Egypt: Immense potential and prospects

A promising market and serious reforms

Egypt is a major consumer market in the region and enjoys a diversified economy with huge opportunities for further growth and expansion. Egypt's labor force, estimated at 28 million workers, is the largest in the region[i]. Egypt recently adopted a reform plan to ensure financial sustainability and address imbalances, based on liberalizing the national currency, increasing the tax base, and rationalizing subsidies on fuel and electricity. The State is also moving ahead with reforms aimed at improving the business environment, mainly through:

- Reducing the time needed to register foreign representative offices launching the second phase of the electronic establishment of companies on the official website of the General Authority for Investment, and increasing the number of offices of this Authority throughout the provinces;

- Cancelling the initial industrial license;

- Establishing a start-up center to assist in the development of SMEs and their access to bank financing;

- Reducing the value of letters of guarantee required to obtain a land from industrial areas;
- Strengthening the protection of investors through the establishment of the "Committee on Investment Contract Disputes Resolution" to settle disputes between investors and government bodies and allow reconciliation.

Investment Law No.72/2017 was recently issued, which focused on equal investment opportunities for local and foreign investors, regardless of the size of the project, and on the allocation of free lands for some strategic activities, as well as on the provision of special customs outlets for the export of investment projects. The law also divided the land into two groups: Group A includes the geographical areas which most urgently need development, and Group B which includes other areas nationwide.

The new law includes several benefits and investment incentives aimed at encouraging investors and creating an investment climate for businessmen. The main benefits include:

-     Equal opportunities for domestic and foreign investment, fast completion of transactions, support for start-ups, entrepreneurship, micro, small and medium enterprises, consideration for social dimensions, environmental and public health protection, freedom of competition, consumer protection, governance and transparency.

-     Guarantees provided to investors by granting them fair and just treatment, with a preferential treatment in application of the principle of reciprocity, granting them residence throughout the duration of the project, respect for and enforcement of contracts, guarantees of no nationalization, expropriation or funds withholding except for public utility, by a court decision and for a fair compensation which shall be remittable with no restrictions.

-     Establishment of investment zones, investment one-stop-shop, accreditation offices, speed of completion of transactions, provision of information, and activation of the e-services system.

-     The right to appoint foreign workers in the amount of 10% maximum of the total number of workers, with the percentage increasing to 20% in case it is not possible to appoint national workers who have the required qualifications given the nature of the project, and the introduction of a unified number for each project to be used in all transactions.

-     Providing tax incentives for electricity production and distribution projects, automotive industry and its feeding industries, wood, furniture, printing, packaging and chemical industries, engineering, metallurgy and textile industries, antibiotics and food industries. These industries shall be granted a 40% deduction of the fees and taxes in Group A zones against a 30% deduction in Group B areas, provided the project is established within 3 years from the effective date of the law.

Areas of investment

The investment environment in Egypt allows many investment opportunities in various fields, based on the size of the invested capital and the target sector, mainly:

-     Information technology and software: in the areas of design and production of computers and their applications and operation

-     Communication and information technology, which is relatively cost-effective

-     Transportation and logistics, which are considered as the most important and vital sectors

-     Petrochemicals, which are considered to be fast growing sectors

-     Oil and products, as well as the fields of drilling, exploration and maintenance of wells and equipment

-     Industries in all its branches and fields, as well as assembly activities and feeder industries

-     Education, which is one of the most successful investment opportunities, especially with the laws allowing the establishment of private universities and international schools and universities to accommodate the growth of the population

-     Financial services, given their importance under the new laws governing the financial and monetary markets

-     Development of new urban communities and new cities and the establishment of facilities and infrastructure

-     Agriculture and related activities

-     Healthcare

-     Tourism and the enormous opportunities involved

 

Evolution of investment projects according to the top 10 sectors between 2012- 2016 (US$m)

 

Source: Fdi markets

 

Major countries investing in Egypt, 2012-2016

Ibid

 

Indicators of a new industrial boom

According to the latest available data, the liberalization of the national currency, coupled with improved outlook for the economy, has encouraged many multinationals to boost their investments in order to manufacture their products in Egypt and adopt it as their industrial base in the region. Among the most prominent of these companies are Mars which intends to boost exports from 50-60% of its production in Egypt to 80%[ii], Unilever Egypt which will double its assets and turn the country into a regional export center, and GE North-East Africa which plans to turn Egypt into a hub to manufacture its products in various fields, including health, energy and electricity. This trend is not just unique to multinationals, but also includes many other foreign and domestic companies that look positively at the improvements in the investment climate.

The government's supportive policies to promote investment in the industrial sector have contributed to the promotion of industrial investment, not least thanks to the new investment law granting special privileges to industrial investments. Among the top privileges granted by the recent reforms, one can cite the authority granted to the Prime Minister to offer the "Golden License" to specific investments of strategic or national importance to the Egyptian economy, which grants its holder, through a single approval, the privilege of establishing and operating the projects, and includes all the required licenses, transactions and requirements, including building permits and land allocation, among others.

 

Reform requirements

The government and the Central Bank have taken the right measures to curb inflation, reduce the budget deficit and put the economy on a path of stability and growth. Yet, reducing inflation is still a priority since it affects economic stability and harms vulnerable groups. It should also be noted that moving forward with reform under stressful economic conditions is not without difficulty. However, the determination to contain risks and maintain fiscal discipline will help rebuild safety margins, which will gradually reflect on the economic and social conditions.

In the next phase, it is important to address a number of constraints that are still facing local and foreign investors, notably restrictions on cross-border trade, complexities of tax collection, execution of contracts, protection of small investors and other restrictions, as laid out in the following graph, and that the new investment law will hopefully help address. 

 

Egypt's ranking in the World Bank indicators for ease of doing business for 2017 among 190 countries

 

Source: World Bank Doing Business 2017