25 Nov 2015
Egypt: Market Profile
Major Economic Indicators
- Egypt’s economy expanded by 3% year-on-year (YOY) in the first quarter of 2015, easing from 4.3% in the previous quarter.
- Headline CPI edged up to 9.7% YOY in October 2015 from 9.2% in the previous month.
- Egypt’s cumulative FDI reached US$6.37 billion in the fiscal year ending June 2015, up from US$4.12 billion in the previous fiscal year.
- Egypt’s exports fell 21.3% YOY in the first eight months of 2015 to US$ 14,616 million while its imports fell 4.1% YOY to US$ 41,415 million during the same period.
- Hong Kong’s exports to Egypt rose 6.8% YOY to US$388 million in the first nine months of 2015, while imports dropped by 1.6% YOY to US$52 million in the first three quarters of 2015.
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 of 4.6% year-on-year (YOY) in the three quarters ending March 2015. In Q1 of 2015, Egypt’s economy expanded by 3% YOY.
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$21.9 billion to Egypt occurred in FY2014-15, with the UAE, Kuwait and Saudi Arabia being the major sources. This, together with the newfound stability after the presidential elections, is seen as reviving business and consumer confidence. The IMF expects the Egyptian economy to grow by 4.2% in 2015 and 4.3% in 2016. Nonetheless, economic challenges remain amid double-digit unemployment and inflation, a widening budget deficit, and strong needs for external financing.
Egypt’s consumer price inflation (CPI) increased from 9.4% in 2013 to 10.1% in 2014, edging up further to 10.2% YOY in the first ten months of 2015. In Oct 2015, the Central Bank of Egypt kept the policy overnight rates unchanged.
Tourism, an important economic pillar overshadowed by security concerns in recent years, may contribute more to economic growth amid reviving political stability. Visitor arrivals in FY2014-15 were more than 10 million compared with about 8 million in FY2013-14, while tourism income increased by 7.9% YOY to US$ 5.47 billion in FY 2014-15. Receipts from the Suez Canal have been more stable, hovering above US$5 billion for each of the past few fiscal years.
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 21.3% YOY in the first eight months of 2015 to US$14.6 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 the first eight months of 2015, imports fell 4.1% YOY to US$41.4 billion.
While regaining political stability, Egypt welcomes FDI and provides various incentives such as tax exemptions. For general information on the investment guidelines and incentives in Egypt, please visit the website of General Authority for Investment and Free Zones.
The Suez Canal Corridor Area Project
The Suez Canal, which connects the Mediterranean Sea with the Red Sea, is the world’s oldest artificial waterway. With a view to meeting increasing the canal’s daily capacity from 49 vessels in 2014 to 97 in 2023, and spurring Egypt into an international trading and logistics hub, the Egyptian government rolled out a mega infrastructure project called the Suez Canal Corridor Area Project (SCCAP) in August 2014, which will include the development of industrial estates, technology parks, and infrastructure, aside from constructing a new 35-km canal section. The new canal is expected to increase the traffic revenue of the canal from US$ 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 expanded 6.8% YOY to US$388 million in the first nine months of 2015 following a surge of 41.2% in 2014. Major exports in the period included telecom equipment and parts (US$199 million, 51.3% of total, +44.8% YOY), computers (US$43 million, 11% share, +17.9% YOY), and office machines (US$10 million, 2.7% share, +35.0% YOY).
On the other hand, Hong Kong's imports from Egypt decreased 1.6% YOY to US$52 million in the first nine months of 2015. Major imports in that period were fruit and nuts (not including oil nuts), fresh or dried (US$15 million, 28% share, +75.2% YOY), telecom equipment and parts (US$9 million, 17.5% share, +270% YOY), glassware (US$9 million, 17.1% share, -57.7% YOY) and leather (US$6 million, 11.1% share, -45.4% 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.