EGYPT FACT SHEET

Capital : Head of State : Mr. Abdel Fatah Al Sisi Surface Area : 1,001,450 sq. km. Head of Government : Prime Minister Eng. Sherif Ismail Official Language : Arabic / English Independent figure (not associated with a party) Population : 95 million (2017) Took the post sine 5 April, 2014 Exchange Rate : US$ = 18.00 Egyptian Pounds Minister of Trade and Industry : Mr. Tarek Kabil

Egypt is the third-most-populous country in Africa and the 15th worldwide, according to World Bank figures. As of 2017 the number of residents was estimated to have reached 95m. Arabic is the official language and the only one widely understood across the entire country. Over the last 15 years, Egypt has been undergoing a transformation into a market-oriented economy. The country currently maintains a lower- middle-income status. While there is substantial potential to push the country towards middle-income status, GDP growth rates were stalled – first by the global economic crisis and then by political instability. Nevertheless, the economy grew at a rate of nearly 4.3% in FY 2015/16 and FY 2016/17. Egypt is a presidential republic. The current president is Abdel Fattah El Sisi, who was elected to his first four- year term in May 2014, following the removal of the previous administration of Mohamed Morsi, then has been re-elected for a second term by May, 2018.

ECONOMY Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley where most economic activity takes place. Egypt's economy was highly centralized during the rule of former President but opened up considerably under former Presidents Anwar EL-SADAT and Mohamed . Agriculture, hydrocarbons, manufacturing, tourism, and other service sectors drove the country’s relatively diverse economic activity. Despite Egypt’s mixed record for attracting foreign investment over the past two decades, poor living conditions and limited job opportunities have contributed to public discontent. These socioeconomic pressures were a major factor leading to the January 2011 revolution that ousted MUBARAK. The uncertain political, security, and policy environment since 2011 has restricted economic growth and failed to alleviate persistent unemployment, especially among the young. In late 2016, persistent dollar shortages and waning aid from its Gulf allies led Cairo to turn to the IMF for a 3-year, $12 billion loan program. To secure the deal, Cairo floated its currency, introduced new taxes, and cut energy subsidies - all of which pushed inflation above 30% for most of 2017, a high that had not been seen in a generation. Since the currency float, foreign investment in Egypt’s high interest treasury bills has risen exponentially, boosting both dollar availability and central bank reserves. Cairo will need to make a sustained effort to implement a range of business reforms, however, to induce foreign and local investment in manufacturing and other labor-intensive sectors.

Overview • The economic outlook for 2018 remains cautiously optimistic largely based on the government’s ability to maintain the policy and structural reform agenda as well as successfully implement the sustainable development strategy. • Assuming economic policy and structural reform implementation, growth is expected to accelerate as confidence returns and investment increases, although some domestic issues and global economic headwinds will remain challenges. • Overall, Egypt can reverse the major and long-standing trend of low and non-inclusive growth along with weak employment prospects on the basis of the potential of the industrial and entrepreneurial sectors.

The formal “political roadmap” has been completed and attention is now focused on management of the reform programme and how this will support growth in 2018 and beyond. With foreign exchange now more readily available after the Central Bank of Egypt (CBE) liberalized the exchange rate in November 2016, the outlook for 2018 is more optimistic. Assuming reforms continue to be implemented, growth should pick up slightly because of positive developments in the gas, manufacturing and real estate sectors,

1 alongside recovery in the tourism sector from recent security-related issues. However, managing to contain the large fiscal and current account deficits in an environment of high inflation will be a challenge in the remainder of 2018 and beyond.

Success in stabilizing the economy and boosting growth will be demonstrated by lowering the fiscal deficit while: increasing pro-poor spending; managing price stability in a context of exchange- rate flexibility; increasing employment; enhancing the business environment; strengthening security; and improving social justice. Fiscal consolidation efforts will be continued through the 2017/18 budget supported by expenditure enhancements contained in the Civil Service Law (approved in early October 2016), and revenue strengthening provided via the introduction of the VAT law in mid-2016. Other revenue- and expenditure-management tools will also be utilized, such as the August 2016 tax disputes resolution law, and there will be further efforts to reduce energy subsidies with savings directed towards social safety nets. The new investment approved by the parliament should help strengthen the business environment, support the private sector and boost employment. With the exchange rate now liberalized, the CBE will be able to strike a better balance between curbing inflationary pressures and boosting growth without simultaneously having to focus on keeping the exchange rate steady.

