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					THE REGION’S MOST DYNAMIC ECONOMY

Invest in EGYPT
May 2008

www.investment.gov.eg
Distributed in the Arab Republic of Egypt and abroad to individuals and institutions monitoring the performance of the Egyptian economy and the Ministry of Investment and its affiliates The information in this publication may be freely re-used and reproduced provided appropriate credit is given to the source. 3 Salah Salem Road, Abbaseya, Cairo, Egypt Tel.: +202 240 55 651 Fax: +202 240 55 635 E-mail: contact-moi@mi.gov.eg Published by: Ministry of Investment Prepared by: Azza El-Shinnawy Advisor to the Minister of Investment Sherine Shafik, Economic Analyst Amira El-Shal, Economic Researcher Rana El Henawy, Economic Researcher Amr Abu Elela, Economic Researcher Graphs Akram Emara Creative Copywriting, editing and design by inktank • www.inktankltd.com

INVEST IN EGYPT
Table of Contents

Mediterranean Sea
Alexandria Borg el-Arab Tanta Damietta Portsaid El Arish Ismailia Suez Taba Fayoum Siwa Beni Suwayf Ras Ghareb Minya
Assiut Hurghada Sharm El Sheikh

Contents
Mansoura Banha Cairo

Matruh

5 8

Foreword by Minister of Investment Mahmoud Mohieldin Top 10 Reasons to Invest in Egypt Today

10 The Growth Story Continues 12 A Large, Skilled and Low-Cost Labor Force 14 Egypt’s Expanding Infrastructure 16 The World’s Top Reformer 18 Corporate Investment Regimes 20 An Investment-Grade Exchange 22 The Export Hub

EGYPT
El Kharga

Sohag Qena
Luxor

Red Sea
Marsa Alam

Aswan

Abu Simbel

Egypt
Official Name The Arab Republic of Egypt Capital Cairo Head of State President Mohammed Hosni Mubarak Head of Government Prime Minister Dr. Ahmed Nazif Largest Cities (inhabitants) Cairo: 7,786,640 Alexandria: 4,110,015 Port Said: 570,768 GDP in Current Prices EGP 731.2 billion (FY 2006/07) Population 74.29 million Language Official: Arabic Widely understood: English and French Area 1,002,000 km2 Time Zone UTC + 3 hours (summer) UTC + 2 hours (winter) Currency Egyptian Pound (EGP or LE) Exchange Rate (7 May 2008) US$ 1 = EGP 5.3447 EUR 1 = EGP 8.2966 GBP 1 = EGP 10.5355

24 New Investment Horizons 26 Reforms Win International Recognition 28 Industry Overviews 30 Food Processing 32 Automotive Assembly and Components 34 Textiles and Ready-Made Garments 36 Pharmaceuticals 38 White Goods 40 Communications and Information Technology 42 Tourism 44 Distribution Sector 46 Ports and Logistics 48 Financial Services 50 Our Vision for Egypt

3

INVEST IN EGYPT
Key Economic Indicators

Key Economic Indicators for Egypt (2002-07)
2002/03 Real Sector Indicators and Sources of Growth (1) (% change) Real GDP at market prices (2) Real GDP at factor cost (2) Commodity sector Production Services Social Services Investments (3) (4) Consumption (3) Private Public Exports of Goods and Services (3) Real GDP per capita Domestic Savings (5) Annual nominal growth rate Percent of GDP Domestic Investments (5) Annual nominal growth rate Percent of GDP 3.4 16.9 16.6 16.9 17.8 18.0 19.5 18.7 34.2 21.2 15.5 14.3 26.6 15.6 11.9 15.7 24.9 17.1 24.2 18.0 3.2 3.1 2.1 5.2 2.2 -6.2 2.4 2.3 2.7 13.8 1.2 4.1 4.2 2.8 7.0 3.4 6.3 2.1 2.1 2.0 25.3 2.1 4.5 4.6 3.6 7.0 3.1 10.3 4.5 4.8 2.8 20.2 2.5 6.8 6.9 8.1 6.6 3.8 13.3 6.0 6.4 3.1 21.3 4.8 7.1 7.1 6.3 9.5 4.3 23.8 6.0 6.9 0.2 23.3 5.1 2003/04 2004/05 2005/06 2006/07

(1) Percent change in real terms are calculated using constant prices for 2001/02 (2) Includes petroleum and natural gas activities (3) Includes net indirect taxes (4) Gross capital formations. Includes change in inventory (5) At current prices Source: Ministry of Economic Development

4

INVEST IN EGYPT
Foreword by Minister Mahmoud Mohieldin

Dear Investor,

P

erhaps you’re looking to outsource your manufacturing operation or to offshore your back-office or customer-support functions. Maybe you’re a grower looking to take advantage of fertile soil, year-round growing seasons and close proximity to key markets. Perhaps you’re searching for a regional hub from which to export duty-free to some of the globe’s largest economies, including Europe, Africa and the Arab world. Or maybe you want to access the largest and most diverse consumer base in the Middle East and North Africa. If so, there’s no better place in the MENA region to do business than Egypt, which today stands as one of the world’s most vibrant and reform-oriented economies. As business leaders and global financial institutions now know, we are blessed with a wealth of competitive advantages including a large, competitively priced and educated labor force; a highly competitive tax regime; a thriving, fastgrowing domestic market; favorable raw material and energy prices; close proximity to major global markets; an interlocking web of preferential trade agreements; and a pro-business government committed to keeping Egypt on the path of sustainable growth. That growth and the factors underlying our prosperity are well anchored in a policy environment in which the rule of law and institutions prevails. Leaf through this booklet and you will see the facts speak for themselves. You will learn about a nation that topped its own record of 7.1% GDP growth set in 2006/07 by surging ahead 7.5% in the first half of 2007/08. And you will learn about a politically stable, business-friendly nation that has captured the imagination of global business leaders who poured more than US$ 11.1 billion in foreign direct investment into the country in 2006/07 — and another US$ 7.8 billion in the first half of 2007/08. Little wonder, then, that Egypt is the top recipient of FDI in Africa and second most-popular destination for foreign capital in the Arab world. Do not take our word for it: These fundamentals are why the World Bank and IFC Doing Business 2008 report has declared Egypt the world’s top reformer. As we go forward, this government will continue to do what we can at the policy level to encourage growth and development, knowing that the private citizens and corporations who are reviving Egypt’s ages-old culture of entrepreneurship and competition will do the rest. Together, we will create opportunities for all Egyptians and unleash the vast potential of our young population. Welcome to Egypt.

Mahmoud Mohieldin Minister of Investment May 2008

5

Business in Egypt

Egypt has been named the international community’s Top Reformer in the World Bank and IFC Doing Business 2008 Report. Egypt was the first Arab and first African country to sign the OECD Declaration on International Investment and Multinational Enterprises Egypt created 2.4 million jobs between the end of 2004 and March 2007, the vast majority of them in the private sector. Egypt’s 22.8-million-strong workforce is the largest in the Arab world. Companies can ship through 15 commercial ports and a further 30 specialized ports. Fair competition is ensured through the Egyptian Competition Authority. As of spring 2008, the Cairo and Alexandria Stock Exchange was the world’s second-best performer after Brazil.

INVEST IN EGYPT
Egypt’s Competitive Advantages

Top 10 Reasons to Invest in Egypt Today

A

S THE TOP RECIPIENT of foreign direct investment (FDI) in Africa in 2006, Egypt is well positioned to continue on its current growth path. 1- Macroeconomic Stability and Robust Growth: Egypt’s GDP grew 7.1% in 2006/07 and accelerated to 7.5% in the first half of 2007/08. That’s not just better than the average for the Middle East and North Africa region; it’s some two percentage points above the global average, too. Among the nation’s fastest-growing sectors are tourism, communications and information technology, construction, manufacturing and transportation. Egypt’s unprecedented high rate of growth is supported by macroeconomic stability cushioned by a decline in the budget deficit to less than 7.5% of GDP in 2006/07 compared to 10.5% in 2002/03. The target: To cut the budget deficit in half by 2011 by continuing to cut one percentage point per year. 2- A Large, Trained, Competitively Priced Labor Force: Egypt has a solid reputation as a net regional exporter of labor services, but the country’s competitive advantage in human resources is gradually shifting towards becoming an adept provider of a skill-intensive workforce at home. Many of the leading sectors of the Egyptian economy are skill-intensive service sectors, namely ICT, financial services and tourism. Wage levels in these sectors are well below those of neighboring countries — and in many cases cheaper than comparative countries around the world. A new national industrial training program is turning out trained workers to fill some 500,000 new jobs in manufacturing. 3- Large Consumer Market: The sheer size of Egypt’s population, as well as the doubling of per-capita income to EGP 10,055 in 2006/07 from EGP 5,548 in 2000/01 has transformed Egypt into a consumer market of significant importance as witnessed by the arrival of dozens of global consumer brands and the sharp expansion of retail sales in the past two years. The fact that 56.5% of the Egyptian population is between the age of 15 and 60 has also impacted investment trends. 4- Developed Infrastructure: Egypt boasts a broad, world-class infrastructure base. Three independent mobile phone networks cover nearly 100% of the country’s inhabited land. More than 8% of the world’s total shipping transits the Suez Canal each year. Every home with a phone line has dial-up internet access for the price of a local call. Wireline broadband is readily available in urban centers. The country’s 14 ports serve the nation’s exporters and importers alike, while an expanding and upgrading airport network caters to both passenger and cargo traffic. 5- Competitive Tax Rates: Corporate and personal tax rates in Egypt are competitive, and the nation’s newly overhauled tax code is easy to navigate. Corporate and personal taxes in Egypt both top out at 20%, the country has moved to random-sample auditing and the nation’s largest corporate taxpayers are served by a special, highly trained unit at the Tax Authority.

6- Preferential Access to Key Global Markets: The EU-Egypt Association Agreement established a bilateral trade agreement based on reciprocal liberalization for both industry and agriculture. Egyptian products from ready-made garments to furniture and food products now enjoy preferential access to European Union markets. Meanwhile, the Qualifying Industrial Zones (QIZ) agreement with the United States gives manufacturers based in Egypt tariff- and quota-free access to the US market provided their products contain a specified minimum of Israeli content. Corporations exporting from Egypt also enjoy preferential access to the Arab world (through the Greater Arab Free-Trade Agreement) to Eastern and Southern Africa (COMESA) and to the Agadir nations. Egypt also has free-trade agreements with the European Free Trade Association (Switzerland, Norway, Liechtenstein and Iceland) and Turkey. 7- Proximity to Global Markets: The simple fact of the matter is that whether you’re shipping perishable goods, commodities or manufactured articles, key global markets in Europe, the Arab world, Africa and the Indian Subcontinent are all readily accessible from Egypt — something few competing markets can claim. 8- Diversified Economy: Egypt’s economy is among the most diverse in the Middle East and North Africa. Industry accounts for 32% of GDP, services account for 54%, while agriculture accounts for 14%. The manufacturing sector today is home to a rapidly growing number of companies in fields including chemicals, food processing, spinning and weaving, ready-made garments, construction materials and engineering. 9- Reformist Investment Climate: Egypt was the first Arab and first African country to sign the OECD Declaration on International Investment and Multinational Enterprises. Foreign direct investment inflows increased twelve-fold between 2001 and 2006. Indeed, Egypt netted US$ 10 billion between January and December 2006, making it the number-one destination for FDI in Africa as it accounted for 30% of all foreign investment in Africa, according to UNCTAD. The UN agency also praised Egypt’s improved investment climate. The World Bank’s Doing Business 2008 report — which tracks the progress of 178 countries worldwide in terms of how easy it is to start, maintain and exit a business — named Egypt as the “top reformer of the year.” 10- Political Stability and Personal Security: As war and instability continue to be unfortunate features of many countries in the region, Egypt remains at peace. Political stability also guarantees businesses may be confident that the economic policies that attracted them to invest in the first place will not change overnight. Meanwhile, Egypt’s crime rate is low by the standards of almost any nation, and Cairo is one of the safest large cities in the world, making it easy for multinational corporations to convince key staff members to accept long-term postings here. ■

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INVEST IN EGYPT
Top 10 Competitive Advantages

Real GDP Growth (2003-2008)
World average
% 8 7 6 5 4 3 2 1 0

Total Labor Force in Egypt and Comparative Countries, 2005
Egypt

Corporate Tax Rates in Egypt and Comparative Countries

MENA average

Millions 30 27.5 26.6 22.8 25

Country
Egypt* Korea, Republic
13.4 7.6 3.8 Tunisia

1 Jan 2005 (%) 1 Jan 2006 (%)
40 27.5 28 30 30 34 33 36.6 34 37.8 20 27.5 28 29 30 31 33 33.7 34 36.9

20 15 10 5 0
2003 2004 2005 2006 2007 2008*

Malaysia Mexico
1.8 Jordan

Turkey Israel China India Brazil South Africa

Turkey

Egypt

Algeria

*Forecast Calculated averages Source: International Monetary Fund (2007) World Economic Outlook Database

Egypt Figures are for 2006 Source: World Bank (2007) World Development Indicators and CAPMAS

Syria

Iran

Population Age Structure
Thousand 12,000 10,000 8,000 6,000 4,000 2,000 0 Less than 5+ 10+ 5 15+ 20+ 25+ 30+ 35+ 40+ 45+ 50+ 55+ 60+ 65+ 70+ 75+

* Maximum corporate tax rate in July 2005 Sources: KPMG (2006) Corporate Tax Rate Survey Ministry of Finance, Arab Republic of Egypt

Sectoral Distribution of Number and Issued Capital of Companies Established in Egypt Between 1970 and 2008 (percent)

No. of companies
ICT Construction Finance Services Agriculture Tourism Industry Grand total (EGP million) 6 7 3 27 8 8 41 43,935

