12 May 2016
Egypt: Market Profile
Major Economic Indicators
- Egypt’s economy expanded by 4.2% in 2015, gaining from 2.2% in 2014 as the country regained political stability.
- Average consumer price increased by 10.1% in 2015 despite government attempts to control prices of certain essential goods.
- In March 2016, the Central Bank devalued the Egyptian pound and adopted a more flexible exchange rate in order to conserve reserves and boost competitiveness.
- Egypt’s cumulative FDI reached US$6.37 billion in the fiscal year ending June 2015, up from US$4.12 billion in the previous fiscal year.
- Egypt’s exports fell 27.5% in 2015 to US$18.2 billion while imports fell 11.9% to US$56.5 billion during the same period.
- Hong Kong’s exports to Egypt fell 2.6% to US$526 million in 2015, while imports from Egypt tumbled by 13.4% to US$59 million.
Current Economic Situation
Egypt is one of the most developed and diversified economies in the Middle East. Service contributes about 45% of the Egyptian GDP, with finance and insurance, wholesale and retail trade sectors being the key service industries. Agriculture contributes another 15% of GDP while industry including the manufacturing and extractive sectors takes up the rest of GDP.
Following the landslide victory of ex-army chief el-Sisi in the presidential elections of May 2014, signs of political and economic stabilisation began to emerge, with GDP growth improving to 4.2% in 2015. The IMF expects the Egyptian economy to grow by 3.3% in 2016.
Egypt’s consumer price inflation (CPI) rose to 10.1% in 2015 despite the government attempt to control prices of certain essential goods in late 2015. After hiking the policy rate in December 2015, the Central Bank devalued the Egyptian pound in mid-March 2016 in response to the acute shortage of US dollar. Apart from devaluating the currency by 13% versus the US dollar, the devaluation since 2003, the Central Bank also adopted a more flexible exchange-rate policy in March 2016, with an aim to sustain foreign exchange reserves, attract investment and improve competitiveness.
With double-digit unemployment, high inflation, and a strong need for external financing, President Al-Sisi reshuffled his cabinet with more reformists added on 23 March. The FY2016 draft budget was approved on 30 March, setting a more ambitious growth target than the last budget, striving to reduce the widening fiscal deficits, despite recurrent speculations that the country might be seeking an IMF loan.
Egypt is reliant on external financing and foreign aid to drive its economic development. In April 2015, France signed contracts worth US$1.5 billion with Egypt on various transport and electricity projects. Besides, President Sisi is actively courting aid and investment from Asia including China, Japan and Korea. In January 2016, China announced loans of US$1.7 billion to Egypt alongside US$15 billion of energy, infrastructure and construction projects in Egypt awarded to Chinese companies.
Since the ouster of President Morsi by the army in July 2013, the Egyptian economy has been buoyed mostly by external aid, in particular from Gulf Arab states where a net transfer of US$21.9 billion to Egypt occurred in FY2014-15, with the UAE, Kuwait and Saudi Arabia being the major sources. This, together with the newfound stability after the presidential elections, is seen as helping business and consumer confidence.
Tourism, an important economic pillar of Egypt, has been severely hit by political instability since the Arab Spring. The annual number of visitors in 2015 is 9.34 million, compared with the number of 14.7 million visitors in 2010.
In August 2015, Egypt announced to amend and shorten the enforcement period of the 5% temporary income tax from three years to only FY2015-16 (an additional tax of 5% on individuals or legal persons with income above one million Egyptian pounds or about US$130,000). This temporary tax is imposed on top of a so-called capital gains tax, which is a 10% tax on business and individual revenues including companies in economic zones.
Egypt relies heavily on oil exports (about 40% of total exports), and the country’s other major export items include cotton and textiles. Exports fell 27.5% in 2015 to US$18.1 billion amid the drop in oil exports and slow economic recovery of its major export market - the EU. Egypt imports machinery, equipment and food mostly from China, Germany and the US. In 2015, imports fell 11.9% YOY to US$56.6 billion.
While regaining political stability, Egypt welcomes FDI and provides various incentives such as tax exemptions. For general information on the investment guidelines and incentives in Egypt, please visit the website of General Authority for Investment and Free Zones.