The economy is relatively well diversified but despite large-scale industrialization, investment has not delivered a vibrant economy with high employment. The reforms are designed to help improve productivity and efficiency in order to boost employment and move away from the “informality trap”. Yet increased industrialization and entrepreneurship depends not only on a strong and supportive policy environment, but also on access to more natural resources, capital, improved technology and higher skilled labor.

Economic performance and outlook

In 2016/17, real GDP grew an estimated 4.1%, slightly underperforming the 4.3% in 2015/16. Growth is driven mainly by investment and private and public consumption, as well as by net exports, which contributed positively for the first time in two years. This positive performance reflects the government’s reform efforts to achieve fiscal consolidation, more inclusive growth, and an improved business environment. The approval of a three-year International Monetary Fund (IMF) program in November 2016 showed the success of those efforts. Growth is projected to be 4.8% in 2017/18 and 5.5% in 2018/19, boosted by restored investor confidence but partially diluted by high inflation. Inflation rose to an estimated 23.3% in 2016/17, from 10.3% in 2015/16, and is projected to decline to 21.2% in 2017/18 and 13.7% in 2018/19.

Real GDP growth

% Real GDP growth (%) Northern Africa (%) Africa (%) 10

8

6

4

2

0

-2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018(p) 2

Macroeconomic indicators 2014/15 2015/16 2016/17 2017/18(p)

Real GDP growth 4.2 4.3 3.9 4.6 Real GDP per capital growth 2.0 2.2 1.8 2.5 CPI inflation 11.0 10.1 16.9 12.9 Budget balance % GDP -11.4 -12.8 -11.5 -9.7 Current account % GDP -3.7 -5.9 -5.2 -5.0

Macroeconomic evolution

After facing important imbalances that led to high public debt, a widening current account deficit, and declining official reserves, Egypt embarked on a major IMF-backed economic reform initiative. It consists of exchange rate liberalization; fiscal consolidation, including energy subsidy cuts and reduction of the wage bill; and business climate improvement, including easier access to financing for small and medium-size enterprises, mainly through targeted cash transfers for the most vulnerable. Macroeconomic conditions show signs of improvement. On the demand side, the Ministry of Finance’s July 2016–March 2017 data indicate year-on-year growth of 17% for investment, 4.4% for private consumption, and 2.4% for public consumption. The 72% increase in exports was partly offset by the 47% increase in imports. On the supply side, eight key sectors, representing about two-thirds of GDP, led growth: telecommunications (grew 9.3%), construction (grew 8.5%), wholesale and retail trade (grew 4.7%), nonoil manufacturing (grew 4.7%), natural gas (grew 4.6%), real estate (grew 4.3%), agriculture (grew 3.1), and general government (grew 2.9%). Tourism declined 6.7%.

GDP by sector (percentage of GDP at current prices) 2010/11 2016/17

Agriculture, forestry, fishing and hunting 14.5 12.1 of which fishing ...... Mining and quarrying 14.9 7.9 of which oil 14.5 6.6 Manufacturing 16.5 17.5 Electricity, gas and water 1.6 2.3 Construction 4.6 5.2 Wholesale and retail trade; Repair of vehicles; 14.7 16.4 Household goods; Restaurants and hotels of which hotels and restaurants 3.2 2.1 Transport, storage and communication 9.4 8.3 Finance, real estate and business services 9.7 15.1 Public administration and defence 10.2 10.1 Other services 3.9 5.1 Gross domestic product at basic prices / factor cost 100 100

Tailwinds The IMF-supported homegrown reforms, backed by the World Bank and the African Development Bank through budget support of $4.5 billion over three fiscal years, are paying off. Currency depreciation boosted foreign direct investment, the economy is considered more competitive, and business confidence has improved. Public investment, through a series of megaprojects, boosted growth in 2016/17. Better markets conditions have been a main factor in the return to growth, particularly benefitting exports, led by mining products, especially gold and oil (mostly crude petroleum). The program’s fiscal consolidation aspect—which includes increasing tax revenues 2.5% from 2015/16 to 2018/19; reducing public expenditure by slashing subsidies, notably to fuel; and containing the government wage bill—has improved the macroeconomic environment. The government will implement the ongoing IMF–World Bank–African Development Bank program to consolidate the positive impact to date and enhance future prospects. 3 Public finances (percentage of GDP at current prices) 2007/0 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18(p) 8 Total revenue and grants 24.7 19.0 21.7 19.0 18.2 19.1 18.8 Tax revenue 15.3 13.6 12.4 12.5 12.5 12.2 12.0 Oil revenues 0.2 0.3 4.6 1.0 0.1 1.3 1.1 Total expenditure and net lending (a) 31.5 32.0 33.9 30.5 31.0 30.6 28.4 Current expenditure 27.7 29.8 30.9 27.5 28.1 27.4 25.1 Excluding interest 22.1 21.8 22.6 19.6 19.3 18.5 17.5 Wages and salaries 7.0 7.8 8.5 8.1 7.9 7.3 6.5 Interest 5.6 8.0 8.2 7.9 8.7 8.9 7.6 Capital expenditure 3.8 2.1 2.5 2.5 2.6 2.7 2.9 Primary balance -1.2 -5.0 -3.9 -3.5 -4.1 -2.6 -2.0 Overall balance -6.8 -13.0 -12.2 -11.4 -12.8 -11.5 -9.7