Total issued capital
8 8 14 14 14 17 35 434,285

Source: CAPMAS

Examples of Industrial Products Enjoying Preferential Access to the EU Market • Mineral products (cement, mineral fuels and oils) • Textiles (ready-made clothes, cotton yarn, carpets, bed linen) • Base metals (iron, steel, aluminium or copper products) • Furniture (office, kitchen or bedroom furniture, lamps, mattresses) Examples of Agricultural Products Enjoying Preferential Access to the EU Market

Covering companies incorporated under Investment Law 8 and Companies Law 159 (Inland Investment) during the period Jan 07 to Jan 08 Source: GAFI

Product
Onions (1/02 to 15/06) Potatoes (1/01 to 31/03) Pears Tomatoes (1/11 to 31/03) Watermelons (1/02 to 30/04) Carrots (1/01 to 30/04) Sweet Potatoes Grapefruit (1/02 to 14/07)

Duty Reduction
100% 100% 100% 100% 100% 100% 100% 100%

Tariff Quota 2004 Duty Reduction Beyond Quota
15,000 130,000 500 Free quota Free quota 500 3,000 Free quota 60% 60% Current duty 100% 100% Current duty Current duty 100%

Egyptian Processed Agricultural Products Enjoying 100% Customs Duty Reduction in the European Union • • • • • • • Sugar confectionery Tomato sauces Soups and broths Waters Beer Cigars and cigarettes Mango chutney, coffee preparations

Source: European Commission Delegation in Cairo, 2008

9

INVEST IN EGYPT
Macroeconomic Profile

The Growth Story Continues

F

ROM A MERE 3.1% in FY 2002/03, Egypt’s real GDP growth stood at 7.1% in 2006/07 and accelerated to 7.5% in the first half of 2007/08. That’s not just better than the average for the Middle East and North Africa (MENA) region — it’s some two percentage points above the global average, too. Today’s rapid economic growth is the product of hard work in the private sector — and of the bold economic reforms implemented by the new government that took office in July 2004 under the leadership of Prime Minister Ahmed Nazif. With a focus on maintaining macroeconomic stability, the new Cabinet set out to create jobs by giving the private sector the lead in economic activity. The Cabinet also maintained price stability through fiscal discipline and prudent monetary policy as well as implemented significant reforms in the financial sector. Nearly four years on, those policies have born fruit as the Egyptian economy has been better integrated into the nexus of global trade and investment. Today, Egypt’s public debt structure is in significantly better shape, and policy makers have the breathing room they need to begin improving government services and redesign social policies. Initially dubbed too ambitious, today, the government’s reform policies are being heralded by analysts at home and abroad as a textbook example of how to reform an economy.
Service exporters at Smart Village are taking the lead.

The Power of Diversity

While some so-called “economic renaissances” have been based on less-than-sound fundamentals, Egypt’s growth has been driven by a broad base of non-petroleum sectors, including construction (posting 15.7% growth in 2006/07), communications and information technology (14.1%), tourism (13.2%), trade (8.3%) and manufacturing (7.3%). Indeed, the Egyptian economy is itself well diversified, with industry accounting for 32% of GDP in 2006/07 while services contributed 54%. Egypt’s services sector is also one of the most competitive in the region and beyond: According to UNCTAD figures for 2007, Egypt is among the leading developing-country exporters of financial services as well as personal, cultural, recreational, transportation, travel, communications, construction, computer and information services. Companies in Egypt and abroad have responded with enthusiasm to Egypt’s new investment climate. Between 2003/04 and 2006/07, private-sector investment as a percent of GDP nearly doubled to 13.5% from 7.6%. Little wonder the country has netted historically unprecedented levels of foreign direct investment (FDI) inflows: Egypt took in US$ 11 billion in 2006/07, up from US$ 509 million in 2000/01. The result has been the creation of some 2.4 million new jobs

between the end of 2004 and March 2007 — the vast majority of them in the private sector. Meanwhile, unemployment has dipped from 11.8% in the third quarter of 2005 to its current level of 8.9%.
Macroeconomic Stability

Looking forward, Egypt’s high rate of growth will be supported by macroeconomic stability cushioned by a decline in the budget deficit to less than 7.5% of GDP in 2006/07 compared to 10.5% in 2002/03. The government is committed to a medium-term fiscal consolidation plan that targets the reduction of the budget deficit by one percentage point annually over the upcoming five years. The target: to reduce by half the budget deficit by 2011. Despite an inflationary surge between March 2006 and March 2007, inflation has remained moderate. The brief wave of inflationary pressure was triggered by higher global food and commodity prices, supply shocks triggered by avian flu as well as by demand-side factors as a result of aggregate demand being boosted by high growth. A key concern of monetary policy has been the movement toward an inflation-targeting frame-

10

INVEST IN EGYPT
Macroeconomic Profile
work which will anchor monetary policy once fundamental prerequisites are met. Policies adopted on the foreign exchange front have brought discipline to the market, particularly after the December 2004 creation of the Central Bank of Egypt’s inter-bank foreign exchange system led to the convergence of official and unofficial market rates. Structural reforms have also accelerated. A reduction in tariffs brought Egypt’s average weighted tariff level to 6.9% in February 2007, down from a high of 14.6% in August 2004. The new personal and corporate tax code introduced in July 2005 reduced tax rates by up to 50%, cutting the maximum corporate and personal tax rates to 20%. Privatization has also gained momentum, with 80% of the shares of the Bank of Alexandria, Egypt’s fourth-largest state-owned bank, being acquired by Italy’s IMI Sanpaolo in 2006. Among other high-profile stakes now up for sale to qualified bidders is the Banque du Caire, the nation’s third-largest stateowned bank. The Central Bank of Egypt has created a sounder and more efficient banking system by hiking capital adequacy regulations, encouraging mergers and acquisitions, developing its regulatory and supervisory apparatus and addressing the legacy of non-performing loans. Meanwhile, Egypt’s external account strengthened with net international reserves increasing to US$ 30.2 billion in January 2008, up 109.7% from US$ 14.4 billion in June 2002. The nation’s external debt position also remains favorable as reflected by relatively low debt and debt-service ratios. External debt to current account receipts has gone down to more modest 70.5% in 2006/07 from 137% in 2000/01. With a pro-business government firmly in command, the emphasis of the country’s ongoing reform program is to keep real GDP growth at a sustainable rate of above 7%. In light of Egypt’s competitive advantages in sectors including manufacturing and services — and with reforms continuing, solid domestic growth and favorable external conditions — global economists agree: The outlook for 2008 and beyond is very promising. Is it any wonder, then, that Egypt was recently declared the World Bank’s “Top Reformer” in its Doing Business 2008 report? ■

Real GDP Growth Rate
% 8 7 6 5 4 3 2 1 0 7.5 6.9 7.1 4.2 4.6

Unemployment Rate in Egypt
% 14 12 10 8 6 4 2 0
11.77 10.11 8.90

3.4 3.2 3.1

Q1, 05

Q2, 05

Q3, 05

Q4, 05

Q1, 06

Q2, 06

Q3, 06

Q4, 06

Q1, 07

Q2, 07

07/08 Q1+Q2

Source: Ministry of Economic Development

Source: CAPMAS Labor Force Sample Survey

Sectoral Growth Rates
% 45 40 35 30 25 20 15 10 5 0

2007/08 Q1+Q2

2007/08 Q2

38.3 28.9

15.6 15.5

15.6 15.2 7.8 8.2 8.1 7.2

Tourism ICT Source: Ministry of Economic Development

Construction

Manufacturing

Transportation

Fiscal Deficit / GDP (Budget Sector)
GDP stands at EGP 450 Billion (constant prices) % 11 10 9 8 7 6 5 01/02 02/03 03/04 04/05 05/06 06/07 07/08 Q1+Q2

GDP Sectoral Breakdown for FY 2006/07
ICT, 2% Agriculture, 14% , on cti tru % ns Co 7 Services, 35%

10.2

10.5

9.5

9.6 8.2
7.5

Industry, 32%
3.8

Tourism, 3%

e, nc na 7% Fi

Source: Ministry of Finance

Source: Ministry of Economic Development

Net International Reserves Held at the Central Bank of Egypt
US$ Billion 35 30 25 20 15 10 5 0 Jun Jun Jun Jun Jun Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Apr 02 03 04 05 06 07 07 07 07 07 07 07 07 07 07 07 07 08 14.1 33.8

Source: Central Bank of Egypt

Q3, 07

00/01

01/02

02/03

03/04

04/05

05/06

06/07

11

INVEST IN EGYPT
The Labor Force

A Large, Skilled and Low-Cost Labor Force

W

ITH A POPULATION OF 74.29 million, one of Egypt’s most valuable assets is its human resources sector. Egyptian universities and technical schools graduate more doctors, engineers, pharmacists and technicians than any other country in the Middle East. At 22.8 million, Egypt’s workforce is the largest in the Arab world and the third-largest in the MENA region, after Iran and Turkey. With 4 million workers currently working abroad and remittances standing at US$ 6.3 billion, Egypt is also a major exporter of labor services. The agricultural sector has traditionally been the largest employer in Egypt, accounting for 39% of all jobs in 1982. In the years since, diversification of the Egyptian economy, an improvement in educational services and a significant expansion in private-sector investment has seen the industrial and service sectors offer Egyptian workers jobs outside of agriculture. Manufacturing, tourism, ICT and trade are now employing large numbers of workers. In recent years, Egypt’s industrial base has grown at a pace that is rapid enough to employ an increasing proportion of the 600,000-plus new entrants to the workforce each year. Egypt’s industrial sector currently employs 19% of the country’s non-agricultural workforce, while the service sector employs 66%. Competitive Wages Wage levels in Egypt are considered amongst the lowest in the MENA region. The average wage level in the private sector now stands at US$ 41 per week, with health and social services ranking at the lower end of the spectrum at US$ 15.4 per week. The financial services sector, meanwhile, is at the higher end, with a wage rate of US$ 89.6 per week. Competitive wages have been a major incentive for foreign factories operating in labor-intensive industries such as textiles, glass manufacturing and building materials to relocate to Egypt — to say nothing of an unparalleled basket of preferential trade agreements, a low domestic cost structure and proximity to key global markets. Egypt’s textiles workers for example, earn only 47% of the salary that their Tunisian counterparts make, 36% of a Moroccan’s salary and 32% of the wages made by textile workers in Turkey. Training Egypt’s Industrial Workforce In an effort to modernize the economy and create internationally competitive industries, the government has prioritized the revamping of the nation’s industrial training process. Today, industrial training is being approached in a much more demand-driven manner than it was in the past. The Industrial Training Council (ITC) was created in 2006 as an offshoot of the Industrial Modernization Center (IMC), an EGP 426 million program originally created with European funding to upgrade Egypt’s industrial capacity. The primary mandate of the council is to match up the skills of the labor force with the current demands of industry. The ITC focuses on creating a globally competitive Egyptian workforce by providing them with accredited educational, vocational and other training they need to perform at a worldWorkers are receiving special training to meet the needs of industry.

class quality standard. The ITC works directly with industry to identify recruitment needs, provide recruitment services and develop training programs. Approximately 80% of the cost of on the job training is subsidized by the ITC. An accreditation system is also being developed by the ITC to improve and standardize the quality of both public and private training providers, with the ultimate goal being the creation of a diversified pool of Egyptian workers trained by accredited trainers at accredited training centers. Accredited workers will hold licenses that must be regularly renewed. Training Skilled Labor In cooperation with various multinational companies, the Egyptian Ministry of Communications and Information Technology (MCIT) has initiated the “Professional Training Program” which aims to build a pool of skilled Egyptian ICT graduates. The program ensures that engineering and computer science graduates have skills that align closely with industry requirements. Since the program launched in 2000, more than 35,000 students have acquired internationally recognized certifications in ICT related skills. The government is also funding a program to upgrade the skills of university graduates who are interested in seeking employment in the rapidly growing call center industry. The program includes intensive courses in computer literacy as well as language and customer service skills and is free of charge for those who commit to a job with a call center upon the completion of the program. ■

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INVEST IN EGYPT
The Labor Force

Egyptian University Graduates
350 300 250 200 150 100 50 0
Thousand 304 250 251 259 271 312

Egyptian University Graduates from Faculties of Medicine
10 9 8 7 6 5 4 3 2 1 0
Thousand 8.4 6.3 4.7 8.2 8.0 8.6

Egyptian University Graduates from Faculties of Pharmacy
12 10 8 6 4 2 0
7.0 7.4 7.6 Thousand 10.5 9.3 8.9

00/01

01/02

02/03

03/04

04/05

05/06

00/01

01/02

02/03

03/04

04/05

05/06

00/01

01/02

02/03

03/04

04/05 0.4 Pakistan

Source: CAPMAS

Source: CAPMAS

Source: CAPMAS

Egyptian University Graduates from Faculties of Engineering
20 18 16 14 12 10 8 6 4 2 0
Thousand 18.1 12.0 13.4 13.2 16.7 16.0

Average Labor Cost in the Textiles Sector in Egypt and Comparative Countries, (US$/hr)

25 20 15 10 5

20.6

20.4

19.4

4.2 Italy Czech France UK

4.1 Poland

2.8 Turkey

2.5 Morocco

Source: CAPMAS

Source: Werner International Textile Industry (2006)

Average Weekly Labor Wages by Economic Activity in the Egyptian Private Sector (US$) Economic Activities
Agriculture, hunting, forestry and cutting of wood trees Fishing Mining and quarrying Manufacturing Electricity, gas and water supplies Construction (construction and building) Wholesale and retail trade, repairing motor vehicles and motorcycles, domestic and personal commodities Hotels and restaurants Transport, storage and communication Financial intermediation Real estate activity, renting and business services Education Health and social work Social and personal services Average weekly wages in the private sector
Source: CAPMAS Statistical Yearbook, 2007

2005
18.3 18.1 88.3 25.6 67.5 41.2 32.3 27.2 38.4 89.7 71.5 16.2 15.4 23.2 40.9

Vietnam

Tunisia

Egypt

00/01

01/02

02/03

03/04

04/05

05/06

China

India

0

1.9

0.9

0.6

0.6

0.3

05/06

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INVEST IN EGYPT
A World-Class Infrastructure Base

