The Report: Egypt 2018

Economy

In 2017 the World Bank estimated that GDP grew by 3.9% over the year, and forecast it would expand by 4.6% in 2018 – a significant improvement on the 2% average GDP growth rate seen between FY 2010/11 and FY 2013/14. A newly liberalised currency and the recent implementation of a much-anticipated investment framework have also left Egypt well positioned for continued economic expansion in 2018. Despite a gradually improving fiscal scenario, a structural fiscal deficit remains the key economic challenge, and one that nearly all of its reforms aim to address. Raising revenue via taxation is one way the government is attempting to tackle the fiscal deficit, and in the first half of FY 2017/18, tax revenue reached LE249bn ($16.4bn), a year-on-year increase of 66%.

This chapter contains interviews with Sahar Nasr, Minister of Investment and International Cooperation; and Tarik Tawfik, President, American Chamber of Commerce in Egypt.

Banking

In addition to having one of the largest banking sectors in North Africa, Egypt’s is also one of the most profitable. In more recent times, lenders have made easy gains on high-yielding government debt following the 2011 revolution, while an improving macroeconomic environment and the flotation of the local currency led to another robust performance for the sector in 2017. However, there are numerous challenges facing domestic lenders, such as a controversial new banking law and a bold lending target to small and medium-sized enterprises set by the regulator. Both of these issues are linked to the goal of redefining the role of banks in Egypt’s wider economy.

This chapter contains a roundtable with Dante Campioni, Managing Director and CEO, Alexbank; Mohammed El Etreby, CEO, Banque Misr; Hisham Ezz El Arab, Chairman, Commercial International Bank; and Hisham Okasha, Executive Chairman, National Bank of Egypt.

Capital Markets

Despite the economic challenges facing the country, 2017 was a positive year for the Egyptian Exchange (EGX), with the main index expanding by approximately 17%. The EGX remains an important component of the economy and thanks to an ongoing process of market development is likely to continue to act as a useful platform for both corporates and small and medium-sized enterprises wishing to raise capital. The ability of the EGX to attract new listings and investors is linked to the wider question of Egypt’s macroeconomic performance. A potential commodities exchange would represent a key structural advance, although a number of important questions regarding its implementation remain to be answered.

This chapter contains interviews with Mohamed Farid Saleh, Chairman, Egyptian Stock Exchange; and Hussein Choucri, Chairman and Managing Director, HC Securities & Investment. The chapter also contains share analyses & data provided by HC Securities & Investment.

Insurance

With the largest population in the Middle East, a relatively developed life insurance industry and a government determined to pursue ambitious infrastructure development, Egypt is a promising market for both domestic and foreign insurers. There are currently 34 insurance and reinsurance companies in Egypt and despite concerns regarding sector privatisation, regulatory changes such as proposed mandatory insurance cover for police and security forces and the government health care provision strategy will drive premium growth. However, a significant currency devaluation and the risk of economic disturbance remain as challenges to growth in the sector.

This chapter includes an interview with Hamed Mabrouk, Head of North Africa, Willis Towers Watson.

Energy

Egypt continues to strive, not just for energy independence, but to return to its status as a regional exporter. With oil and gas fields in the Gulf of Suez, the Mediterranean Sea and the Western Desert, the country has been a site of energy exploration since the early 20th century. With recent discoveries of major natural gas deposits as well as continued exploration announcements, a low-cost operating environment and the anticipation of steady, even rising, global oil prices, Egypt has its sights set on increased petroleum production to meet growing local energy demand, as well as for export growth to acquire much-needed foreign currency.

This chapter contains interviews with Tarek El Molla, Minister of Petroleum and Mineral Resources; Claudio Descalzi, CEO, Eni; Hesham El Amroussy, Chairman and Managing Director, ExxonMobil Egypt; and Walid Sheta, Cluster President for North-east Asia and Levant, Schneider Electric.

Industry & Retail

With a large consumer base, skilled labour force, strategic geographic location and a series of pro-business government efforts to streamline licensing and operations, Egypt’s industrial sector is an attractive proposition. While challenges remain, there are new local and export-focused opportunities for increased investment – particularly with the ongoing construction of a new capital. While economic policies throughout 2017 may have placed a limitation on individual purchasing power in the short term, the expectation that inflation rates will stabilise and investment will increase on the back of business-friendly reforms should see the retail sector maintain a positive growth trajectory in the medium to long term.

This chapter contains an interview with Tarek Kabil, Minister of Industry and Trade.

Telecoms & IT

Having long been one of the most dynamic sectors of the economy, continuing to grow even during periods of turbulence, the Egyptian telecoms industry experienced a landmark year in 2017. Steady subscription growth and increasing demand for data should bolster the position of all operators, with 4G providing a new field of competition in what is incrementally becoming a less voice-dominated, price-sensitive industry. The IT sector’s contribution to GDP was $4.2bn in FY 2016/17, with the IT export industry valued at more than $3.25bn in 2017 and expected to grow at a compound annual growth rate of 13.4% through to 2020.

