arab States.
Explore chapterEconomy
Egypt is the second-largest economy in the Arab World, with a GDP in excess of $229bn and a domestic market of 85m people. However, its performance over the past year has been turbulent, thanks to the significant political transformation the country has undergone. The complicated process has had broad macroeconomic consequences for Egypt, reducing capital inflows by roughly 75% in 2011 and slowing GDP growth to less than one-third of what was originally forecast for the 2010/11 fiscal year. During the same period, the government deficit grew to 9.8% and foreign reserves declined, even as spending pressure increased. However, the long-term fundamentals of the country’s diversified economy remain strong and some segments posted remarkably robust figures. This chapter features interviews with Osama Saleh, Minister of Investment; Gamal Moharam, President, American Chamber of Commerce in Egypt; John Rice, Vice-Chairman, General Electric; Hassan Malek, Chairman, Egyptian Business Development Association; Mohamed El Erian, CEO, Pacific Investment Management Company; and Hisham El Khazindar, Managing Director and Co-founder, Citadel Capital.
Explore chapterBanking
The 2011 revolution had an impact on Egypt’s sizable banking sector but was not nearly as dramatic as was expected, thanks to a steady stream of reforms since 2004 that have improved the overall health and transparency of the country’s financial institutions. High exposure to sovereign debt weakened the outlook for some banks, and profitability took a hit, but overall liquidity remains high, thanks to an increase in deposits of 6% in the year up to September 2011. By the end of 2011, non-performing loans had dropped from 13.6% to 10.9%, and non-government lending began to see a slight rise year-on-year by early 2012. This chapter contains an interview with Farouk El Okdah, Governor, Central Bank of Egypt; and Hisham Ezz Al Arab, Chairman, Commercial International Bank.
Explore chapterCapital Markets
Egypt has a vibrant capital market, with 212 listed companies on the Egyptian Exchange, alongside a primary and secondary bond market with 60 listed bonds, and a dedicated small-cap market for small and medium-sized enterprises, the Nilex, with 20 listings. Four indices track the performance of the domestic market, but the political unrest of 2011 led to declines in all of them by the end of the year of between 42% and 49%. The real estate and commodity sectors were hit particularly hard, as was tourism, but given the positive long-term outlook for the market, valuations became increasingly attractive, and dividends yields were up to three times that of the Middle East and North Africa average. Since the start of 2012, the performance has been far more robust, with a 27% rise in January 2012 – the largest gain in seven years. This chapter contains an interview with Mohammed Omran, Executive Chairman, Egyptian Exchange, as well as a viewpoint from Hussein Choucri, Chairman and Managing Director, HC Securities & Investment. Furthermore, the chapter provides individual stock analyses and data on a cross-section of locally listed companies, courtesy of HC Securities & Investment.
Explore chapterInsurance
Insurance penetration is comparatively limited and is estimated to range between 0.7% and 1.2%. The sector has a combined total of 29 firms in life and non-life, with an asset base of roughly $6.71bn. Non-life policies have shown steady growth in recent years, rising from $870m in the 2009/10 fiscal year to $954m in the 2010/11 fiscal year. Motor insurance is compulsory and represents the greatest share of non-life policies, accounting for roughly $234m, followed by fire insurance at $128m. Significant reforms are planned for the pensions system, with plans to shift from defined-contribution to defined-benefit system, with the minimum payout equivalent to 15% of the national average wage. An overhaul of health care coverage is also under consideration, with proposals currently targeting universal care. This chapter features an interview with Abdel Raouf Kotb, Chairman, Insurance Federation of Egypt.
Explore chapterIndustry
Industrial activity remains an economic mainstay in Egypt, with well-established sectors such as textiles, food processing, consumer staples and automotive assembly. Although 35% of industrial producers suffered significant setbacks in 2011 following the political upheaval, the consumer staples segment fared well throughout the year, and even experienced growth. The shift to modern retailing has only just begun in Egypt. With more than 98% of all commercial interactions taking place informally, modern retailers take a long-term perspective when entering the market. Although the average monthly income per household hovers at $244, Egypt is still considered to have a relatively large middle class, into which 85% of Egyptians fall based on income levels over $2 a day. Global grocery retailers have long eyed the Egyptian market, but in the past, success has been limited at best. Today, a small number of major international grocers are moving in once again. This chapter contains an interview with Osama Kamal, former president, Egyptian Petrochemicals Holding Company (ECHEM).