Egypt’s Expanding Infrastructure

I

T IS A NATION IN which three mobile phone networks cover nearly 100% of the country’s inhabited land. Where a waterway carries more than 8% of the world’s total shipping every year. Where every home with a phone line has dial-up internet access for the price of a local call and a dozen companies compete to offer broadband connections to homes and offices in major urban centers. Well-maintained highways shift freight and passenger vehicles between cities, towns and resort destinations. Electricity subsidies are ending, but the per-kilowatt hour price remains affordable to consumers and industry alike. You could be forgiven for thinking we were describing a European economy, but this is Egypt, where investors enjoy not just low labor costs, a trained workforce, proximity to major global markets and a unique basket of preferential trade agreements, but solid infrastructure, too. Information and Communications Technology (ICT) Egypt’s IT and communications infrastructure is among the best-developed and most competitive in the Middle East and Africa. Today, deregulation, enhanced competition and the export of services are the accepted norms in an ICT sector that is growing at a sustained 25% annually and that has attracted EGP 50 billion in new investment in the past four years. Recent regulatory measures are accelerating the process: New submarine cables have been licensed to consortiums of national and regional players; new international gateways for voice and data are in the works; a second fixed-line operator with a WiMAX license will be online in 2009, guaranteeing a challenger to current operator Telecom Egypt and introducing commercial WiMAX simultaneously; and the licensing of triple-play services for voice, data and video is in the works. The nation is served by three advanced mobile telephone networks, all of which are or will soon be 3.5G. Every home with a landline has dial-up internet access for the price of a local phone call. Egypt now has more than 9 million unique internet users, while 500,000 households subscribe to broadband services and 25,000 more join them every month. At least three major urban centers are testing municipal WiMAX high-speed wireless broadband networks. Private businesses, restaurants and cafés across the country run their own Wi-Fi networks to serve their customers. The nation’s system of postal outlets is being reconfigured as both a business communications network and as a point of contact for the delivery of important government services. Meanwhile, Smart Village — the premiere technology park in the Middle East, which is home to offices of major national and global ICT players and will soon include a new financial-services district — is set to replicate its success in other Egyptian locations. A new call center park will soon break ground in the upscale Cairo suburb of Maadi in a partnership between the ministries of CIT and Investment. National fixed-line operator Telecom Egypt (TE) now serves more than 11 million subscribers with a capacity of over 13.8 million lines. Since the turn of the century, TE has ramped up its competitive metabolism and taken strong steps to diversify its revenue stream. It has taken a stake of more than 40% in Vodafone Egypt (one of the nation’s three mobile operators) and has spun off subsidiaries that now include
Expansion of Egypt’s airports and roadway systems is in progress.

the region’s most high-profile call center operation, a booming ISP / broadband provider, and a joint-venture wireline network in Algeria, to name but a few. Today, the company is working on expansion projects to serve Egypt’s growing demand for telecom services, including undersea cables connecting Egypt to the world. In the mobile communications arena, Mobinil, a subsidiary of Egypt-based multinational Orascom Telecom in partnership with France Telecom’s Orange division, launched in the late 1990s; it was soon followed by what is known today as Vodafone Egypt. The two were joined by Etisalat Misr (a consortium led by Etisalat of the UAE and including Egypt Post, the National Bank, and the Commercial International Bank) in 2007. Today, both Etisalat and Vodafone Egypt have launched robust 3.5G networks and Mobinil will soon follow suit. Combined, the three companies have over 32 million subscribers, having added some 10 million new subscribers in the last year and hitting a penetration rate of more than 42.33%. Incentive packages have attracted multinationals to Egypt, where they are basing call centers, business-process outsourcing, knowledgeprocess outsourcing and technical-support operations. They have found Egyptian talent up to the challenge and the nation’s telecom infrastructure of global standard, all while being based in a working environment that — from cost to logistics — helps them get business done better, faster and cheaper. The deregulation of the sector has benefitted consumers and investors alike, and strategies to improve regional and international connectivity, roll out broadband technologies, promote convergence services and address cyber-security are adding to what has already been achieved. (For more on ICT, see page 40.) Electricity Egypt is one of the MENA region’s top exporters of electricity, with some 107.5 billion kilowatt hours being generated in 2005/06, a 240% increase over 1991/92. More than 37,900 kilometers of transmission and distribution wires criss-cross the nation, delivering power to in-

14

INVEST IN EGYPT
A World-Class Infrastructure Base

Sharm 738 5,059 El Sheikh

1,463 4,834
Hurghada

Total

Nuweiba

Safaga

Other**

10.3

6.5 4.9 7.5 5.8 8.7

Roads, Bridges and Ports Egypt continues to build highways and bridges as part of its overall infrastructure plan. With a comprehensive national roadway system, Egypt is also linked by highway to several of its neighboring countries. Recent infrastructure projects of note include the Ahmed Helmy Tunnel and the ElSalam Bridge, which connects the Asian and African sides of the Suez Canal. Today, Egypt has well over 46,500 kilometers of roadways, a figure that will grow in the years ahead as the government contracts new highways under the public-private partnership scheme. As one of the world’s commercial and maritime transportation hubs, Egypt is home to more than 15 commercial ports that handled more than 97.5 million tons of cargo in 2005/06. More than 8% of the world’s total maritime traffic passes through the Suez Canal each year, including crude-oil supertankers. Meanwhile, the government is exploring how to increase cargo traffic on the River Nile as an environmentally friendly way of easing traffic on the nation’s roadways. Meanwhile, Egypt’s first privately run international airport is operational at Marsa Alam, the new Sharm El-Sheikh International Airport is winning rave reviews, and Turkish specialists TAV Airports is currently building a world-class Terminal 3 at Cairo International Airport. ■

1999

2000

2001

2002

7.7

2003

8.7

2004

9.5

2005

2006

Apr 07

12.7 10.4 13.2 10.8 13.5 10.9

11.3

Rail and Underground Networks Rail has a long history in Egypt, which was the second country in the world to build out a national railway. Today, some 9,525 kilometers of rail lines link major urban centers and industrial clusters with each other and with the nation’s port system, ensuring the timely and efficient shipment of goods and passengers across the country. The next challenge is now underway as the Egyptian government welcomes proposals under the public-private partnership framework to build new cargo and rail lines in the decade ahead.

*Excluding touristic passengers until 1999 **Including (Port Said & other ports ) Source: CAPMAS

Source: Ministry of Civil Aviation

Fixed Lines in Egypt
Fixed Lines (million)

Mobile Subscribers in Egypt
Subscribers (million)

Million

Apr 07

Source: MCIT

Source: MCIT

Selected Indicators for the Communication and Information Technology Sector (2005/06)
Total capacity of telephone exchanges Telephone subscribers Number of subscribers in cellular phones Telephone calls density Cellular phone calls density Total telephone calls density Telephone waiting list Number of telephone exchanges in rural areas Telephone public service cabins International communications circuits Internet users International capacity for connecting to the internet
Source: MCIT

Items

Unit
million line million subscriber million subscriber % % % hundred exchange thousand cabin thousand circuit million user billion p/c

May 2005
12.2 9.7 9.4 13.8 11.3 25 48.8 1115 54.9 15.14 4.3 2.73

May 2006
12.9 10.6 14.03 14.8 20.2 35 74.13 1132 55.5 22.12 5.2 5.36

Change %
6 9 49 7 79 40 52 2 1 46 21 97

Mar 08

1999

2000

2001

2002

2003

2004

2005

2006

16 14 12 10 8 6 4 2 0

Million 35 31.0 30 25 21.0 18.0 20 13.6 15 7.7 10 5.8 3.4 4.5 5 0.91 2.2 0

12

Luxor

Total

Suez

Cairo

0

Alexandria & 63 El Dekhela 187

5,000 0

1,481 2,052

dustry, commercial and residential users alike. Moreover, Egypt continues to invest millions of dollars each year in the country’s electricity grid to shore up high-demand areas in urban centers. As it moves to expand generation capacity in the years ahead, the Egyptian government is now welcoming public-private partnerships in the field.

Number of Arrivals and Departures by Passengers Through Egyptian Ports
Thousand 3,500 3,000 2,500 2,000 1,500 1,000 500

Arrivals and Departures of Passengers at Key Egyptian International Airports
2,491 3,096

30,000 25,000

404 946

633 644

322 393

15,000 10,000

1,069 926

7,802 10,780

20,000

12,492

25,060

1996*

2006

Thousand

1996

2006

15

INVEST IN EGYPT
Key Regulatory Changes

The World’s Top Reformer

E

GYPT HAS TAKEN bold steps during the past four years to slash red tape and make one of the world’s oldest economies also one of the easiest in which to do business. These measures have included tax cuts, customs cuts, reform of the customs bureaucracy, streamlined procedures for foreign and domestic investors and, of course, the creation of the nation’s first Ministry of Investment. Created in July 2004, the Ministry of Investment has a mandate to promote the private sector’s role in the economy. As part of the transformation, the Ministry has turned the General Authority for Investment and Free Zones (GAFI) from a regulatory institution into a proactive investment promotion agency. On the other front, the Ministry has also launched fast-track dispute-resolution services for all investors. The regulatory and institutional frameworks governing investment in Egypt have changed significantly in the past three years. Key objectives of the process were to enhance transparency, protect property rights and entrench the principle of non-discrimination as Egypt was made a member of the Reformers’ Club in 2007 in recognition of the nation’s the core principles of investment poliachievement in reforming its business environment and being a top-ranking Doing Business cy in Egypt. reformer. Minister of Investment Mahmoud Mohieldin is pictured accepting the certificate Today, GAFI’s much-lauded Oneof membership in April 2007, presented by the World Bank, IFC and USAID. Stop Shops have made starting a business significantly easier. The OneStop Shops are home to staff from every agency that an investor needs to visit in order to open a zones.) Today, the Ministry of Finance is working with parlianew business, obtain permits and receive regulatory approvals. mentarians to lay the groundwork for the next round of tax reFrom the Tax Authority to Customs, everyone is here, cutting forms, which will streamline the nation’s sales tax and real esthe time it takes to establish a business to anywhere from 14tate tax regimes. 140 days to just three days. Meanwhile, the new Unified Labor Law of 2003 gave inAt the nation’s Customs Authority, reforms in the second half vestors new flexibility with regard to the hiring and lay-off of of 2004 slashed customs — and cut the number of tariff catworkers, while the new competition law (passed in January egories to six from 27 while reducing the number of articles 2004 and promulgated in June 2005) has created a world-class covered under the Customs Act by more than half. Overnight, anti-monopoly and fair competition agency, the Egyptian Comthose changes eliminated trade distortions. petition Authority. The government has also taken steps to safeOn the taxation front, the government eliminated tax holiguard the economic rights of citizens through the new Consumdays and exemptions in favor of a streamlined tax law introer Protection Agency. duced in 2005. The new tax code slashed corporate and perThe impact of these measures has been sharp. Domestic insonal income tax rates — which had previously ranged from vestment is soaring, and inflows of foreign direct investment 32-40% — to a uniform 20%. (The exception to the rule is the have skyrocketed from a mere US$ 407 million in 2003/04 to oil and gas sector, where the old rate of 40.55% still applies.) US$ 11 billion in 2006/07 and US$ 7.8 billion in the first half of Tax cuts have allowed investors to operate on a level play2007/08. ing field, reducing confusion, moving to a random-sample auIn the same three-year period, total private-sector investment dit procedure and almost completely eliminating bureaucratic (inland and FDI) has grown at an average annual rate in excess subjectivity in tax assessments. (Exceptions still apply in free of 40%. ■

16

INVEST IN EGYPT
Key Regulatory Changes

Private and Public Investments as a Percent of GDP
%

Net FDI Inflows 2000/01 - First Half 2007/08
US$ billion

Issued Capital of Newly Established Companies 2000/01- First Half 2007/08 (EGP million)
Q1+Q2 07/08
7.8

10,000

15,000

20,000

25,000

30,000

00/01

01/02

02/03

03/04

04/05

05/06

06/07

Source: Ministry of Economic Development

Source: Central Bank of Egypt

07/08 First half

00/01

01/02

02/03

03/04

04/05

05/06

06/07

Source: GAFI

New Establishments 2000/01- First Half 2007/08
Q1+Q2 07/08 06/07 05/06 04/05 03/04 02/03 01/02 00/01
1,000 2,000 0 3,963 3,866 3,151 2,640 2,661 2,530 3,000 4,000 5,958 *6,301

Sectoral Distribution of Issued Capital 2006/07

Issued Capital of Newly Established Companies by Nationality
% 90 80 70 60 50 40 50 20 10 0

Foreigners 80.0

Arabs

Egyptians

72.8

ICT, 27.7%

Industry, 24.6%

63.0 32.4

5,000

6,000

7,000

Agricultu re,

12.0 8.0
2004/05

11.6 15.7 2005/06

4.6 2006/07

4.7%

* The exceptional increase in the number of new establishments during FY 2004/05 is attributed to the introduction of a new tax code in June 2005, which ended tax holidays on corporate profits provided under the framework of Investment Law 8 of 1997. Source: GAFI