Current account (percentage of GDP at current prices) 2007/08 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18(p)

Trade balance -14.2 -10.8 -11.3 -11.8 -11.3 -10.9 -10.9 Exports of goods (f.o.b.) 17.8 9.5 8.6 6.7 5.8 6.7 8.3 Imports of goods (f.o.b.) 32.0 20.2 20.0 18.5 17.1 17.6 19.1 Services 8.3 4.4 2.7 3.2 1.9 1.8 1.7 Factor income 0.8 -2.6 -2.4 -1.7 -1.3 -1.4 -1.5 Current transfers 5.7 6.8 10.1 6.6 4.9 5.3 5.7 Current account balance 0.5 -2.2 -0.9 -3.7 -5.9 -5.2 -5.0

Headwinds Moving the exchange rate to a floating regime resulted in depreciation of the Egyptian pound by 44% between October and November 2016. Inflation reached 31.9% in August 2017, after averaging 23.3% in 2016/17. Real interest rates remain negative despite steady increases in nominal interest rates. However, inflation is expected to decline to 21.2% in 2017/18 and 13.7% in 2018/19, as the Central Bank tightens monetary policy to support the Egyptian pound and reduce inflation. Another impact of the currency depreciation was the sharp increase in the stock of foreign currency–denominated debt, from 17.3% of GDP during the first quarter of 2016/17 to 41.2% a year later. Another aspect affecting growth is the security situation in the northeastern part of the country, as well as warnings that affect the tourism sector, which has yet to return to its pre-2011 levels.

Debt policy

The government has continued to focus on debt consolidation and targets a reduction in the debt stock to around 85% of GDP by 2018/19, down from 96.7% in June 2016. The aim is to achieve this reduction at the same time as increasing spending on education (to 4% of total spending), health (3%), higher education (2%), and scientific research (1%) as mandated by the 2014 Constitution.

According to the finance ministry’s Debt Management Unit, gross domestic debt increased to EGP 2,619 billion (96.7% of GDP) at end of June 2017, from EGP 2,116 billion (86.6% of GDP) 12 months earlier, largely the result of rising debt issuance to meet the higher public financial-borrowing requirement caused by the 2015/16 fiscal deficit. The size and dynamics of the domestic debt stock is partly responsible for Egypt’s B rating from the major credit-rating agencies.

4 Reducing the domestic debt stock will be a key challenge for the government in 2017/18 and beyond. It will need to diversify sources of financing, lengthen debt maturities and reduce the cost of borrowing while aiming not to crowd out credit for the private sector. Total government debt service increased during July-May 2016/17 to EGP 370.7 billion from EGP 320.5 billion a year previously and needs to come down. The increase was mainly due to higher interest payments that jumped 36% during the same period to EGP 210 billion, reflecting the larger debt stock and higher interest rates compared to the year before.

By June 2017, external debt had increased more than 16% to USD 55.8 billion (18.1% of GDP) from USD 48 billion (14.8% of GDP) the previous year. However, the external debt stock is lower than Egypt’s peer group of countries and suggests that additional external debt could be taken on. More than 87% of total external debt is medium- and long-term. The government’s share of external debt (and of the external debt stock overall) has increased with the November 2017 issuance of USD 4 billion in eurobonds (with more issuance possible in 2017/18), which is part of the financing to be raised under the IMF’s financial-support programme.

Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

%% Outstanding debt (public and private) /GDP Debt service/Exports

40

35

30

25

20

15

10

5

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Economic and political governance of Private sector The government wants the private sector to play a more constructive role in the economy to increase employment and boost growth. This objective was set out in the March 2015 Egypt Economic Development Conference and forms part of the Vision 2030 development strategy launched at the same time. While Egypt’s overall rank in the World Bank report Doing Business 2017 improved 4 points over the year to 122 (out of 190 countries), reflecting improvements to starting a business, getting electricity, and protecting minority investors, challenges to businesses remain considerable. These range from the effort required to register property and trade across borders to getting credit. Other obstacles to doing business include corruption, non- conducive regulation, the infrastructure gap and a mismatch in skilled workforce, particularly among university graduates. A picture of similar difficulties emerges from the World Economic Forum’s 2016-17 Global Competitiveness I ndex (Egypt has an unchanged rank of 115th out of 138 countries).

There is no lack of well-established laws and regulations in Egypt but there remains a need for provisions that can facilitate investment, reduce bureaucratic delays, and generally create a supportive policy environment to boost investment. The government’s reform programme, which picked up speed in 2016, seeks to tackle these shortcomings by enhancing industrial licencing, supporting individual-owned companies, strengthening consumer protection, and deregulating the domestic gas sector. Meanwhile, a new draft investment law aims to simplify the business environment and standardise incentive schemes.

To attract investment, the president’s investment council approved a number of measures in October 2016. These include an extended suspension of capital gains tax on shares (up for review in May 2017) and tax exemptions for producers in some strategic sectors, efforts to reduce bureaucratic barriers to investment, and the introduction of new legislation to settle tax disputes.

5 INTERNATIONAL TRADE STA TISTICS

IMPORTS TOP 10 IMPORTS 2014-2016 HS Value million US$ Market Share % Change % 2-digit heading of Harmonized System code 2015 2016 2017 2015 2016 2017 2016 2017 All Commodities …………………………………..……………………… 73,562 70,771 58,332 100.00 100.00 100.00 -3.79 -17.58 27 Mineral fuels, mineral oils……………………………………………. 11,862 8,271 11,523 16.13 11.69 19.75 -30.27 39.32 84 Machinery, mechanical appliances, nuclear reactors…… 6,052 5,284 5,717 8.23 7.47 9.80 -12.69 8.19 85 Electrical machinery and equipment……………………………. 5,137 4,034 4,812 6.98 5.70 8.25 -21.47 19.29 10 Cereals………………………………………………………………………… 4,365 3,105 4,407 5.93 4.39 7.56 -28.87 41.93 72 Iron and steel………………………………………………………………. 3,718 2,842 3,243 5.05 4.02 5.56 -23.56 14.11 39 Plastics and articles thereof…………………………………………. 3,374 2,731 3,202 4.59 3.86 5.49 -19.06 17.25 87 Vehicles other than railway or tramway rolling stock…… 6,269 4,590 3,139 8.52 6.49 5.38 -26.78 -31.61 73 Articles of iron or steel………………………………………………… 2,639 2,357 2,755 3.59 3.33 4.72 -10.69 16.89 30 Pharmaceutical products……………………………………………… 2,274 1,915 2,187 3.09 2.71 3.75 -15.79 14.20 02 Meat and edible meat offal…………………………………………. 2,013 1,411 1,552 2.74 1.99 2.66 -29.91 9.99 Others……………………………………………...... 25,859 34,231 15,795 35.15 48.37 27.08 32.38 -53.86

MAJOR IMPORTS PARTNERS Change 2015 2016 2017 Partners % Value Market Value Market Value Market 2017 Million US$ Share % Million US$ Share % Million US$ Share % World .…………………………………………………………………… 73,562 100.00 70,771 100.00 58,332 100.00 -17.58 1 China……………………………………………………………………… 9,666 13.14 9,206 13.01 7,388 12.67 -19.75 2 Germany……………………………………………………………….. 5,712 7.76 6,019 8.50 4,086 7.00 -32.11 3 United States…………………………………………………………. 4,338 5.90 3,825 5.40 3,463 5.94 -9.46 4 Saudi Arabia………………………………………………………….. 2,916 3.96 2,987 4.22 3,419 5.86 14.46 5 Italy….…………………………………………………………………… 3,274 4.45 3,268 4.62 3,095 5.31 -5.29 6 Russia………………………………………………………………….. 3,329 4.53 2,876 4.06 2,957 5.07 2.82 7 Brazil.……………………………………………………………………. 2,658 3.61 2,147 3.03 2,549 4.37 18.72 8 Ukraine………………………………………………………………….. 2,425 3.30 2,704 3.82 2,035 3.49 -24.74 9 Turkey……..…………………………………………………………… 3,269 4.44 3,274 4.63 1,987 3.41 -39.31 10 India……………………………………………………………………… 2,311 3.14 2,224 3.14 1,739 2.98 -21.81 23 Thailand…………………………………………………………………. 1,210 1.64 900 1.27 742 1.27 -17.56