The Suez Canal Corridor Area Project
The Suez Canal, which connects the Mediterranean Sea with the Red Sea, is the world’s oldest artificial waterway. With a view to meeting increasing the canal’s daily capacity from 49 vessels in 2014 to 97 in 2023, and spurring Egypt into an international trading and logistics hub, the Egyptian government rolled out a mega infrastructure project called the Suez Canal Corridor Area Project (SCCAP) in August 2014, which will include the development of industrial estates, technology parks, and infrastructure, aside from constructing a new 35-km canal section. The new canal is expected to increase the traffic revenue of the canal from US$ 5.3 billion in 2015 to US$15 billion in 2023, with the SCCAP expected to spur foreign investment and create jobs. For more details on the investment opportunities in the Suez Canal Zone, please visit the website of General Authority for the Suez Canal Economic Zone.
Foreign direct investment
Egypt’s cumulative FDI reached US$6.37 billion as at end-June 2015, up from US$4.12 billion one year earlier. Major FDI sources included the UK, the US, and the UAE. China’s cumulative FDI in Egypt was US$657.1 million as at end-2014.
Egypt has gradually moved towards a more liberal trade regime. It became a member of the World Trade Organisation (WTO) in 1995, and revamped its tariff regime in 2004 as agreed in its accession agreement. The changes in the tariff structure lowered the official tariff rate (weighted average) from 14.6% to 11.8%. According to the WTO, Egypt’s MFN trade weighted average tariff was 11.8% in 2013. More than 88% of agricultural products and 86% of non-agricultural items on the tariff schedule are now charged at less than 15%.
As a measure designed to protect the local automotive industry, a 35% tariff is charged on most imported vehicles. Other than the automotive industry, the local textile industry is also highly protected. In November 2011, a fund with US$46 million (EGP280 million) was set up to subsidise the local spinning and weaving factories.
Egypt requires restrictive labelling for imports of food products. All food products should be packed in appropriate packages, which should be clean, intact, and odourless so as to preserve the products and not affect its characteristics. Imported products must be marked and labelled in Arabic. The language requirement is mandatory for all information, including the brand and type of the products, country of origin, date of production, expiry date, and instructions on handling products. For imported tools, machines and equipment, a user manual in Arabic has to be attached.
There are a total of ten free trade zones in Egypt - Cairo (Nasr City), Alexandria, Port Said, Suez, Ismailia, Damietta, Media, Shebin El-Kom, Qeft and Port Said East Port. Goods exported from or imported into the free zones are not subject to normal import/export customs procedures, duties or other taxes and fees. Likewise all instruments, machinery, equipment, and transportation equipment necessary for establishments authorised within the free zones are exempt from customs and duties.
The EU-Egypt Association Agreement entered into force in June 2004. The EU lifted all trade barriers to Egyptian industrial exports, while Egypt committed itself to removing all related trade barriers over a 12-15 year transitional period. In June 2013, the EU and Egypt began an exploratory dialogue on deepening the bilateral trade and investment relations through the possible negotiation of the Deep and Comprehensive Free Trade Agreement (DCFTA). It will extend largely beyond the existing Association Agreement.
Besides the Association Agreement with the EU, Egypt has signed a number of free trade agreements (FTAs) to help Egyptian exports gain preferential access to markets of the signatories. Such FTAs include the Pan Arab Free Trade Agreement (PAFTA, with 17 members including Egypt), the Common Market for Eastern and Southern Africa (COMESA, with 19 members including Egypt), the Agadir Agreement (with Egypt, Morocco, Tunisia, and Jordan as members), MERCOSUR-Egypt FTA (with Argentina, Brazil, Paraguay and Uruguay), EFTA -Egypt Free Trade Agreement (with Iceland, Liechtenstein, Norway and Switzerland) and the Egypt-Turkey FTA.
Egypt also has a preferential trade agreement between the US and Israel, under which the US grants Egyptian exporters in Qualified Industrial Zones (QIZs) tariff-free access to the US market provided that they import at least 10.5% of the content from Israel.
Hong Kong Trade with Egypt
Hong Kong's total exports to Egypt contracted 2.6% to US$526 million in 2015 after a surge of 41.2% in 2014. Major exports in the period included telecom equipment and parts (US$298 million, 56.6% of total, +43.7% year-on-year or YOY), computers (US$50 million, 9.5% share, -26.6% YOY), and office machines (US$13 million, 2.5% share, +1.4% YOY).
Hong Kong's imports from Egypt decreased 13.4% to US$ 59 million in 2015. Major imports in that period were fruit and nuts (not including oil nuts), fresh or dried (US$15 million, 25.8% share, +67.9% YOY), glassware (US$11 million, 18.8% share, -61.4% YOY), telecommunications equipment and parts (US$10 million, 16.5% share, +117.7% YOY) and leather (US$7 million, 11.4% share, -44.7% YOY).
In the first nine months of 2015, a total of 11,727 Egyptian visitors came to Hong Kong, increased 8% from the year-earlier period.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.