Finance, 16.4%

Source: GAFI

Services, 3.6%

Construction, 3.6%

Source: GAFI

35,000

5,000

16 14 12 10 8 6 4 2 0

Public Sector

Private Sector
13.5 11.4

12 10 8 6 4 2 0

11.1

13,292.9 11,614 17,741 10,812

7.3

6.8

6.1 3.9 2.1 0.5 0.4 0.7

06/07 05/06 04/05 03/04 02/03 01/02 00/01 0

36,769

9.4 8.4

8.7 9.0

0.5 7.9

8.7 7.6

8.8 9.1

6,068 8,855 11,120

u To ris m 5.4 ,1 %

17

INVEST IN EGYPT
Investment Regimes

Corporate Investment Regimes
1- Inland Investment Investment Law No. 8 is known as “the favorable non-free zone regime.” The law was enacted to attract foreign investors and thus applies only to a specific number of activities. Investors engaged in sectors not covered by Law 8 are subject to Corporate Law No. 159 of 1981. In both cases, the General Authority for Investment and Free Zones (GAFI) acts as the official regulator for all incorporations and licenses. Among the incentives and guarantees are protection against expropriation and compulsory pricing; full right of profit and dividend repatriation; no export requirements; access to disputeresolution committees administered by GAFI; and unfettered access to land in Upper Egypt. Other incentives include a standard income tax rate of 20% (oil and gas sector companies at 40.55%); a 10-year tax exemption for land cultivation and production activities related to livestock, poultry and fish; export duties ranging from 5-25% of the value of all sales transactions; and import duties ranging from 2-32%. 2- Investment Zones In July 2007, the Egyptian government passed a new decree that allows private-sector investors to establish, develop, promote and manage investment zones dedicated to specific industries and services. The aim of the investment zones is to promote more privatesector involvement in the development of business clusters. The zones provide businesses with a non-bureaucratic environment that is run by its own regulatory board made up of the primary developers of the zone as well as government officials to supervise relevant licensing procedures. The regulatory board is granted authority by law to incorporate and license projects within each zone. Businesses working within the zone will find a number of incentives, among them: Goods manufactured within investment zones abide by rules of origin necessary for bilateral and multilateral agreements; customs procedures for production inputs will be administered in the investment zone, not airports/ports; equipment, customs and sales taxes are paid in 5-10 year installments; exported goods are tax exempt. Each zone is to have its own One-Stop Shop. Companies established within Investment Zones are incorporated under Investment Law 8/1997 or 159/1981 (Inland Investment). 3- Southern Egypt Development Program The Egyptian government believes that Upper Egypt is a region that has the potential to develop into a new hub for both manufacturing and services projects. Governorates located in southern Egypt are equipped with many competitive advantages: 30% of Egypt’s total population, abundant natural resources and a diversified economic base. The government has put in place various initiatives to encourage investment in Upper Egypt: the establishment of clusters, investment incentives and employment grants; free land to investors in Upper Egyptian governorates (with the exception of

GAFI’s One-Stop Shops make it possible to incorporate and register a company in just days.

Fayoum); technical assistance through Egypt’s Industrial Modernization Center (IMC); and technology centers and training. The Upper Egypt Development Company is a company that has been established to encourage private-sector investment in Upper Egypt. The company currently has two branches in Cairo and Assiut and has begun to launch projects in several governorates. A new road has been established to link Upper Egyptian governorates with Safaga Port and the Sohag Airport. Companies established within southern Egypt are incorporated in accordance with Investment Law 8/1997 or Law 159/1981 (Inland Investment). 4- Special Economic Zones (SEZ) Law 83/2002 established Special Economic Zones (SEZ) that provide significant incentives and competitive advantages for investors. Each of the zones is autonomous and has its own Board of Directors who handle incorporation, licensing procedures as well as other and investor services. The North West Suez Special Economic Zone was the first zone created under the said law, and will serve as a model for the future development of other SEZs in Egypt. The North West Suez SEZ stretches over 20 square kilometers strategically located directly adjacent to the Sokhna Port about 45 kilometers southeast of Suez City, near the southern entrance of the Suez Canal. A master development company (MDC) was established by the SEZ Authority in 2006 to create a master plan for the promotion and management SEZs. The final zoning and infrastructure strategy for SEZs will be put in place by the second half of 2008.

18

INVEST IN EGYPT
Investment Regimes

Within close proximity to the North West Suez SEZ are several projects incorporated under the general Inland Investment regime, which create an additional flow of commercial activities to the Sokhna Port. The privately managed Red Sea port of Sokhna is being hailed by the cargo industry as a quiet revolution in Egyptian logistics. The port will serve more than 20,000 vessels sailing through the Suez Canal each year. The Sokhna port is strategically positioned to serve as a trade and logistics hub between the EU, the Far East and West Africa. SEZ incentives and guarantees include a 5% flat rate on personal income tax; integrated custom administration, tax administration, dispute settlements, licensing as well as general investor services for projects incorporated within the zones; a 10% tax rate on all activities within the SEZ; and Egyptian certificates of origin for SEZ-based exporters, allowing them to make use of Egypt’s international trade agreements. 5- Qualifying Industrial Zones (QIZs) The QIZ protocol between Egypt and the United States grants certain products manufactured in Egypt preferential access to the United States as long as they satisfy the rules of origin related to local content. There are currently 19 QIZs located within 4 geographical areas: Greater Cairo, Middle Delta, Alexandria and the Suez Canal Zone. Both Egyptian and Israeli companies must contribute and maintain at least 10.5% of the minimum 35% local content required under the legislation in order to qualify for duty-free access to the US. Manufacturers on both sides must also contribute and maintain at least 20% of the total cost of production of goods eligible for duty-free access, excluding profits, even if the costs can not be considered as part of the 35% minimum content requirement. For this purpose, costs may include originating materials, wages and salaries, design, research and development, depreciation of capital investment and overheads. The QIZ protocol was signed in December 2004, and today there are 705 companies eligible to export under QIZ. QIZs are expected to help further develop Egypt’s robust textile and garment industry as well as supporting sectors. QIZ incentives and guarantees include duty-free access to the US market for products that comply with the rules of origin requirements; flexible application of the requirements; no quotas on exported products; and open-ended validity, in that the QIZ protocol does not have an expiration date. 6- Free Zones Egypt has been advocating the creation of Free Zones since the early 1970s in an attempt to increase exports, attract foreign investment, introduce advanced technology and create more job opportunities. Free Zones are located within national territory but are considered offshore areas. Investors operating inside the Free Zones must export more than 50% of their total production. To facilitate import/export procedures, Free Zones are usually located adjacent to sea ports and airports. There are two different kinds of Free Zones; public and private. Egypt currently has nine Free Zones located in: Nasr City, Alexandria, Port Said, Suez, Ismailia, Damietta, Shebein

El Kom, Media Production City and Keft. Two additional free zones are under development in Badr and East Port Said. Among the Free Zone incentives and guarantees are a lifetime exemption from all taxes and customs; exemption from all import/export regulations; the option to sell a certain percentage of production domestically if custom duties are paid; and limited exemptions from labor provisions. Tax incentives for energy intensive industries operating in Free Zones (fertilizers; iron and steel; petroleum production; and production, liquefaction and transportation of natural gas) have been abolished as of May 2008. In addition, all equipment, machinery and essential means of transport (excluding sedan cars) necessary for maintaining the licensed activities of a project are exempted from all customs, import duties and sales taxes. All licensing procedures are handled by GAFI. Egypt’s Free Zones Offer Competitive Utility Prices: A new pricing mechanism for electricity used by energy-intensive industrial sectors (above 50 million kilowatts) is currently being applied to all sectors with the exception of food processing and textiles. Electricity costs are approximately 4 cents/kilowatt (KW). Potable water costs are approximately 20-30 cents percubic-meter. Fees and Charges Applicable to Free-Zone Companies: Manufacturing or assembly projects pay an annual charge of 1% of the total value of their products excluding all raw materials. Storage facilities are to pay 1% of the value of goods entering the Free Zones while service projects pay 1% of total annual revenue. Goods in transit to specific destinations are exempt from any charges. Land Rental Prices are as Follows: US$ 3.50 per square meter per year for industrial projects; US$ 7.00 per square meter per year for all other projects (storage and services). A reduction of 50% of the above rate is available in three of the nine public free zones: Ismailia (for industrial and service projects only), Damietta and Shebein El Kom. Private Free Zones: In addition to public Free Zones, private zones may also be established, each limited to a single project. The same privileges and incentives granted to public free zones apply to private zones as well. ■
Government services under one roof means investors have more time to focus on producing and exporting their goods.

19

INVEST IN EGYPT
Capital Markets

An Investment-Grade Exchange

A

LTHOUGH MANY MARKETS have slumped in the face of recession, the Cairo and Alexandria Stock Exchange (CASE) is on track to post a strong performance in 2008. In fact, as of March 2008, the CASE had posted gains of nearly 7% year-to-date, making it the second-best performing exchange in the world after Brazil. As market players across the globe can attest, it’s not the first time the CASE has out-performed expectations. Since 2003, the exchange — or the bourse, as it is locally known — has been among the best-performing in the world, closing up more than 100% in both of 2003 and 2004. The CASE’s renaissance was spurred by Egypt’s ambitious program of economic reforms starting in 2003/04, but it has gained momentum because of simple market fundamentals. The Egyptian exchange is simultaneously one the deepest, most broad-based and most liquid in the Middle East and North Africa. It is also a leader not just regionally, but among all emerging markets, on the regulatory front. In recognition of its regulatory soundness and sophistication, the CASE became the first Arab member of the World Federation of Exchanges in November 2005. Broad and Deep The depth of the Egyptian economy is reflected in the more than 429 companies covering some 22 sectors that are listed on the CASE. That combination of depth and breadth is unique in the region and helped the bourse record double-digit gains in 2006 while some other Arab markets suffered significant losses. As regional markets rallied in 2007, Egypt ranked third behind Muscat and Abu Dhabi, posting a gain of 51% for the year, a figure that topped both Dubai and Saudi Arabia. Driving Egypt’s performance: An influx of foreign investment that saw offshore investors account for 30-35% of daily turnover on the bourse as well as continued high-quality earnings growth. In the 2007 annual bt100 ranking of the CASE’s largest actively traded companies, for example, net earnings surged 22%. Foreign interest in the exchange is also obvious from the success of index products including the highly regarded Dow Jones CASE Egypt Titans 20 Index. Regulatory Environment Egypt’s capital markets are regulated by the Capital Market Authority (CMA), while the CASE serves the role of operator and the independent Misr Clearing for Settlement and Depository (MCSD, owned by the CASE, banks and brokerage houses) performs depository and registry functions for listed equities. Booming capitalization and good liquidity have been the rewards of the CASE’s tough decision to demand more and better disclosure from listed companies. As the chairman of the CASE has explained, the move weeded out corporations not considered investor grade. Although investors and other participants in the market are reaping gains, the first to have seen the benefits of increased transparency were CASE companies themselves, which now understand that the exchange’s disclosure regulations were as much

The CASE’s success is built on sector diversity and corporate discipline.

for their benefit as they were for that of the exchange. Investors have cheered and rewarded the companies’ commitments to delivering better quality disclosure in a more timely manner. At the same time, the government is working with the Egyptian Institute of Directors (EIOD) to train a new generation of corporate leaders at both listed and privately held companies. Today, the CASE’s strategy is to prize quality over quantity. That priority led the exchange in 2004/05 to enforce the listing rules of 2002 and, ultimately, to accept the delisting of more than 50% of listed companies. As a result, the market has become more reflective of developments at both listed companies and in the resurgent national economy. The exchange’s commitment to better quality of disclosure and to the adoption of world-class principles of corporate governance does not stop at the listing rules. The bourse has provided its companies with a new web-based technology platform to help them file disclosure in a timely manner. Company officers, investor relations managers and directors now have access to ongoing education and training programs. Boards of directors are exploring the principles of — and global best practices in — corporate governance. Audit committee members are getting real-world training. Sophisticated Instruments Meanwhile, investors in the Egyptian market have access to a sophisticated range of safe and proven trading instruments and regulations. Same-day trading is a reality in Egypt, as is online trading. The market boasts a wide variety of mutual funds and exchange-traded funds, and investors of all forms are served by a selection of brokerages and investment banks, including some of the biggest in the region. In the first half of 2008, the CASE will introduce both margin trading and short selling, the first of a wave of new financial instruments that will include derivatives, which could become operational in Egypt as early as 2009. ■

20

INVEST IN EGYPT
Capital Markets
Market Capitalization January 2005 - January 2008
EGP billion 86.12%
900 800 700 600 500 400 200 100 0 300

113.88%

%
120 100 80 60 40 20

81.62%

Comparative Valuations of the S&P/IFCG Indices (P/E Ratio vs. Dividend Yield as of End of December 2007)
P/E Ratio 80 Saudi Arabia 70 60 China 50 40 India Morocco Kuwait 30 Peru Egypt Jordan Czech 20 South Africa Mexico 10 Hungary 0 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 DY%

Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan 08

268 296.94 292.56 300.62 304.57 337.22 343.47 344.38 387.95 394.31 393.65 456.18 53.199 494.98 449.48 442.74 404.43 376.97 426.48 461.36 486.51 496.09 503.43 533.89 504.18 537.82 547.85 555.46 595.81 602.00 630.84 618.74 645.53 696.39 725.05 768.18 832.69

49.77%

0

Source: S&P/IFC

Source: Capital Market Authority

Percentage Change in S&P/IFCG Egypt vs. Other Emerging Markets in 2007
% 120 108 106 100 80 74 73 80 67 65 52 5250 50 60 45 44 42 40 37 36 35 35 35 34 33 40 27 2323 22 16 14 13 13 20 5 1 -84 0 -11 -20 -40 -60 -80 -100

Volume of Traded Stocks and Bonds
Average monthly Million securities 10,000 8,000 4,000 2,000 0 2,372.9 6,000 9,422.8 Volume

Source: Standard & Poor’s website

Nigeria China India Turkey Brazil Oman Peru UAE Egypt Czech Indonesia Morocco Malaysia Pakistan Kuwait Thailand Saudi Arabia Qatar Bahrain Philippines Israel Jordan S. Korea Poland Chile Russia South Africa Hungary Mexico Colombia Taiwan Argentina Sri Lanka Zimbabwe

04/05

189.4

05/06

5,834 486.2

06/07

Source: Cairo and Alexandria Stock Exchange

Performance of S&P/IFCG Egypt Relative to S&P/IFCG Middle East & Africa in 2007
570 520 470 Egypt 420 370 320 Middle East 270 and Africa 220 170 120 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07

Value of Traded Stocks and Bonds
Average monthly Value

150,000 100,000 50,000 0

241,443.4

72,831.1

200,000

20,120.3

261,638.7

EGP million 300,000 250,000

04/05

6,350

05/06

06/07

Source: Standard & Poor’s website

Source: Cairo and Alexandria Stock Exchange

The Nilex

One of the more exciting recent developments on the CASE was the late 2007 announcement that Egypt will soon be home to a sector-agnostic exchange for small- and medium-sized enterprises. The hotly anticipated launch of the Nilex, as the SME exchange will be known, will provide foreign and inland investors with a convenient way to invest in Egypt’s highly active SME sec-

tor — and guarantee them an equally convenient means of exiting their investments when the time is right. Listed companies will be shepherded through the process by “sponsors”: Licensed business and finance advisors who will serve a role similar to that of an investment bank — or “nomad” for those familiar with London’s Alternative Investment Market — throughout the listing process.