Explore chapterTransport
The government has invited the Japan International Cooperation Agency to come up with a new master plan for the transport sector. Urban transport, railways and inland waterways have been identified as key areas of improvement. Efforts are under way to upgrade Egypt’s 6700-km rail network. In 2010 the World Bank announced a $330m loan to support the National Railways Restructuring Project, a plan to modernise the rail system with a focus on management, operations and infrastructure. Additionally, in February 2012 the Qatari and Egyptian governments signed an agreement to build new ports in Port Said and in Alexandria. The expansion of Cairo International Airport’s second terminal will double the number of gates in the terminal and increase its capacity to 7.5m passengers per year, boosting the airport’s total annual capacity from 21m to 25m. With an improved infrastructure and regulatory environment, the sector could reach a compound annual growth rate of 12.7% between 2011 and 2015, according to some estimates. This chapter contains an interview with Ahmed Ali Fadel, Former Chairman, Suez Canal Authority (SCA).
Explore chapterTourism
With more than 1.4m people directly employed by the sector and 4m indirectly, tourism is a key income generator for the nation. In 2010 the sector accounted for 12% of GDP and brought in an estimated $12.5bn. Russia accounts for the most visitors to Egypt, with a total of 1.8m visitors travelling to the country in 2011. Another promising source market is the Gulf, whence an increasing number of tourists originate. Ranking Egypt 75th out of 139 countries in terms of travel and tourism competitiveness, the World Economic Forum’s list of areas in need of improvement include tourism, ground transport, and information and communications technology infrastructure. Despite the current difficult circumstances, the Ministry of Tourism is targeting 25m visitors by 2020. Areas for development include retirement tourism, adventure activities and attracting high-end tourists. This chapter contains an interview with Mounir Fakhri AbdelNour, Former Minister of Tourism.
Explore chapterEnergy
With exploration continuing apace, the country’s hydrocarbons reserves continue to rise, and currently stand at 4.3bn barrels of oil and more than 77trn cu feet of gas. The Egyptian General Petroleum Corporation plays the roles of regulator, joint venture partner, licence provider, refiner and marketer for the oil segment. Egypt has the largest refining capacity in Africa, with 10 oil refineries and an overall capacity of 975,000 bpd, but an expansion plan calls for another 600,000 bpd of capacity by 2016. Though the price of gas remains lower than that paid in Europe, Egyptian industries see their competition coming from the countries of the Arabian Peninsula. Egypt had intended to use its gas resources to generate employment, but has found that the industrial activities it has attracted are not creating jobs at the pace imagined. This chapter contains interviews with Peter Voser, CEO, Royal Dutch Shell; Hassan Younis, former Minister of Electricity and Energy; Giuseppe De Beni, Managing Director, Italgen.
Explore chapterTelecoms
Thanks to a heavy private sector presence and sizable domestic demand, Egypt’s telecommunications sector has seen immense growth in its subscriber base. Although average revenue per user is low compared to other regional markets – at roughly one-third that of Morocco and one-quarter that of Jordan – affordability and improved features and services have helped drive penetration up to 112%, or 92.44m people, by the end of June 2012. Crucially, data is playing a growing role in boosting revenues. Egypt’s information technology industry has also emerged as an impressive regional player, employing more than 215,000 people across 4700 registered companies, with an issued capital of $7.61bn. The country has seen strong double-digit growth year-on-year in terms of internet penetration, with 31.21m users by the end of June 2012. Access is still uneven although mobile usage is helping improve rural accessibility. Crucially, content and services – particularly in terms of e-commerce and e-government, as well as back-office outsourcing – has been growing, and the government has pushed to boost value addition through innovation incubators. This chapter features a dialogue with Hatem Dowidar, CEO, Vodafone-Egypt; and Yves Gauthier, CEO, Mobinil.
