Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley, where most economic activity takes place. In the last 30 years, the government has reformed the highly centralized economy it inherited from President Gamel Abdel Nasser.
During the 1990s, a series of International Monetary Fund arrangements, coupled with massive external debt relief resulting from Egypt's participation in the Gulf War coalition, helped Egypt improve its macroeconomic performance. The pace of structural reforms, including fiscal, monetary policies, privatization and new business legislations, helped Egypt to move towards a more market-oriented economy and, since the turn of the new millennium, prompted increased foreign investment.
The reform program is still a work in progress and the government will need to continue its aggressive pursuit of reforms in order to sustain the spike in investment and growth and begin to improve economic conditions for the broader population. Egypt's export sectors—particularly gold and natural gas—have bright prospects.
Egypt's trade balance marked US$10.36 billion FY2005 compared to US$7.5 billion Egypt's main exports consist of natural gas, and non-petroleum products such as ready-made clothes, cotton textiles, medical and petrochemical products, citrus fruits, rice and dried onion, and more recently cement, steel, and ceramics. Egypt's main imports consist of pharmaceuticals and non-petroleum products such as wheat, maize, cars and cars' spare parts. The current account of the balance of payments grew from 0.7% of GDP in FY2002 to 3.3% at FY2005. Egypt's Balance of Payments made a surplus of US$4478 million in FY2005 compared to a deficit of US$158 million in FY2004.
Italy and the USA are the top export markets for Egyptian goods and services. In the Arab world, Egypt has the largest non-oil GDP as of 2005.
The Egyptian equity market is one of the most developed in the region with more than 633 listed companies. Market capitalization on the exchange doubled in 2005 from USD 47.2 billion to USD 93.5 billion, with turnover surging from USD 1.16 billion in January 2005 to USD 6 billion in January 2006.
Private Equity has not been widely used in Egypt in the past as a source of funding for businesses. The government, however, has instituted a number of policy changes and reforms specifically intended to develop internal private equity funds and to attract private equity funding from international sources.
The major industries include textiles, hydrocarbon and chemical production, and generic pharmaceutical production. Unemployment is high at about 10.5%.
Until 2003, the Egyptian economy suffered from shortages in foreign currency and excessively elevated interest rates. A series of budget reforms were conducted in order to redress weaknesses in Egypt’s economic environment and to boost private sector involvement and confidence in the economy.
Major fiscal reforms were introduced in 2005 in order to tackle the informal sector which according to estimates represents somewhere between 30% to 60% of GDP. Significant tax cuts for corporations were introduced for the first time in Egyptian history. The new Income tax Law No 91 for 2005 reduced the tax rate from 40% to 20%. According to government figures, tax filing by individuals and corporations increased by 100%.
Many changes were made to cut trade tariffs. Among the legislator’s goals were tackling the black market, reducing bureaucracy and pushing through trade liberalization measures. Amendments to Investment and Company law were introduced in order to attract foreign investors. For example, the number of days required for establishing a company was dramatically reduced.
Significant improvement to the domestic economic environment increased investors’ confidence in Egypt. The Cairo & Alexandria Stock Exchange is considered among the best ten emerging markets in the world. The changes to the policy also attracted increased levels of foreign direct investment in Egypt. According to the UN Conference on Trade and Development’s World Investment Report, Egypt was ranked the second largest country in attracting foreign investment in Africa.
Given the large number of amendments to laws and regulations, Egypt has succeeded to a certain extent in conforming to international standards. Very recently the Cairo & Alexandria Stock Exchange (CASE) was welcomed with full membership into the World Federation of Exchanges (WFE)—the first Arab country to be invited.
Enforcement of these newly adopted regulatory frameworks remain, sometime problematic. Problems like corruption hamper economic development in Egypt. Many scandals involving bribery were reported during the past years. “In 2002 alone, as many as 48 high-ranking officials—including former cabinet ministers, provincial governors and MPs were convicted of influence peddling, profiteering and embezzlement.” Maintaining good relations with politicians is sometimes a key to business success in Egypt. Based on the 2006 Corruption Perception Index developed by Transparency International (where the higher the ranking the greater the level of corruption), Egypt ranked 70 out of 163. On a scale from 0 to 10 (with 0 being highly corrupt), Egypt scored a 3.3.