21,710.8

785.2

21

INVEST IN EGYPT
Egypt’s Global Trade Profile

The Export Hub

G

LOBAL MANUFACTURERS AS diverse as GAP, Procter & Gamble, Pirelli and Cadbury are exporting from Egypt in record numbers. It’s not difficult to see why. Much of it has to do with highly competitive wage and utility costs, proximity to key markets, an educated workforce, low corporate taxes and a large domestic market. But the real secret to the many export success stories now being written has to do with Egypt’s large basket of trade agreements, which gives manufacturers based here preferential access to some of the world’s most important markets. A World Trade Organization member, Egypt has trade agreements with the European Union, the European Free Trade Association, the Agadir countries, the United States, Eastern and Southern Africa and the Arab states. Egypt also has a unique free-trade agreement with Turkey. Top Partners In 2006/07, Egypt’s total global trade stood at US$ 59.8 billion, with US$ 20.4 billion of that figure being with the European Union, Egypt’s top trade partner. That same year, the country exported a total of US$ 22 billion, more than triple the US$ 7.1 billion recorded in 2001/02. Egypt’s largest single-country trading partner is the United States, with which Egypt traded US$ 15.11 billion in 2006/07. In 2006/07, the EU absorbed 34% of Egypt’s exports, propelled by the 2004 EU-Egypt Association Agreement, which provides Egypt with preferential access to the European Union. Among the top purchases made by EU countries were petroleum products, crude oil, aluminum, iron and steel products and ready-made garments. The US purchased 31% of total exports, while exports to Arab countries stood at 13% during the same year. Top Sectors Non-petroleum export sectors in 2007 included processed foods, ready-made garments, building materials, chemicals, engineering products and home furnishings. In the years ahead, the nation will attract significant new foreign investment in seven core sectors, with foreign partners establishing themselves in unique industrial zones and clusters to harness the country’s preferential trade agreements. These sectors include building materials, engineering products, fresh agri-produce, processed foods, textiles, ready-made garments and furniture. As Egypt’s export base has diversified, the balance has shifted in favor of non-petroleum exports, with the value of non-oil proceeds more than doubling from US$ 4.7 billion in 2001/02 to a record high of US$ 10.1 billion in 2006/07. Today, non-oil exports account for an average of 58.5% of Egypt’s exports. Along the way, the country has begun exporting growing quantities of value-added manufactured products, with the fastest-growing sectors of the past decade including metals and metal products, chemicals, food processing and agricultural products. In food products, sales of essential oils, resins, spices, dried onions, preserved vegetables and the like have shot up a remarkable 97.5% in the period 2001/02 through 2006/07.

Egypt’s Suez Canal is the shortcut to lucrative international markets.

Exports of chemical products (including fertilizers and pharmaceuticals) grew at a healthy 48.7% pace in the same period, while sales of metal products surged 34%. From the rest of the world, Egypt imported US$ 37.8 billion in goods and services in 2006/07, more than double the US$ 14.6 billion it purchased in 2001/02, creating an annual growth rate of 16%. Egypt’s primary imports include investment and intermediate goods such as iron and steel products, chemicals, plastics, animal and vegetable oils and fats, and wood. Key investment goods imported include spare parts and car accessories (US$ 833 million in 2006/07), communications equipment (US$ 431 million), computers (US$ 338 million), optical appliances (US$ 288 million) and motors, generators and spare parts (US$ 273 million). Record Levels for Exports of Service Exports of services (net of imports) have grown sharply in the five-year period ending 2006/07, with the average annual growth rate clocking in at 25%. Egypt’s services balance recorded a surplus of US$ 11.4 billion in 2006/07, up from US$ 4.9 billion four years earlier, with tourism (US$ 8 billion), Suez Canal proceeds (US$ 4.2 billion) and investment income (US$ 3 million) leading the way. The real success story in services is still being written: Today, dozens of foreign companies ranging from Vodafone to Satyam, Microsoft to Oracle are outsourcing their call center and

22

INVEST IN EGYPT
Egypt’s Global Trade Profile

Egypt’s Most Dynamic Exports, 2001/02 to 2006/07 Product Group
Aluminum articles Metals and its products Aluminum, not mixed Articles of iron and steel Fuels Crude petroleum Petroleum products Citrus fruits Agriculture products Flax, raw Groundnuts Potatoes Dried onion Food Essential oils and resins Preserved and dried vegetables Spices and vanilla Fertilizers Chemical products Charcoal and types thereof Carbon Pharmaceuticals Total exports
Source: Central Bank of Egypt

Egyptian Exports by Product FY 2006/07

Average Growth Rate (%)
30.2 41.2 30.4 24.7 33.5 73.6 34.9 102.5 100.2 120.2 89.5 119.9 60.2 38.6 74.4 46.8 35.0 21.4

Machinery and other equipment, 4%
M pr eta od l uc and ts, it 15 s %

Vehicles, 2%

Source: Central Bank of Egypt

Egyptian Imports by Product FY 2006/07

F 4%ood

Chemicals products, 7% d its n an otto ucts, 7% C d % pro ,2 als re Ce

Oil and its products, 59%

pr oc es s

in g,

Oil and its products, 21%

Metal and its products, 17%

The Egyptian Economy’s Degree of Openness

ot Mac he h r e ine q r 12 uip y an % m d en t,

h Ve icl ,1 es 0%

Food processing, 12% Cereals, 9%
its nd % n a ts, 5 tto uc Co rod p

customer support operations to Egypt, creating thousands of new high-skill jobs in the process. New Industrial Zones To facilitate investment in Egypt for companies looking to harness the nation’s export power, the government has signed agreements with China, Russia, Turkey, Jordan, Qatar and Spain to create special industrial zones and clusters here. These centers of export excellence will group together foreign investors and top Egyptian exporters alike, with both being supported by the country’s increasingly efficient and diverse group of feeder industries. As Egypt continues to shift its export focus to medium- and high-technology industries, the country will continue to break open new markets while deepening its ties to existing trade partners. In the years ahead, foreign trade will be not just a driver of economic growth, but also a sustainable engine of job creation. ■

00/01

01/02

02/03

03/04

04/05

05/06

06/07

% 80 70 60 50 40 30 20 10 0

44.47 43.60

48.48

60.17

67.21 70.33 69.42

Chemicals products, 14%

Source: Central Bank of Egypt

Degree of openness is defined as exports plus imports as a percentage of GDP. Source: Central Bank of Egypt, Ministry of Economic Development and Ministry of Finance

Exports by Geographical Distribution FY 2006/07
, ntries r cou Othe 7%

Afro-Asian countries, 15%

EU, 34%

t oun bc Ara 13%

, ries

US, 31%

Source: Central Bank of Egypt

23

INVEST IN EGYPT
Public-Private Partnerships

New Investment Horizons

The Marsa Alam Airport is Egypt’s first privately run airport.

A

N IMPRESSIVE ECONOMIC growth rate that topped 7.1% in 2007 and accelerated to 7.5% for the first half of 2007/08 has put new demands on Egypt’s infrastructure. The government has consequently stepped up to the challenge by pledging to involve the private sector in every aspect of the economic reform process. Not only is the state encouraging more foreign and inland investment in the country’s burgeoning industrial and service sectors, but they have also allowed the private sector to deepen its participation in the economic reform process through a public-private partnership (PPP) strategy that aims to enhance the quality of services available in the country while simultaneously decreasing the financial burden on the government. In 2006, the Ministry of Investment initiated a comprehensive PPP promotion strategy, which included the creation of a legislative and institutional framework that will facilitate the execution of major PPP infrastructure projects and encourage more local and foreign investors to partner with the government in priority sectors including water, transportation, health and education. On the legislative front, the Ministry of Finance is currently drafting new PPP legislation to govern the relationship between the government and the private sector detailing the responsibilities of each side. The law is expected to become final later this year. On the institutional and capacity building fronts, a joint PPP

Unit has been established by the Ministries of Investment and Finance. Sector specific regulatory agencies have also been established to deal directly with various projects that are already in the works. Between 1990 and 2005, the private sector was involved with PPPs in four infrastructure domains, including telecommunication, transportation, water and sewage, carrying out 20 projects with a total investment cost of US$ 7.5 billion. The telecom sector accounted for the lion’s share of investment at US$ 5.27 billion. This was, however, just the beginning of a successful experiment that the government intends to replicate and vastly expand in the future. More recently, the government has tendered for the construc-

Why PPP?
• • • • • • To mobilize private funds To address budget limitations To make use of private-sector expertise and know-how To respond to the increasing demand on public services To meet expectations for better services To address backlogs in infrastructure maintenance

24

INVEST IN EGYPT
Public-Private Partnerships
tion and operation of schools as part of a program aiming to build 2,210 new schools; fresh and sewage water treatment projects in Cairo and Borg El Arab; and billions of dollars in new highway projects that will speed traffic between the nation’s north and south, between industrial zones and ports. Tenders for many more projects are in the pipeline. In the transportation sector alone, a projected US$ 16.45 billion in public and private investments will target upgrades in railways, roads, ports and Nile transportation during the next five years. According to the Egyptian Ministry of Transportation, US$ 9.14 billion of private-sector investments will go into ports; US$ 5.48 billion will go into building and upgrading roads and US$ 3.66 billion will go into railways. Approximately one third of the total investments will come from the state and the rest will come from private investors. Foreign companies have already placed sizeable investments into Egyptian ports. Danish shipping and oil group AP Moeller-Maersk signed an agreement with the Egyptian government to double the capacity of its East Port Said terminal by 2011. In October 2007, Dubai port operator DP World acquired a 90% stake in the Egyptian Container Handling Co., located near the mouth of the Suez Canal for US$ 670 million. In the field of education, the Egyptian Education Initiative (EEI) is a PPP between the government of Egypt, the World Economic Forum’s IT member community and multinationals including Cisco, HP, Intel, Oracle, IBM, Microsoft, Siemens and Computer Associates. The initiative supports Egypt’s overall education reform efforts and maximizes the potential for a collaborative partnership. The main objectives of the initiative are to improve the development and delivery of education, to raise the quality of teacher training, to develop skills needed for a knowledge society and to provide education to a wider sector of the population. The increased involvement of the private sector in major initiatives such as these reflects the government’s firm commitment towards upgrading the quality of services and facilities for its citizens. ■

Private Participation in Infrastructure
(US$ million) 8,000 7,000 5,275 6,000 5,000 4,000 3,000 2,000 1,092 220 398 1,000 0
BOOT Concession BOOT BOT Electricity Natural Gas Telecom Airport 7,533

Sea Ports

BOT 547 TOTAL

Source: World Bank and PPIAF, PPI Project Database

Current PPP Opportunities
Education: Schools
• • • • • 2210 schools in batches Timeframe: 5 years Total investment cost: US$ 1.32 billion Transaction advisor: IFC Status: Tender phase

Port Said / Alexandria / Matrouh Free Road
• • • •

Length: 530 kilometers Investment cost: US$ 400 million Transaction advisor: IFC Status: Technical preparation

Utilities: New Cairo Potable Water Treatment Plant
• • • • Capacity : 1 million m3/day Total investment cost: US$ 300 million 2 Phases – Capacity 500,000 m3/day each First phase: • Investment cost US$ 180 million • Transaction advisor: IFC • Status: Technical preparation

Health Care: Re-construct 3 Hospitals in Cairo
• Status: Technical preparation

Higher Education: Re-construct 2 Hospitals in Alexandria
• • Transaction advisor: IFC Status: Technical preparation

New Cairo Waste Water Treatment Plant
• • • •

Capacity : 500,000 m3/day Total investment cost: US$ 450 million 2 Phases – Capacity 250,000 m3/day each First phase: • Capacity 250,000 m3/day • Transaction advisor: IFC • Status: Prequalification stage

Irrigation: West Delta Irrigation Project
• •

Investment cost: US$ 200 million Status: Tender phase

Energy: Distribution of Natural Gas
• • 6 million connections Status: Planning phase

Transport: Cairo/Alexandria Free Road
• • • •

Length: 231 kilometers Investment cost: US$ 600 million Transaction advisor: IFC Status: Technical preparation