EXPORTS TOP 10 EXPORTS 2014-2016 HS Value million US$ Market Share % Change % 4-digit heading of Harmonized System code 2015 2016 2017 2015 2016 2017 2016 2017 All products …………………………………………………………………. 21,745 22,372 25,043 100.00 100.00 100.00 2.88 11.94 27 Mineral fuels, mineral oils and products……………………… 3,951 3,229 5,063 18.17 14.43 20.22 -18.27 56.80 71 Natural or cultured pearls, precious stones…………………. 633 2,653 2,114 2.91 11.86 8.44 319.12 -20.32 85 Electrical machinery and equipment……………………………. 1,751 1,534 1,727 8.05 6.86 6.90 -12.39 12.58 39 Plastics and articles thereof……………………………………….. 1,384 1,177 1,507 6.36 5.26 6.02 -14.96 28.04 08 Edible fruit and nuts; peel of citrus fruit or melon……….. 1,123 1,196 1,269 5.16 5.35 5.07 6.50 6.10 07 Edible vegetables and certain roots and tubers…………… 1,134 967 1,065 5.21 4.32 4.25 -14.73 10.13 31 Fertilisers…………………………………………………………………….. 422 847 1,052 1.94 3.79 4.20 100.71 24.20 62 Articles of apparel and clothing accessories………………… 870 756 910 4.00 3.38 3.63 -13.10 20.37 52 Cotton…………………………………………………………………………. 291 457 859 1.34 2.04 3.43 57.04 87.96 72 Iron and steel………………………………………………………………. 425 445 542 1.95 1.99 2.16 4.71 21.80 Others……………………………………………...... 9,761 9,111 8,935 44.89 40.73 35.68 -6.66 -1.93

MAJOR EXPORTS PARTNERS Partners 2015 2016 2017 Change % Market Value Value 2017 Value Market Market Share % Million Million Million US$ Share % Share % US$ US$ World………………………………………………………………… 21,745 100.00 22,372 100.00 25,043 100.00 11.94 1 United Arab Emirates……………………………………………. 1,100 5.06 2,728 12.19 2,681 10.71 - 1.70 2 Italy………………………………………………………………………. 1,600 7.36 1,452 6.49 2,081 8.31 43.28 3 Turkey………………………………………………………………….. 1,257 5.78 1,372 6.14 1,812 7.24 32.04 4 Saudi Arabia………………………………………………………….. 2,008 9.23 1,771 7.92 1,510 6.03 - 14.72 5 United States……………………………………………………….. 1,219 5.61 1,105 4.94 1,260 5.03 14.08 6 United Kingdom…………………………………………………… 940 4.33 1,065 4.76 1,073 4.29 0.69 7 India……………………………………………………………………… 888 4.09 661 2.96 881 3.52 33.12 8 Spain…………………………………………………………………….. 457 2.10 623 2.79 771 3.08 23.74 9 China…………………………………………………………………….. 437 2.01 496 2.22 668 2.67 34.67 10 Lebanon………………………………………………………………… 430 1.98 769 3.44 641 2.56 - 16.64 60 Thailand………………………………………………………………... 34 0.16 60 0.27 51 0.21 - 14.83 6

EGYPT TRADE WITH THAIALND

TOP 10 IMPORTS 2014-2016 HS Value Thousands US$ Market Share % Change % 4-digit heading of Harmonized System code 2015 2016 2017 2015 2016 2016 2017 All products …………………………………………………………………. 1,223,805 751,830 787,426 100.00 100.00 100.00 -38.57 4.73 8704 Motor vehicles…………………………………………………………….. 304,219 95,138 137,061 24.86 12.65 17.41 -68.73 44.07 4011 New pneumatic tyres…………………………………………………… 111,353 91,262 113,470 9.10 12.14 14.41 -18.04 24.33 8708 Parts and accessories, motor vehicles ………………………… 118,620 85,485 97,954 9.69 11.37 12.44 -27.93 14.59 1604 Prepared or preserved fish………………………………………….. 167,825 159,020 78,095 13.71 21.15 9.92 -5.25 -50.89 8418 Refrigerators, freezers……………………………………………….... 45,324 36,710 39,000 3.70 4.88 4.95 -19.01 6.24 8450 Household washing machines……………………………………… 66,536 29,440 29,285 5.44 3.92 3.72 -55.75 -0.53 4411 Wood………………………………………………………………………….. 2,713 3,738 22,447 0.22 0.50 2.85 37.78 500.51 8414 Air or vacuum pumps………………………………………………….. 19,009 15,343 19,825 1.55 2.04 2.52 -19.29 29.21 4001 Natural Rubber…………………………………………………………… 17,503 13,571 13,840 1.43 1.81 1.76 -22.46 1.98 3903 Polymers of Styrene………………………………………………….. 8,257 7,658 11,175 0.67 1.02 1.42 -7.25 45.93 Others……………………………………………...... 362,446 214,465 225,274 29.62 28.53 28.61 -40.83 5.04