Explore chapterConstruction & Real Estate
The long-term fundamentals in Egypt are very attractive in just about every sector, and construction is no exception. In the wake of the revolution, a number of projects scheduled for 2012 were moved up to 2011, stimulating the economy but leaving a dearth of government approved projects for the future. With presidential elections having taken place, the construction sector in Egypt is now beginning to gear up for more work. However, while the first half of 2012 saw a revival in project activity, challenges for contractors include securing project financing and managing costs and cash flows until the political situation resolves itself and new private sector building opportunities grow. Large-scale demand and a shortage of supply in most segments has been the recent story of Egypt’s real estate sector. While the housing market is looking to have rebounded somewhat from the troubles it experienced in 2011, it seems possible developments in other areas may not have been as negatively impacted by the revolution as had been previously thought. The outlook for sales in planned communities was improving in the first part of 2012, with earnings from the first quarter showing a marked increase on numbers for 2011. This chapter contains an interview with Osama Bishai, Managing Director, Orascom Construction Industries (OCI); and a viewpoint from Mohamad Talaat, Member of the Management Committee, Helmy, Hamza & Partners (Baker & McKenzie).
Explore chapterAgriculture
Once considered the breadbasket of the Roman and Byzantine Empires, Egypt today continues to be an agricultural powerhouse. Rising domestic demand supports local producers, and it has also led to the country becoming a net food importer. Although aggregate cereal production reached 22.3m tonnes in 2011, a 9.3% increase on the previous year, domestic supply cannot meet demand, making Egypt the world’s largest buyer of wheat. Meanwhile, a number of export-oriented niches, including citrus fruits, are on the rise, and growers are now looking to move up the value chain. The largest agricultural export is citrus, with the country ranking 7th in the world in 2010 for orange production and 5th for tangerines, mandarins and clementines. However, the sector faces serious challenges, particularly shortages of land and water. Much farming is inefficient, due to fragmentation and a lack of technical development. This chapter contains an interview with Musa Freiji, Chairman, Wadi Group.
Explore chapterHealth & Education
Over the past decade, Egypt has made significant progress in terms of improving education quality and outreach, thanks to an increase in private schools, new technical and vocational curriculum and greater local engagement. Public education is free and literacy rates for those between ages 15 and 44 in the 10 years from 1996 rose by almost 15%. However, underfunding, overcrowded classrooms and post-matriculation employability – which is especially acute in the face of high youth unemployment – remain a significant concern, particularly at the tertiary level. Egypt’s top-down state-driven model of health care has helped improve a number of health indicators, particularly in terms of infectious diseases and childhood mortality. Three decades worth of extensive reforms and significant public investment have helped expand capacity and accessibility, but childhood nutrition, insurance coverage and preventative care remain a concern, particularly with the rise in lifestyle diseases. This chapter features a dialogue with Lisa Anderson, President, American University in Cairo and Hossam Kamel, President, Cairo University.
Explore chapterMedia & Advertising
Long the Arab world’s largest media market, Egyptian broadcast and print outlets often have an influence far beyond the country’s borders; Egyptian newspaper circulation accounts for more than 40% of the Arab world total. In the months since the 2011 revolution, a number of new independent outlets emerged – in television alone, there are some 16 new stations. Broadcast remains the most widespread medium, with household TV penetration at 96%. The 17 terrestrial channels are all state-owned, but the domestic private sector dominates the top 10 satellite channels. Meanwhile, advertising spend is recovering from a rocky 2011, when spending dropped 30%. Per capita spend is approximately $6.30, which is roughly one-third the regional average, although higher than many other countries. In terms of absolute size, however, the country is the third largest accounts for 11% of total advertising expenditures. Newspapers tend to accommodate for the majority of spend, followed by television. This chapter contains an interview with Sherif Wadood, CEO, Al Masry Media Corporation.
Explore chapterTax
With assistance from Deloitte, Oxford Business Group delves into the details of Egypt’s tax laws.
Explore chapterLegal Framework
This chapter provides essential legal information for establishing a company in-country, with the aid of Helmy, Hamza & Partners. This section also features an interview from Hatem Soliman, International Partner, Helmy, Hamza & Partners (Baker & McKenzie).
Explore chapterThe Guide
This section features an article on the country’s footballers, plus helpful listings of hotels, useful contact details, and facts for first-time business and leisure travellers.
Explore chapterTable of Contents
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