25

INVEST IN EGYPT
The Global Community’s Reaction

Reforms Win International Recognition

T

HE ACCOLADES BEGAN in July 2007 when Egypt became the first Arab and first African country to sign the Organization for Economic Cooperation and Development’s (OECD) Declaration on International Investment and Multinational Enterprises, a policy commitment to improve the investment climate and encourage economic and social progress. According to the latest report on Egypt’s investment policies, presented at the signing ceremony in July, barriers to entry have been eased for both domestic and foreign investors, customs procedures streamlined and a dedicated ministry has been set up in 2004 to promote and manage investment. The OECD’s Investment Policy Review of Egypt 2007 says, “foreign direct investment inflows increased twelve-fold between 2001 and 2006, reaching US$ 9 billion in the first three quarters of its 2007 fiscal year, compared with US$ 6.1 billion for 2006 as a whole.” That review was soon seconded by another influential report. In September 2007, the World Bank’s Doing Business 2008 report, which tracks the progress of 178 countries worldwide in terms of how easy it is to start, maintain and exit a business, named Egypt as the “top reformer of the year” with its overall ranking climbing up 35 spots to 126. A month later, the United Nations Commission on Trade and Development’s (UNCTAD) World Investment Report 2007 positioned Egypt at number 33 in a list of 141 countries on their FDI Index for pulling in a total of US$ 10 billion in FDI between January and December 2006. The ranking makes Egypt the top recipient of foreign investments in Africa and the second highest country in the Middle East after Saudi Arabia. According to the report, in 2006 Egypt succeeded in attracting 30% of FDI directed to Africa and 43% of FDI flows to the North Africa region. UNCTAD praised Egypt’s improved investment climate and the new opportunities that are now available in the country noting that the FDI structure in Egypt has changed drastically with non-oil investments now representing 70% of total investments coming into the country. Egypt Named Top Reformer Egypt now tops the World Bank’s list of countries that have made the most progress in reforming their economies and facilitating the procedures required to do business. Egypt has improved in five of the 10 areas analyzed by the Doing Business team. Egypt’s impressive ranking as top reformer puts it ahead of countries such as Croatia, Saudi Arabia and China. According to the World Bank: “Egypt, the top reformer in the region and worldwide, greatly improved its position in the global rankings on the ease of doing business. Its reforms went deep. Egypt cut the minimum capital required to start a business, from EGP 50,000 to just EGP 1,000 and halved the time and cost of starting-up operations. [In 2008, the minimum capital requirement to start a business was further reduced to EGP 200.] “Property registration fees were reduced from 3% of the property value much more reasonable fixed amount,” the report

Investment opportunities extend far beyond the capital’s confines.

continued. “The government also eased the bureaucracy that builders face in getting construction permits and launched new one-stop shops for traders at Egyptian ports, cutting the time to import by seven days and the time to export by five. A new private credit bureau was recently established that will soon be making it easier for borrowers to get credit.” The report is considered very significant in its implications regarding investment. Countries such as Egypt that are “reforming” pose an attractive proposition for investors who want to capitalize on untapped potential. The opportunities that are now available in Egypt are expected to attract similar levels of interest, relative to its size, as India or China, both countries that once ranked poorly and have since reformed. One of the most dramatic reforms that Egypt has undertaken is the opening of several One-Stop Shops throughout the country. As a joint venture between the General Authority for Investments and Free Zones (GAFI) and the International Finance Corporation (IFC), these One-Stop Shops were created for the sole purpose of speeding up the process of and cutting down the costs when opening up a business. Instead of several months, it is now possible to obtain licenses in two days and new business registration fees have been cut by 40%. Today these shops are in the cities of Cairo, Alexandria, Assuit and Ismailia. Beyond making business easy, Egypt was applauded for its efforts to reform taxation. The tax system has been streamlined, with the corporate income tax rates cut from 32-40% to a uniform 20%; the approximately 3,000 different types of exemptions have been eliminated. Gaining International Respect By cutting the red tape out of business, the government has created an environment that is friendly to the private sector — and that’s now attracting attention from some of the leading investment watchdogs worldwide. ■

26

INVEST IN EGYPT
The Global Community’s Reaction

The Top 10 Reformers in FY 2006/07 Starting a Dealing with Rank Economy Business Licenses
1 2 3 4 5 6 7 8 9 10 Egypt Croatia Ghana Macedonia, FYR Colombia Georgia Saudi Arabia Kenya China Bulgaria √ √ √ √ √ √ √ √ √ √ √ √ √

Employing Workers

Registering Getting Protecting Paying Property Credit Investors Taxes
√ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √

Trading Across Borders
√

Enforcing Contracts

Closing a Business
√

√ √

√

√ √ √ √

Notes: Economies are ranked on the number and impact of reforms. Doing Business first selects the economies that reformed in three or more of the Doing Business topics, then ranks these economies on the increase in rank in ease of Doing Business from the previous year. The larger the improvement, the higher the ranking as a reformer. Source: World Bank (2008) Doing Business Report

Largest Affiliates of Transnational Companies Operating in Egypt, 2004

Largest Recipients of FDI Inflows Among Developing Countries (2006)

Company
A. Industrial Exxon Mobil Egypt Ahram Beverages Company Unilever Mashreq Transport & Engineering Dsm Anti-Infectives ABB High Voltage Nissan Motor Egypt Pharma Swede-Egypt Duravit Egypt Egyptian German Telecommunication Industry Gianaclis Vineyards for Beverages Energizer Egypt B. Tertiary Egyptian Co. for Mobile Services (Mobinil) Vodafone Egypt Bauer Egypt Soil & Engineering Foundations Henkel Trading Egypt Bardissy Import Ferrostaal Egypt C. Finance and Insurance Credit Agricole Egypt National Société Générale Bank HSBC Bank Egypt Cairo Barclays Bank Arab Banking Corporation Egypt

Home Economy
United States

Industry
British Virgin Islands Taiwan Province of China Chile United Arab Emirates Thailand Egypt Romania India Saudi Arabia Brazil Mexico Turkey Singapore Hong Kong, China China 6,463 7,424 7,952 8,386 9,751 10,043 11,394 16,881 18,293 18,782 19,037 20,120 24,207

Petroleum Food products, beverages Switzerland and tobacco Chemicals and chemical United Kingdom products France Rubber and plastic products Chemicals and chemical Netherlands products Electrical and electronic Switzerland equipment Japan Motor vehicles and trailers Chemicals and chemical Sweden products Non-metallic mineral Germany products Electrical and electronic Germany equipment Food products, beverages Switzerland and tobacco Chemicals and chemical United States products France Germany Germany United States Germany France France United Kingdom United Kingdom Kuwait Telecommunications Construction Research and development Wholesale trade Wholesale trade Finance Finance Finance Finance Finance

US$ million
42,892 69,468

0

Source: UNCTAD (2007) World Investment Report

Inward FDI Performance Index (2006)
South Africa Algeria Brazil Mexico Malaysia Morocco Tunisia Egypt United Arab Emirates Jordan 8 24 33 41 55 62 82 93 110 120

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

United Kingdom Telecommunications

0

20

40

60

80

100

120

140

Source: UNCTAD (2007) World Investment Directory, Country Profile, Egypt

The Inward FDI performance index is the ratio of a country’s share in global FDI inflows to its share in global GDP. Source: UNCTAD (2007) World Investment Report

27

Industry Overviews

Major multinational food producers including Heinz, Tetra Pak, Unilever, Cadbury, Nestle, Kraft, Cadbury, Danone and Coca-Cola all have a manufacturing presence in Egypt. Global research-based pharmaceutical giant Novartis is now producing in Egypt to support its global operations. The nation’s fast-growing white-goods industry manufactures in partnership with global giants including Electrolux, Panasonic, Daewoo, Philips and KOC group and employs some 45,000 workers. Italy’s Sanpaolo IMI has acquired 80% of the Bank of Alexandria for US$ 1.6 billion — a record-breaking price that was six times the bank’s book value. Egypt’s US$ 8.2-billion-per-year tourism industry will welcome 18.5 million visitors a year by 2015. More than 130,000 new hotel rooms are under construction. Multinationals including Microsoft, Teleperformance, Oracle, France Telecom and Intel, among dozens of others, source IT development and customer support from Egypt. Marks & Spencer, GAP, Wal-Mart, Levi Strauss, Target and Calvin Klein are among the global brands sourcing from Egypt’s textiles and garments industry. More than 440 companies are manufacturing a wide range of automotive components for local consumption and export to global automotive giants.

INVEST IN EGYPT
Industry Profiles

Food Processing

W

ITH AN ANNUAL growth rate of over 34%, the Egyptian food processing industry is one of the most dynamic and fast-growing manufacturing sectors in the country. According to the Industrial Development Authority, the industry’s output grew by 37% between 2001 and 2007. With 6,000 food manufacturing facilities currently operating in the country, the sector employs 2.2% of the country’s labor force and generates 50% of manufacturing output. Today, Egyptian factories produce a wide variety of products including frozen vegetables, tomato sauces, juices, starch, dairy products, confectionery, herbs and spices, processed cheese and essential oils. Egypt’s Competitive Advantage Egypt is endowed with an agricultural sector that is capable of providing food processors with comparatively low priced, high-quality agricultural products. Land reclamation efforts during the past decade have added an additional 277,000 feddans, bringing Egypt’s grand total of cultivated land area to 6.8 million feddans (7.06 million acres). Unlike Europe, Egypt’s climate and the nature of its agricultural seasons make it possible to cultivate winter crops from November to May when agricultural production becomes very limited in neighboring Europe. Egypt’s climate and geographic proximity to export markets in Europe, the Middle East and Africa, coupled with a number of regional and international trade agreements, competitive wages, favorable energy prices and low corporate taxes, make the country ideally suited to become a major manufacturer and exporter of food products.
Egypt’s food producers export throughout Africa and the Arab world.

Foreign Investment The stock of investments in Egypt’s food processing industry accounts for 14% of the total issued capital for manufacturing companies and 5% of all businesses established under the umbrella of Investment Law 8 and Companies Law 159. Egypt’s food processing sector has attracted a host of multinational companies that have not only been catering to the local market but also using Egypt as an export hub. Thirtyseven percent of the investments in Egypt’s food processing industry come from foreign companies that have made use of Egypt’s clear competitive advantage in the sector. Prominent multinationals Heinz, Tetrapak, Unilever, Cadbury, Alcoa, Nestle, Kraft, Cadbury, Danone and Coca-Cola all have a manufacturing presence in Egypt. Heinz, one of the first foreign food companies to invest in Egypt, established Heinz Egypt as a joint venture with local investors in 1992. The business initially began as an import operation for tomato concentrate but quickly grew into a thriving manufacturing base for the company, producing tomato-based products, juices, jams and condiments for Egypt and other Arab markets. Heinz is now exporting approximately 35% of its total output to markets in the Middle East and North Africa.

Exports A combination of targeted economic reform measures and private-sector led expertise has helped the Egyptian processed food sector achieve substantial growth in exports in recent years. Over the three-year period between 2004 and the end of 2006, Egypt’s export of processed food products increased by a healthy 24.6%. Benchmarking the country’s export performance against five comparator economies indicates that China (+45.2%) and Morocco (+25.7%) have surpassed Egypt’s performance, while Egypt has outpaced Turkey (-9.1%), South Africa (+15.5%) and Spain (+7.2%). According to the Ministry of Trade and Industry, Egypt exported EGP 6.9 billion (US$ 1.3 billion) worth of processed food products in 2007 up from EGP 5 billion in 2006 and 3.9 billion in 2005. Egypt is ranked among the top five exporters of vegetable and fruit juices in the Mediterranean basin after Spain, Italy and Morocco. Egypt also exports large amounts of rice, preserved fruits, frozen vegetables and dried onions. The bulk of Egypt’s food exports go to regional markets — particularly GCC and COMESA countries — where similar

30

INVEST IN EGYPT
Industry Profiles
Value of Output and Investment Cost in the Food Processing Sector*
EGP billion 80 70 60 50 40 30 20 10 0
51.5

Number of Projects in the Food Processing Sector*

Value of Output Investment Cost 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

67.1

65.1

70.1

4,830

2001

35.8

2002

38.1

2003

38.8

2004

41.1

2005

42.4

2006

43.5

2007

46.0

2001

2002

5,000

2003

5,130

2004

5,300

2005

5,461

55.0

2006

5,613

56.5

Source: Industrial Development Authority, 2008

Source: Industrial Development Authority, 2008

Average Annual Wages and Salaries in the Food Processing Sector
3,000 2,500 1,649 1,674 1,689 1,729 1,500 1,000 500 2001 2002 2003 2004 2005 2006 2007 0 2,102 2,000 2,403 US$

Source: Industrial Development Authority, 2008

Production of Selected Products of the Food Processing Industry Product
Chocolate Preserved vegetables Tomato sauces Yeast Starch

1,564

Production of Selected Fresh Vegetables and Fruit Produce (thousand tons) Produce
Tomato Aubergine Marrow Green pepper Cabbage Sweet potato Fresh haricot Fresh peas Artichoke Taro Okra Molokhia Fresh kidney beans Dry haricot Dry kidney beans Strawberry Cantaloupe Carrot Okra

Unit 1995/1996 2003/2004
Ton Ton Ton Ton Ton ‘000 Ton Million Ton Ton Ton Ton ‘000 Ton Ton ‘000 Ton Ton Ton Ton Ton Ton Ton 18,837 13,916 12,236 30,124 36,875 498 45,622 22,985 24,737 n/a n/a 583 4,421 11 n/a 12,858 n/a n/a n/a n/a 19,550 49,930 29,679 21,595 52,988 636 63,396 48,160 35,462 194,416 323,079 1,435 29,642 294 23,110 20,726 22 439,246 5,527 867

2006
8,576 1,180 699 684 585 352 260 222 128 125 109 108 67 54 10 128 745 121 109

tastes and dietary considerations create a huge market for Egyptian products. In 2007, Saudi Arabia was the largest recipient of Egyptian food products, at US$ 151 million, followed by Libya which imported US$ 129 million worth of Egyptian foodstuffs. The Local Market Egypt’s processed food sector is also experiencing substantial growth on the local market. With a population of 74 million, changing life styles and the fact that more women are joining the labor force, demand for processed food products in Egypt is on the rise. The scope for further investments in the food processing industry for both the local and export markets remains substantial. ■

Molasses Cigarettes Cheese & related products Pasteurized milk Raw sugar Raw beet sugar Refined sugar Processed cheese Sunflower seed oil Soya oil Corn oil Sesame oil Hydrogenate oil Crude cotton seed oil Crude flax seed oil

n/a = Not Available Source: CAPMAS (2007) Statistical Year Book

Source: CAPMAS (2007) Statistical Year Book

* Number of projects, output value and investment cost is for the stock of companies registered under the umbrella of the Industrial Registry since 1980. The actual number of manufacturing establishments operating in the sector, as well as output value, may exceed the above figures by a margin of up to 50%.