TOP 10 EXPORTS 2014-2016 HS Value Thousands US$ Market Share % Change % 4-digit heading of Harmonized System code 2015 2016 2017 2015 2016 2017 2016 2017 All products…………………………………………………………………. 35,078 67,944 78,654 100.00 100.00 100.00 93.69 15.76 7208 Flat-rolled products of iron…………………………………………. 28,788 45,722 62,452 82.07 67.29 79.40 58.82 36.59 3102 Mineral or chemical Fertilizers..………………………………….. 511 1,035 7,452 1.46 1.52 9.47 102.54 620.00 7213 Bars and rods of Iron…………………………………………………. 828 587 1,575 2.36 0.86 2.00 -29.11 168.31 5205 Yarn and Fibres….……………………………………………………….. 181 183 913 0.52 0.27 1.16 1.10 398.91 7206 Iron and non-alloy steel……………………………………………… 0 156 854 0.00 0.23 1.09 0.00 447.44 8516 Electric water heaters……………………………………………….. 455 369 718 1.30 0.54 0.91 -18.90 94.58 0804 Dates, Figs, Pineapples..…………………………………………… 104 468 638 0.30 0.69 0.81 350.00 36.32 2710 Petroleum Oils…………………………………………………………….. 0 204 448 0.00 0.30 0.57 0.00 119.61 5111 Woven Fabrics………………….…………………………………………. 24 25 444 0.07 0.04 0.56 4.17 1676.00 5201 Cotton…………………………………..…………………………………… 828 587 400 2.36 0.86 0.51 -29.11 -31.86 Others……………………………………………...... 3,359 18,608 2,760 9.58 27.39 3.51 453.97 -85.17

OTHER SECTORS

BANKING Egypt’s banking sector has shown itself capable of weathering difficult economic circumstances in recent years. However, profitability has been challenged by a range of forces, including significant changes made in 2016 to the regulatory framework surrounding lending activity and a shortage of foreign currency that negatively affected the daily operations of banks and wider investor sentiment. The sector is also undergoing something of a shake-up in terms of ownership, following an announcement in 2016 by the Central Bank of Egypt that the country intends to sell stakes in two state-owned lenders. Egypt’s banking sector is likely to continue to face some significant changes in 2017-18. The country’s lenders are still well placed to weather volatility, and are generally in good health.

CAPITAL MARKETS

The year 2016 was a difficult one for exchanges across the MENA region, due in large part to persistently low oil prices and political unrest. Egypt’s main index reflected the regional malaise for the first half of 2017, with a currency crisis and seemingly intractable fiscal deficit impacting investor confidence. By the second half of the year, however, the index has climbed once again as negotiations regarding an IMF lending programme has been successfully concluded. While significant challenges remain, not least the direction of Egypt’s economy over the coming years, the Egyptian Exchange (EGX) and its regulator continue to develop one of the region’s most important exchanges. While the ability of the EGX to attract both new listings and investors is tied to the wider question of Egypt’s macroeconomic performance and the vicissitudes of global politics, the exchange is well positioned to grow should circumstances allow. 7

INSURANCE

The Egyptian insurance industry, one of the oldest in the region, has shown a welcome degree of resilience in recent years. Despite its long history, however, the market remains at a relatively nascent stage of growth compared to those in more advanced economies, characterized by a low penetration rate and modest insurance density. While this means that growth opportunities abound, questions remain as to how they will be achieved. Despite these obstacles, there is significant potential for development in Egypt’s insurance industry. Oil importing economies in the MENA region, such as Egypt, are likely to see premiums grow in excess of GDP growth where governments are able to maintain their determined development plans.