This chapter contains an interview with Eng. Yasser El Kady, Minister of Communications and Information Technology; and a roundtable with Hazem Metwally, CEO, Etisalat Misr; Jean-Marc Harion, CEO, Orange Egypt; and Ahmed El Beheiry, CEO, Telecom Egypt

Construction & Real Estate

Construction remains one of the most important contributors to the domestic economy. In 2016 the sector’s output increased by 10.3%, a significant uptick after growing at an average of 5.3% in the preceding four years. This growth trend was largely maintained in 2017, expanding by 7.3% in the first nine months of FY 2016/17. The Egyptian real estate market has proven itself remarkably resilient to the political and economic tensions experienced previously in the country. However, while the industry has historically been seen as a safe bet in uncertain times, economic headwinds – especially strong in late 2016 and the first half of 2017, stoked by government reform efforts – are proving to be a tougher proposition.

This chapter contains interviews with Hassan Allam, CEO, Hassan Allam Holding; Osama Bishai, CEO, Orascom Construction; Magued Sherif, CEO, Sixth of October; and Ashraf Dowidar, CEO, ARDIC.

Transport

From urban transit to seaports and airports, the country’s transport network is poised for a significant upgrade. Although demand is unpredictable and subdued in certain segments, the emphasis on developing strong transport infrastructure should provide opportunities to investors and operators alike. In the third quarter of FY 2016/17 the transport and storage sector grew at a rate of 4.4%, just above that of the overall economy, which expanded by 4.3%. As economic growth picks up speed, there will be plenty of opportunities for growth in operations and services, and the government is seeking to ensure that the country has the necessary infrastructure to meet heightened demand.

This chapter contains interviews with Safwat Musallam, Chairman, Egypt Air; and Ayman Khattab, President and CEO, General Electric (GE) North East Africa; and Vice-President, South Gulf and East Africa, Baker Hughes GE.

Agriculture

Agriculture remains an important part of the Egyptian economy, and a long-standing priority for the government has been to shift the agricultural balance of trade, with the country possessing the second-highest agricultural import expenditure as a share of export revenues in the region, at over 35%. To this end, improvements to irrigation systems and water management protocols have been planned and are coming to fruition. Meanwhile, the renowned Egyptian cotton industry, considered the international luxury standard for centuries, is experiencing a renaissance after several challenging years. With prices and global demand both on the rise, Egypt is hoping to ride the wave of this renewed popularity to a lucrative export market. This chapter contains an interview with Ashraf Mahmoud, Chairman and Managing Director, Al Nouran Group.

Tourism

After a difficult few years following the 2011 revolution, there is renewed hope for Egypt’s tourism sector, with 2017 bringing the industry back to growth. While there were positive signs for tourism in 2013 and 2014, before a relapse in 2015, the flotation of the currency in November 2016 has made the Egyptian market more competitive, and the government has also expended significant energy and capital to bring added resilience and revenue streams to the sector. A new assertive strategy to market the country both locally and internationally and upgraded security protocols are combining to give the industry a significant boost. Indeed, the state is helping to build a stronger tourism industry, less reliant on a handful of source markets and more attuned to the diverse revenue opportunities in underutilised segments.

This chapter contains interviews with Gerald Lawless, Chairman, World Travel & Tourism Council (WTTC); and Ibrahim El Missiri, CEO, Somabay.

Health & Education

As the Egyptian population grows and the government continues to develop and promulgate legislation to achieve universal health coverage by 2030, there will be an increasing need for services and facilities, presenting widespread opportunities for the provision of goods, services and training in both urban and rural settings. With Egypt seeking to jumpstart its economy after the political turbulence of recent years, educational reform is to play a vital role in preparing a skilled and educated workforce. Although challenges persist – especially as institutions and personnel are struggling to meet the needs of a rapidly growing population – the increased demand has created opportunities for a variety of players to fill critical gaps.

Tax

In conjunction with PwC, this chapter contains an introduction to Egypt’s taxation system, including a breakdown of rates imposed on corporate income, regulations governing capital gains and double taxation, and a list of goods and services exempted from value-added tax.

This chapter contains a viewpoint from Maged Ezzeldeen, Country Senior Partner, PwC.

Legal Framework

In conjunction with Helmy, Hamza & Partners, this chapter contains an overview of the legal framework in which local and foreign investors operate in Egypt, including the regulations governing different sectors, the rules for investment and expatriate employment, and recently introduced legislation on trade and financial services.

This chapter contains a viewpoint from Mohamad Talaat, Managing Partner, Helmy, Hamza & Partners.

The Guide

The guide contains information on some of the leading hotels in Egypt and contact details for government ministries, embassies and business services, alongside useful tips for first-time or regular visitors.

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