2007

5,868

62.9

31

INVEST IN EGYPT
Industry Profiles

Automotive Assembly and Components

T

HE EGYPTIAN AUTOMOTIVE assembly industry dates back to the late 1950s, when El-Nasr Automotive Manufacturing Company (NASCO), a state-owned conglomerate, was established as a manufacturer of passenger cars, trucks, buses, agricultural tractors, trailers and engines in the region. NASCO held a virtual monopoly on automotive production in Egypt until the economic reforms of the late 1980s. In 1977, Arab American Vehicles (AAV) was established as a joint-venture between the Arab Organization for Industrialization and American Motors of the USA, becoming the second-largest assembler of motor vehicles in Egypt. With the industry’s opening to private-sector participation in the 1980s, several international players came onto the scene, the first among them General Motors (GM), which began operations in Egypt in 1985 focusing mainly on the assembly of trucks and minibuses. In the more than two decades since, the automotive assembly sector has grown from just three assembly operations that relied mainly on imported components to 26 assembly lines (11 for passenger cars, 9 for commercial vehicles and 6 for buses) with local content exceeding 50% for most assembly companies. Some 440 companies are also manufacturing a wide range of automotive components for local consumption and export. The two sectors together (components and assembly) employ a total of 59,000 workers. Global players such as Opel, BMW, MercedesBenz, Nissan, Citroen, Chrysler, Daewoo, Peugeot, Hyundai, Suzuki and GM are all active in the Egyptian market. Domestic production currently accounts for 65% of local sales according to Business Monitor International. Automotive Assembly Egypt is the largest automotive manufacturer and assembler in Africa. According to the Egyptian Automobile Manufacturers Association (EAMA), production of commercial vehicles and passenger cars has more than doubled over the past five years. In 2003, local assemblers produced 50,000 units as opposed to 119,000 units in 2007. Passenger cars account for roughly 65% of total local assembly. Economic reforms and the associated growth in per capita income, as well as the variety of car loans now available on the Egyptian market, have led to significant growth in the domestic car market. The scope for further expansion in private vehicle ownership in Egypt remains significant, with ownership currently standing at 23 vehicles per thousand people compared to 35 per thousand in Iran and over 100 per thousand people in Saudi Arabia. The market is expected to continue to grow reaching an estimated 4–500,000 cars per year within five years. Automotive Components (Feeder Industries) A wide range of automotive components including upholstery, radiators, battery brackets, fenders, cables, headlights, jacks, air conditioners, tires, rubber parts, springs, brake pads, paint materials and exhaust systems are presently being manufactured in Egyptian factories. Local content regulations require that vehicles assembled in Egypt be comprised of at least 40% locally sourced components. These reg-

Egypt’s auto parts industry is joining the global supply chain.

ulations have helped the automotive feeder industries to significantly upgrade the quality of their products to meet the rigorous standards of international car manufacturers operating in Egypt. Today, local content has exceeded 50% for most automotive assemblers and 70% for bus assemblers. The size of the automotive components industry is estimated to be US$ 530 million; US$ 370 million goes directly to the local original equipment manufacturers (OEM) and the after sales market for 3.2 million vehicles. The sector has absorbed some US$ 130 million in investments and employs 11,700 engineers and technicians. A total of 90 companies are categorized as tier-one suppliers for Egyptian automotive assemblers. Key Market Players Hyundai and Daewoo Motors are the two leading passenger vehicle assemblers in Egypt, while General Motors is the market leader in the assembly of light commercial vehicles. Manufacturers of Commercial Vehicles (MCV), a company that operates under license from Mercedes-Benz, is the largest assembler of buses. While many countries are getting out of the assembly industry, Egypt’s sector has been attracting new investment from companies looking to export from Egypt and to sell to the domestic market. Turkish commercial vehicle manufacturer Temsa, for example, is set to begin construction on a US$ 26 million plant in Egypt’s Tenth of Ramadan Industrial Zone. The facility’s initial annual production capacity will be 500 buses and 500 minibuses supplying both local and export markets, primarily in the MENA region. Existing assemblers continue to make significant investments in their current production lines and are opening new lines to assemble new models. Exports The Egyptian automotive assembly industry exports 30% of local production. In value terms, Egyptian exports of vehicles have signifi-

32

INVEST IN EGYPT
Industry Profiles

Number of Projects in the Automotive Assembly and Components Industries*
620 600 580 560 540 520 500 480

Value of Output and Investment Cost in the Automotive Assembly and Components Industries*
160 140 120 100 80 60 40 20 0 EGP billion Value of Output Investment Cost
132.8 135.8 135.9

Production of the Automotive Assembly Industry Classified by Product

Buses, mini-buses & Vans, 5%

600

610

536

554

11.5

11.6

11.6

11.7

11.9

12.3

2001

2002

2003

2004

2005

2006

2007

2001

2002

2003

2004

2005

2006

Source: Industrial Development Authority, 2008

Source: Industrial Development Authority, 2008
Passenger Cars, 65%

2007

12.3

Source: IMC (2005) Strategic Study to Upgrade Egypt’s Automotive Sector

Exports of Vehicles, Cars and Other Means of Transportation
600 500 400 300 200 100 0 2002/03 2003/04 2004/05 2005/06 2006/07 111.4 First Half 2007/08 238.8 US$ million 481.3 379.8 161.6 371.5

Historical Data and Forecasts of Egypt’s Exports of Vehicles
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Units

Average Annual Wages and Salaries Per Worker in the Automotive Assembly and Components Industries
3,000 14,136 2,500 2,000 1,500 1,000 500 0 12,292 US$ 2,589

9,295

10,689

2,282

1,796

C H Ve om eav hi me y cle rc s, ial 9%
1,690 1,792 2005 2006 1,801 2004 2007 1,822

l cia er m % m 21 Co s, ht icle Lig Veh

126.8

127.3

127.5

564

577

590

2006 5,300

2007

6,466

2008

8,083

2009

127.7

2010

2011

2012

2001

2002

Source: Central Bank of Egypt

Source: BMI (2008) Egypt Auto Report, Q1

Source: Industrial Development Authority, 2008

cantly increased from US$ 111 million in 2002/03 to US$ 372 million in 2006/07 and US$ 481 million during the first half of 2007/08. Exports of buses accounted for the largest share of total vehicles exports, roughly standing at 63% of total exports. Egypt’s vehicle exports are projected to reach 14,000 units by 2012, an anticipated growth rate of 119% between 2007 and 2012. In value terms, projected export performance of this industry is expected to raise its importance to Egypt’s foreign trade. Meanwhile, players in Egypt’s US$ 160 million car components sector are showing they have what it takes to export regionally and even be integrated into the global supply chains of major parts distributors and car manufacturers. Leoni AG of Germany is a major investor in the Egyptian automotive components sector. Over the past 10 years, Leoni has been exporting all of its production and has plans to expand facilities in Egypt to replace lost capacity from other factories worldwide, where accelerating production costs are making it difficult to sustain operations. ■

Egypt’s Comparative Advantage in the Automotive Assembly Industry
Strategic Geographic Location Egypt’s proximity and preferential access to the European Union and Gulf Cooperation Council countries facilitate exports. Government Incentives The Egyptian government launched an initiative in collaboration with the German Chancellor in May 2006 that aims to position Egypt as the production center for automotive components in the MENA region. Two million square meters in Sixth of October City are being developed into an automotive industrial park. National Suppliers Development Program (NSDP) The NSDP is a program spear-headed by GM that aims to enhance the technical know-how of 60 local OEM suppliers, ultimately positioning them to become world class automotive suppliers. Low Labor Costs The availability of a large pool of skilled labor at competitive wage levels gives Egypt a further competitive edge against its competitors.

* Number of projects, oautput value and investment cost is for the stock of companies registered under the umbrella of the Industrial Registry since 1980. The actual number of manufacturing establishments operating in the sector, as well as output value, may exceed the above figures by a margin of up to 50%.

2003

33

INVEST IN EGYPT
Industry Profiles

Textiles and Garments

W

HY ARE MORE and more global brands sourcing their ready-made garments from Egypt? Consider this: Abundant supplies of high-quality long-staple and extra-long-staple cotton. A highly skilled, cost-effective workforce — the average hourly pay rate in the Egyptian textile sector is US$ 0.9 per hour. A wide network of preferential trade agreements, many of which provide tariff-free access to major global textile markets. A community of suppliers and manufacturers whose expertise in meeting global quality standards dates back to the nineteenth century. Proximity to major global markets, supported by a strong network of both Mediterranean and Red Sea ports. Those advantages and more are attracting global brands such as Marks & Spencer, GAP, Wal-Mart, Levi Strauss, Target and Calvin Klein to source from and invest in Egypt. As early as 2002, leading international fashion house Valentino outsourced 1% of its menswear needs to Egypt’s Arafa Group. At the same time, major textile powers such as China and Turkey are establishing industrial zones in Egypt, while a growing number of foreign companies are relocating their entire production operations to benefit from the advantages of the local industry. Meanwhile, a handful of home-grown players are becoming export powers in their own rights by acquiring design shops and labels in other markets. Others have responded to the increasing opportunities and competition within the sector by expanding and updating their operations, or going into partnership with multinational players to manufacture and sell products in Egypt’s booming market or for export around the world. Ranked among the top three carpet producers worldwide, Oriental Weavers is one such company, selling carpets in over 90 countries and capturing 30% of the United States’ market through its US-based Sphinx division. Attracting New Investment Offshore investment has accounted for 37% of all investment in the ready-made garments sector since 1970. Total investment in the sector (foreign and domestic) has risen by an average of 9.5% per year over the past four years. That figure is only set to rise in the years ahead: More than 40 Turkish textile firms have invested US$ 104 million in the sector, with four Turkish sourcing offices now active here in Egypt. Spanish garment-makers are also exploring the market following recent high-level trade talks. The world’s fastest-growing economy has caught on, too. In 2006, Egypt and China agreed to facilitate Chinese investments in the Egyptian textiles and ready-made garments industry through the establishment of a Chinese-Egyptian industrial zone. The two countries have also agreed to set up an Egyptbased Textile Technology Service Center to help upgrade processes and technology used by producers based in Egypt. Where Quality Counts Egypt’s commitment to quality dates back to the reign of the reformer Muhammad Ali Pasha (1805–1848), making Egypt one of the world’s most experienced garment and textile centers. Today, Egypt is home to the only fully vertically integrated tex-

Global apparel giants outsource their production to Egypt.

tiles industry in the Middle East: The whole production process, from the cultivation of cotton to the production of yarns, fabrics and ready-made garments, is carried out domestically. Egypt’s textiles and garments industry employs 25% of the country’s industrial labor force. As the industry adopts global quality standards, more and more companies are signing up for unique programs through the government’s Industrial Training Center (ITC), which provides subsidized training tailored to the specific needs of foreign and domestic industrial producers alike. Supplying the World Egypt exported more than US$ 1.2 billion worth of textiles and ready-made garments in 2006-07, accounting for 18% of the country’s non-oil exports that year. More than 38.2% of the exports consisted of ready-made garments, followed by cotton textiles (21.8%), cotton yarn (10.8%), cotton (10.5%) and carpets and other floor coverings (10.5%), among other categories. Major domestic exporters include Saba Apparel (exports of EGP 1.46 billion in calendar year 2007) and Swiss Garments (EGP 408.64 million in 2007). The US is Egypt’s single largest market for textiles, buying US$ 180.8 million in 2006-07, followed by the European Union

34

INVEST IN EGYPT
Industry Profiles

Number of Projects in the Ready-Made Garments Sector*

Value of Output and Investment Cost in the Ready-Made Garments Sector*
EGP billion 40 35 30 25 20 15 10 5 0
24.3

2001 1,550

2002

2003

2004

2005

2006

2007

2001

2002

2003

2004

2005

2006
.8%

Source: Industrial Development Authority, 2008

Source: Industrial Development Authority, 2008

Exports of the Textile and Ready-Made Garments Industry (EGP million) Product Export Value
Garments Upholstery Yarns and fabrics Total

Breakdown of Exports of Textile and Ready-Made Garments by Category FY 2006/07
Synthetic Fibres, 1.5%

2005
3,313 2,578 5.44 1,942

2006
5,696 3,262 1,710 10,669

2007
5,360 3,046 2,316
t Co

Ready-made Garments 38.2%

Carpet & Other Floor Coverings, 10.5% Cotton, 10.5%
to ar nY

10,722

Cotton Textiles, 21.8%

(US$ 160.7 million), then Asia and nonEU European countries. Through a broad-based campaign to attract new foreign and domestic investment to the sector — including an intensive campaign to recruit foreign retailers, modernize the industry and build on the success of free trade agreements — the Egyptian government plans to more than double textile exports to US$ 3 billion by 2011. While public-sector companies still account for the majority of weaving companies and the vast majority of spinners, the private sector dominates the knitting and garment sectors. The Egyptian government is actively looking to attract new private investment into the industry’s upstream segments to sharpen the nation’s competitive advantage in the global market. ■

Source: Minsitry of Trade and Industry

Source: Central Bank of Egypt

Average Annual Wages and Salaries Per Employee in the Ready-Made Garments Industry
1,200 1,000 800 600 400 200 2001 2002 2003 2004 2005 2006 2007 0 US$ 1,070

934

736

697

768

752

Source: Industrial Development Authority, 2008

* Number of projects, oautput value and investment cost is for the stock of companies registered under the umbrella of the Industrial Registry since 1980. The actual number of manufacturing establishments operating in the sector, as well as output value, may exceed the above figures by a margin of up to 50%.