ENERGY

Egypt is one of Africa’s main oil and gas producers, but it is also the continent’s largest consumer of energy. Both oil and gas are found throughout the country in multiple onshore and offshore regions, including the Mediterranean Sea, which is emerging as a major new gas basin. Nevertheless, sourcing enough supply to meet demand is the sector’s central challenge, even as these discoveries are expected to contribute significantly to meeting demand within the next few years. With discoveries in 2016 and the expectation of future upstream findings, Egypt is well on its way to addressing the supply side of its energy provision problem. Managing demand increases through subsidy cuts is a longer-term proposition, and Egypt is working to become a net energy exporter again.

INDUSTRY & RETAIL With a market of 95m consumers and growing, Egypt is a natural fit for manufacturing industries. The sector spans a diverse range of activities, largely led by the private sector, that range from building materials and downstream processing, to long-running textile factories, as well as competitive food and fast-moving consumer goods segments. Yet the government hopes to further expand, and its goals for the sector are ambitious. Manufacturing accounted for approximately 16.6% of the country’s GDP in 2015, with medium-term plans to create 3m jobs and increase its share to 25% by 2020, in part through the development of new industrial zones. Egypt’s industrial sector features substantial attractions for long-term investment, including a large consumer base, low labor costs and a potential gateway to the growing African middle class. Short-term obstacles remain, however, starting with the Egyptian pound’s struggle to stabilize against major international currencies and continued instability in gas supply; yet the goal of long-term growth remains the key priority. Egypt’s retail market is competitive and highly fragmented. The maturing formal retail sector features a range of shopping malls, supermarkets, hypermarkets and smaller franchised competitors, as well as the more informal options that have traditionally served Egypt’s shopping needs, such as souqs, street vendors, independent high-street shops and neighbourhood corner stores.

8

TRANSPORT

Transport infrastructure is one of the current priority areas for development by the Egyptian government, which is looking to roll out an era of mega-projects. Roads are congested, with 95m people competing for space with trucks and trailers, as almost all commercial goods in the country are moved via roads. The process of refurbishing ports and rail lines is under way, but are in need of further investment, and private sector partners are involved. Though concerns remain about whether the government is currently deploying its resources in the best available spots, Egypt’s ability to attract aid and concessional financing helps the government to prioritize more projects than it otherwise could on its own, and the effectiveness of this approach will be assessed over the next several years, helping to further clarify the long-term vision.

TELECOMS & IT

As of the end of 2017, Egypt’s telecommunications sector was strongly positioned for future growth. With more than 95m mobile subscribers, the nation’s three mobile telecoms providers – namely Vodafone Egypt, Etisalat Misr and Orange Egypt – are investing heavily in network expansion, quality of service improvements and new technologies. This has recently accelerated, following the National Telecom Regulatory Authority issuance of four 4G LTE licences in mid-2016. While the licensing of 4G LTE service providers in Egypt bodes well for consumers, the operators face a tightening competitive environment. Furthermore, all three mobile operators report relatively narrow margins and various infrastructure-related challenges, while mobile data – and smartphone usage – is still seeing slow uptake. The steady advance of ICT over the past decade has left Egypt’s tech industry in a strong position, despite the nation’s ongoing economic and political challenges. The country has seen a significant rise in internet penetration in recent years, as a result of growing usage among middle-class and the business community, rapidly expanding international bandwidth, as well as the accompanying lower tariffs. While Egypt’s strong fundamentals, state-led support programmes and large tech-savvy workforce bode well for the future of the domestic ICT industry, numerous challenges lie ahead.

REAL ESTATE Recent macroeconomic trends – particularly the depreciation of the Egyptian pound and the foreign currency shortage – reflected both positively and negatively on Egypt’s real estate market throughout 2017, resulting in mixed results and predictions across the sector. The situation was felt across all sectors, but it had a particular impact on the real estate market. On the one hand, investment in property continues to be a relatively stable prospect in uncertain times. On the other hand, the depreciation of the Egyptian pound resulted in increased construction costs for imported materials and corresponding delays, diminished the amount of disposable income for the population and made profit generation a challenge for the retail segment. Yet despite some economic setbacks and continued legislative hurdles, there is reason for optimism in the country’s real estate sector. While growth rates may have slowed for the moment, and foreign currency shortages have delayed some projects, demand remains strong and housing needs across the income spectrum must be met.

9 CONSTRUCTION

As cranes tower over the skies of an ever- expanding Cairo and billboards advertising new housing developments, universities and malls proliferate throughout the city, it is clear that after several years of uncertainty Egypt is in the midst of a construction boom. Large government priority projects, such as the New Administrative Capital, the expansion of the Cairo metro and water treatment projects in Upper Egypt, continue to promote growth in the sector. The Ministry of Finance cites construction as one of the most important sectors in terms of its contribution to economic growth in the coming years. With strong demand for energy and infrastructure projects, as well as real estate, the sector is likely to see steady expansion. However, it has not been immune to the short-term economic instability in the aftermath of the currency float, posing challenges amid potential.

