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    19 November 2013 Emerging countries: the new Mediterranean FDI providers?  
   
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COUNTRY FOCUS - EGYPT
Country presentation

Egypt's prominent role in geopolitics stems from its strategic location, with the Suez Canal (“the vital route”) connecting the Red Sea to the Mediterranean. Egypt has historically been a peacemaker in the region, thanks to its undeniable influence in the Arab world and the size of its population, the sixteenth most populous country worldwide with almost 79 million people.

Visit ANIMA-MedMaps, an interactive tool that allows users to visualise foreign investment projects and business partnerships detected in Egypt since 2003. www.medmaps.eu

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An economy resolutely moving towards activities offering both a high added value and a strong potential for export development

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After decades of socialism, Egypt has been implementing since 1991 an ambitious programme of economic and structural reforms. It took a radical turn towards the market economy and the integration into international markets after a deep Ministerial reshuffle in July 2004. Since then, the new team gathered by the Prime Minister Ahmed Nazif has remained committed to achieving its liberal agenda. The reforms achieved such international recognition that Egypt was sacred as the world's best reformer by the World Bank's Doing Business 2008 report which measures the business climate in 178 countries. The ongoing reforms of tax, investment and foreign trade regulations are a veritable silent revolution of which foreign stakeholders are just beginning to take stock.

Egypt, a middle-income country, attaches a great importance to the private sector, which employs 77% of the workforce and contributes with 62.9% of GDP. The privatisation programme is well advanced, as well as the development of public-private partnerships for the upgrading of the country’s infrastructure. Nevertheless, the Government is still controlling large parts of the economy, for instance through various public holdings (hydrocarbons, mining, heavy industry, banking, textiles, etc.). The substantial natural resources, including oil and gas, are indeed a significant source of foreign exchange earnings. Representing respectively 13.2% and 38.7% of GDP in 2008, agriculture and industry are relatively diversified. Despite the global crisis, Egypt has registered an annual growth of around 7% between 2005 and 2008. The encouraging outlook for the coming years could be enhanced by accelerating structural reforms.
The Sixth Five-Year Plan for Economic and Social Development, which runs over the 2008-2012 period, rests on 3 pillars: the presidential agenda (economic component), the Millennium Development Goals (health, education) and the New Social Contract (political reform). The presidential programme aims at "maximising economic growth and guaranteeing an acceptable level of employment to reduce the unemployment rate to 5.5% by the end of the Plan, and to secure a decent living standard to low–income groups." The plan targets an annual growth rate of 8%, a growth in real income per capita by 6%, an investment rate of 24%, annual exports progress by 12%, and a rate of integration into the world economy of 67% (vs. 60%).

In this perspective, the plan focuses on: giving priority to high-growth sectors (manufacturing industries, construction, tourism, ICT); fostering exports of goods and services, while satisfying local market needs to prevent inflationary pressure and ensuring the conservation of natural resources to guarantee a sustainable development; building on small and very small businesses as a primary vector for job creation; opening all economic activities to private sector participation, while reinforcing the monitoring and follow-up functions of the State, improving living standard conditions of low–income groups, by acting on primary income distribution (employment policies, access to agricultural land, housing policy and support to entrepreneurship) and redistribution, decrease the gap between rural (Upper Egypt and desert governorates) and urban areas, etc.

The National Strategy is then broken down into sectoral programmes: pre-university education, employment and training, industry, rural development, tourism, housing, etc. To support the industry and achieve a production growth of 9% per year, 1,000 large industrial complexes and 2000 average complexes are meant to be created over 2008-2012. To meet the needs of the growing population, 500 000 new housing units will also be built by 2012. In the tourism sector, the 15 000 hotel rooms to be created each year will require an annual investment of 1 billion dollars. To achieve these objectives, the Government is appealing to the private sector.

 

 
FDI to finance infrastructure development and boost exports

Egypt has positioned private investment (both domestic and foreign) at the heart of its development strategy. For the implementation of the 6th Five Year Plan, which involves a total investment of at least 1 295 billion Egyptian pounds (about 160 billion euros), the Government’s contribution (directly or through its holding companies) will not exceed 15%, with the remainder being borne by the private sector. Foreign direct investment could bring 13% of the total needed amount. The plan provides that the inflow will reach 14 billion dollars in 2012. FDI should help the country earn foreign exchange, enhance its industrial and technological capabilities and develop its international trade. Between 2004 and 2007, private investment grew by 40% per year, while FDI rose from 407 million dollars in 2003-2004 to 13.2 billion in 2007-2008. The measures taken by the Ministry of Investment since its inception in 2004 have greatly contributed to this spectacular increase. Its contribution focuses on 3 fronts: an optimised management of public economic assets, a rapidly improving business environment (inland investment legislation) through the financial sector reform, and the creation of industrial zones with special status.

Depending on the sector, investments are governed by Investment Law No. 8 (1997) or by Corporate Law No. 159 of 1981 and its subsequent amendments. In both cases, The General Authority for Investment (GAFI) acts as the official regulator and facilitator for all incorporations and licenses. Whatever the sector, a 100% holding of the capital by foreigners in a company is permitted, as well as the repatriation of profits. Investment Law No. 8 provides for the automatic approval of the investment projects in priority sectors: transport and logistics, agriculture and livestock, tourism and construction, health, ICT, water and waste management, etc. Due to the success enjoyed by several pilot projects (telecom, transport infrastructure, etc.), PPPs are multiplying. Investment policy and industrial policies both consider as strategic the creation of sectoral clusters, even though some of the existing or planned clusters sometimes also have a "national" component (Chinese, Turkish business parks, etc.). To create incentives for the formation of such clusters, Egypt gradually develops special incentive schemes.

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