TOURISM

The tourism industry in Egypt is continuing its drive to regain its international reputation as a world-class destination and to further develop non-traditional tourism niches, as the government remains determined for the sector to retain its position as a key driver of the economy and critical source of foreign currency, even after five challenging years. Indeed, with a variety of government-led initiatives, as well as regional and international support, operators are still hopeful the sector can regain momentum. However, given lingering security and currency issues, it is difficult to predict exactly what the coming years will hold for Egypt’s tourism sector. The industry would benefit from an extended period of peace and stability to enable tourist inflows to rebound. Yet with the government’s commitment to revive the industry through investing in both conventional and niche tourism, and its effo rts to promote the country as an attractive destination, there is plenty of scope for long-term growth.

AGRICULTURE & AGRO-INDUSTRY

Despite steadily increasing urbanisation in recent years, the agriculture sector remains a cornerstone of Egypt’s economy, both in terms of overall value-added output and employment. Egypt produces a wide range of crops and other agricultural products, including cereals such as wheat and corn rice, fruits and vegetables, sugar, cotton, dairy products, livestock and fish, among others. Solid support for agricultural activity on the part of the government and new opportunities for domestic and foreign investors alike point to an expansion of the sector in the coming years. However, Egypt’s agriculture sector still faces a range of challenges. High and rising rates of inflation are an issue, with the annual food and beverage inflation rate at 13.8% as of October 2017, up significantly from 11% a year earlier. The current government has set out a series of focused agriculture-focused programmes in a bid to address these issues.

10 HEALTH & EDUCATION

Continued efforts to address the health care needs of its large and growing population have resulted in varied opportunities for the development of Egypt’s health care space, particularly in the form of private sector investment. While the country has continued to see some positive steps, especially in the arena of primary care access and infant and maternal care, progress has been stalled on some other priorities, including the long-promised universal health insurance initiative. While there is still some heavy lifting to be done, Egypt is likely to make progress on goals for quality and equitable health care access, if the government can meet its commitments to increase public spending on health initiatives, attract additional foreign investment for facility upgrades and research, and increase equity of access through the passage of the universal health coverage law. Overhauling the education system has remained on the Egyptian government’s long priority list following the 2011 revolution, and for good reason. In 2017 approximately 33% of the 95m-strong population were under the age of 15, according to the World Bank. The Strategic Plan for Pre-University Education Reform 2014-30 published by the Ministry of Education states that every child has an equal right to receive a quality education in accordance with international standards, thus allowing every child to contribute effectively to the social and economic development of the country and to compete regionally and globally.

DOING BUSINESS IN EGYPT For those unfamiliar with the culture and economic landscape of the country, doing business in Egypt can be a somewhat frustrating process. To be successful in Egyptian business, expats will need to invest their time into understanding the local culture and cultivating solid relationships with their local counterparts. Every step of the business process takes almost twice as long as it would in the West, so it is important that expat entrepreneurs leave plenty of time for negotiations and possible setbacks. Those moving to Egypt to set up a business should arrange meetings as far in advance as possible, even before arriving in the country. It is also important to confirm the meeting close to the time. Egypt is ranked 122nd out of 190 countries surveyed in the 2017 World Bank's Ease of Doing Business Survey. It scored an impressive rank of 39th for ease of starting a business but scored poorly in areas such as trading across borders (168th), enforcing contracts (162nd) and protecting minority investors (114th).

Business Practice: Do not expect to do business during Ramadan or on the last few days of the Hajj season. Business comes close to a standstill at these times. Business hours: Sunday to Thursday, 9am to 5pm. This can vary between businesses and hours may differ during Ramadan. Business language: The official language in Egypt is Arabic. However, English is widely spoken and understood in the business world. Dress : Smart and conservative – especially for women. Gifts : It is customary to exchange gifts in Egypt. Gifts should be wrapped, well-presented and high-quality and should be given with the right hand. Gifts are not usually unwrapped in the presence of the giver. Gender equality: Women are underrepresented in Egyptian companies, but expat women are usually respected in business circles. However, they will be expected to dress and behave more conservatively than they would in the West. Greetings : The most common greeting is a handshake. Close associates may kiss one another on the cheek. If a male expat greets a woman, it is best to wait for her to initiate a handshake and, if she doesn’t, greet her with a slight nod of the head.

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