721

2007

1,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 1,400

Value of Output Investment Cost

1,796

1,757

1,712

1,568

1,594

1,645

24.9

3.4

25.6

26.3

3.5

3.9

29.5

31.9

3.3

3.4

4.3

5.3

34.2

n, 10

35

INVEST IN EGYPT
Industry Profiles

Pharmaceuticals

A

FTER A PERIOD of quiet, Egypt is now positioned as a major export hub for the regional pharmaceutical market. Although local players once dominated the export game, major multinationals are now moving into the market: In April 2008, Novartis became the first multinational drug producer operating in Egypt to add its local facility to its global supply chain. In addition to making 123 products for local consumption, Novartis Egypt will now supply the company’s global operations with treatments for ocular and hormonal conditions. Today, Egypt has the largest drug-manufacturing base in the Middle East and North Africa (MENA), accounting for 30% of the regional market. With a 75% market share, the private sector dominates pharmaceutical production. The total value of the Egyptian pharmaceutical market is US$ 1 billion annually. Local manufacturers of generic drugs supply 52% of the market, while research-based multi-national companies account for the balance, either through “under license” local manufacturing or direct imports. Egypt began manufacturing drugs in the 1930s. By the early 1960s, three of the world’s top research-based pharmaceutical companies — Pfizer, Hoechst and Swiss Pharma (the latter a consortium of Ciba Geigy, Sandos and Wander) — set up majority-owned joint ventures in Egypt with the full support of the Egyptian government. Production capacity grew substantially in the 1970s after the introduction of the Open Door economic policy, with a large number of local players launching operations and new international players moving in. By the start of 2008, a total of 62 companies were operating in the Egyptian pharmaceutical sector, nine of them subsidiaries of research-based pharmaceutical companies and eight of them public-sector entities. Investments in Egypt’s pharmaceutical industry currently stand at EGP 26 billion, with the industry employing a total of 39,500 professional staff and production workers. Large multinationals including GlaxoSmithKline (GSK), Sanofi-Aventis and Novartis are among the top manufacturers of pharmaceuticals in the domestic market. Other leading multinational companies active here include Pfizer, Bristol-Myers Squibb, Servier, Eli Lilly, AstraZeneca and Otsuka. Foreign participation in the local production of under-license pharmaceuticals is of major importance to both the Egyptian economy and local consumers, supplying a significant portion of domestic demand at a fraction of the import cost. Locally owned Egyptian companies producing generic products also play a key role in the domestic market with the Egyptian International Pharmaceutical Industries Company (EIPICO) being ranked as the leading manufacturer in the domestic market and the largest Arab pharmaceutical company overall. A top company on the Cairo and Alexandria Stock Exchange (CASE), EIPICO is also one of Egypt’s 100 largest exporters. Pharmaceutical prices in Egypt are based on a cost-plus formula, allowing for a profit margin of 15% on essential drugs, 25% on non-essential drugs and 40% or more on over-the-counter products. The formula, managed by the Ministry of Health

Global pharma players are now sourcing from Egypt.

and Population, guarantees positive returns for all companies operating in Egypt. The Outlook Global and national research analysts alike agree the outlook for the Egyptian pharmaceutical industry is very positive: The 2007 Business Monitor International (BMI) report on the sector forecasted that pharmaceutical expenditure in Egypt would top US$ 1.69 billion by 2012, up 76% from US$ 960 million in 2006. Rapid population growth and expansion in healthcare coverage and expenditures are key growth drivers, as are an increasing awareness of health issues and the modernization of the healthcare industry. Egypt’s exports of pharmaceuticals have grown steadily in recent years, topping US$ 238 million in FY 2006-07 compared to US$ 59.2 million in FY 2000/01. Analysts expect the sector’s exports to grow by up to 45% from 2008 through 2012. ■

36

INVEST IN EGYPT
Industry Profiles

Pharmaceutical Expenditures

Number of Projects in the Pharmaceutical Sector

Value of Output and Investment Cost in the Pharmaceutical Sector*

Value of Output Investment Cost

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0

US$ billion 70 60 50 41 40 30 20 10 0 1.69* 50 54 56 62

1.27*

1.40*

0.96

1.05

1.16*

5.5

6.7

5.9

7.3

5.9

7.3

6.4

6.4

6.4

7.9

44

7.8

7.9

45

2006

2007

2008

2009

2010

2011

2012

2001

2002

2003

2004

2005

2006

2007

2001

2002

2003

2004

2005

2006

* Forecast Source: Business Monitor International, 2007

Source: Industrial Development Authority, 2008

Source: Industrial Development Authority, 2008

Leading Pharmaceutical Companies in Egypt (2007) Rank
1

Company
GlaxoSmithKline* Sanofi-Aventis* EPICO** Pharco** Novartis* Pfizer* Bristol-Mayers Squibb* Amoun** Servier* Amirya Pharma**

Market Local Sales Share % (EGP million)
7.47 6.28 5.44 4.85 4.33 4.24 4.23 3.85 2.99 2.85 549.0 461.5 400.0 356.5 318.6 311.5 310.7 283.4 219.8 209.4

Pharmaceutical Trade

Average Annual Wages and Salaries Per Employee in the Pharmaceutical Industry
Imports Exports 887.4

2 3 4 5

2001

2002

2003

2004

2005

2006

00/01

01/02

02/03

03/04

04/05

05/06

06/07

2007

1,000 900 800 700 600 500 400 300 200 100 0

US$ million

US$ 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

4,010

2,706

2,552

2,721

2,741

2,823

6 7 8 9 10

82.5 583.0

124.5 627.4

209.1 476.9

59.2 469.4

129.9 499.1

215.2 524.0

238.0

3,425

Source: Central Bank of Egypt

Source: Industrial Development Authority, 2008

* Subsidiaries of research-based company ** Local generic company Source: BMI (2007) Egypt Pharmaceutical Sector Report, Q3

The New Multinationals

Novartis isn’t alone in its resurgent interest in using Egypt as a regional production base. In 2007, global pharmaceutical player AstraZeneca began production from its new state-of-the-art US$ 40 million manufacturing plant in Egypt. The plant’s three production lines can produce up to 250 million tablets per year and have the potential to expand to 400 million. Although initial production will supply the local market, the company plans to use Egypt as a regional export hub in the future. In moving into Egypt, AstraZeneca, which had US$ 18.8 billion in global sales last year, noted that “the environment in Egypt is becoming sufficiently robust to make a financial commitment through the creation of our own company here.” AstraZeneca’s executive vice-president for global sales and marketing noted at the time that the enactment of Egypt’s Intellectual Property Rights Law No. 82 of 2002 in conformity with commitments made under the framework of the World Trade Organization’s TRIPS (Trade Related Intellectual Property Rights) was a major factor in his company’s decision. That’s why, he said, “As part of the company’s regional expansion strategy, AstraZeneca has identified Egypt as a key emerging market for further development along with countries including China and Mexico.”
* Number of projects, oautput value and investment cost is for the stock of companies registered under the umbrella of the Industrial Registry since 1980. The actual number of manufacturing establishments operating in the sector, as well as output value, may exceed the above figures by a margin of up to 50%.

2007

EGP billion 10 9 8 7 6 5 4 3 2 1 0

1.54*

6.9

9.5

37

INVEST IN EGYPT
Industry Profiles

White Goods

T

HE EGYPTIAN WHITE goods industry dates to the 1960s, when large state-owned companies dominated the domestic production of household appliances. As the economy began to liberalize in the mid-1970s, several privately owned companies started to appear on the manufacturing scene. Decades later, the picture has totally changed: The public sector manufacturers of yesteryear have been replaced by a new breed of high-tech manufacturers that have not only taken the local market by storm, but are also developing export markets and positioning themselves for regional expansion. There are presently 246 companies active on the Egyptian manufacturing scene producing everything from air conditioning units, fans and heaters to refrigerators, dishwashers, washing machines, electric water heaters and gas cookers (ovens and stove-top ranges). Between 2001 and 2007, output of the Egyptian household appliance industry increased by EGP 33.6 billion, an increase of 54%. The industry currently employs some 45,000 workers. Air conditioners account for 45% of national white goods production, followed by household refrigerators at 26.5%. The private sector now dominates the production of both household and commercial appliances in Egypt, accounting for 97% of total domestic production. Household and commercial refrigerators and air conditioning units are the most important sub-sectors within the Egyptian white goods industry. Egyptian exports of air conditioning units have increased dramatically from 77,000 in 1996/97 to more than 1 million units in 2003/04. Exports of refrigerators and electric heaters also saw significant increases during the same period. The industry’s increase in output has been supported by surging domestic demand, which has been growing at an annual rate of 6% on average. The nation’s large population works the industry’s advantage in two ways, providing both a large domestic market and a significant pool of competitively priced, trainable workers. Exports Household appliances are one of Egypt’s promising export sectors. The many comparative advantages that manufacturers in this sector enjoy have helped to significantly boost exports in recent years: In 2006/07, exports of household appliances including air conditioners, household refrigerators, televisions, telephones and radio sets rose 130.2% to US$ 307.6 million, compared to US$ 133.6 million in 2004/05. Air conditioning units account for the bulk of Egyptian appliance exports at 43%, followed by stoves and refrigerators. In a study published by the Egyptian Cabinet Information and Decision Support Center, Egypt’s white goods industry has a revealed comparative advantage (RCA) of 1.52, which compares favorably to the 1.55 scored by Italy — one of the world’s most competitive manufacturers of white goods. When exceeding 1, an RCA indicates that a country enjoys export competitiveness in a particular product or sector. With a web of free-trade agreements that includes the Euro-

White goods producers are exporting to the Arab world and beyond.

pean Union, COMESA and the Arab world — and close physical proximity to these key markets — Egypt is uniquely positioned to help white goods manufacturers gain access to larger consumer markets and thus realize significant economies of scale. Key Players Market leader Olympic Group (OG), a publicly listed company that also owns a 90% stake in the white-goods giant IDEAL, has a number of key international partners, suppliers and licensors including Electrolux (Zanussi), Daewoo, leading Dutch manufacturer Philips, Turkish conglomerate KOC Group and Merloni International Group (ARISTON and Indesit). These strategic partnerships have allowed OG to expand regionally. The company has nine factories, 32 distribution centers and 45 service centers in Egypt as well as corporate and retail outlets in Saudi Arabia and Dubai. OG’s annual sales amount to 300,000 washing machines, 600,000 refrigerators, 750,000 electric water heaters and 600,000 ovens. OG has recently entered into a partnership with Swedishbased home appliance manufacturer Electrolux. The new alliance is a win-win situation for both OG, which will further expand its production facilities, and Electrolux, which will gradually shift its production base away from Europe, lower its manufacturing costs and gain access to new markets in the Middle East and African. Electrostar Group is another prominent white goods manufacturer in Egypt that produces refrigerators, upright freezers, gas cookers and washing machines. The company has under license agreements with a number of international companies including National / Panasonic (Japan), Electrolux (Sweden), Dirby (Denmark), Groen (Italy) and Samsung (Korea). ■

38

INVEST IN EGYPT
Industry Profiles

Number of Projects in the Household Appliances Sector*

Value of Output and Investment Cost in the Household Appliances Sector*

Output of the Key Sub-Sectors of the Household Appliances Industry (Thousand Units)

2001

2002

2003

2004

2005

2006

2007

2001

2002

2005

2006

2003

2004

2007

250 240 230 220 210 200 190 180

120 246 100 80 60 40 20 0 240 234

EGP billion

Value of Output Investment Cost
75.1 91.4 91.4 96.6

1996/1997 Total Washing Machines Electric Heaters Electric Refrigerators

2003/2004 974 2,545

206

214

221

230

63.1

63.2

63.8

193 195 558 244 668 458 500

7.9

7.9

7.9

8.7

8.9

8.9

9.1

Air Conditioning Units 77 0

1,126 1,500 2,000 2,500 2007 1,355 3,000

Source: Industrial Development Authority, 2008

Source: Industrial Development Authority, 2008

Source: CAPMAS (2007) Statistical Year Book

Egyptian Exports of Household Appliances

Breakdown of Egypt’s Exports of Household Appliances (2005/2006)

Average Annual Wages and Salaries Per Employee in the Household Appliances Industry

1,310

119.4

2001

2002

2003

2004

2005

2004/2005

2005/2006

2006/2007

Cookers 34% Dishwashers 0% <1%

Source: Central Bank of Egypt

Source: Ministry of Trade and Industry

Source: Industrial Development Authority, 2008

* Number of projects, oautput value and investment cost is for the stock of companies registered under the umbrella of the Industrial Registry since 1980. The actual number of manufacturing establishments operating in the sector, as well as output value, may exceed the above figures by a margin of up to 50%.

2006

100 50 0

AC’s 43%

1,252

US$ million 350 300 250 200 133.6 150

Freezers 1%

Washing Machines 1% 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 US$ 1,894 1,664

307.6

Fans 1% Heaters 3% Refrigerators 17%

1,000 1,356

1,365

39

INVEST IN EGYPT
Industry Profiles

Communication and Information Technology

T

HE EGYPTIAN INFORMATION and communications technology (ICT) sector isn’t just an integral component of the country’s overall development strategy ― it’s also one of the most vibrant and exciting of the nation’s industries. It is the clear product of a policy of deregulation and a dynamic strategy for privatesector involvement in supporting Egypt’s socio-economic development agenda. Here in Egypt, major multinationals including Intel and France Telecom’s Orange are developing products for export to the global market. Egyptian call centers are not just catering to the offshore needs of hundreds of major multinationals such as Microsoft and Oracle: In the case of regional leaders Xceed and Teleperformance, they’re also delivering training and certification for the global outsourcing industry itself. The list goes on ― as you would expect from a sector that has grown at a sustained Even Indian companies are outsourcing to Egypt’s burgeoning IT sector. 25% per year, attracting EGP 50 billion in new investments in the last four years. No wonder Egypt ranked thirteenth on A.T. Kearney’s 2007 Global Services Location index ― it’s a testament to Egypt’s educated, multilingual workforce; to technology entrepreneurs at the Smart Village through the national the nation’s exceptional ICT infrastructure; to the impact of trainbusiness plan competition. ing programs; and to the value of unwavering government support There are also a handful of Egyptian companies that have beto industry. gun to conduct their own high-tech R&D. Young developers with graduate degrees from top global institutions are creating the next Home-Grown Talent generation of wireless technologies at SySDSoft, an SME that speWhile Egypt is proud to be home to the local and regional offices cializes in developing cutting-edge wireless communications techof major multinationals, it is even prouder to have incubated local nologies for global standards such as WiMAX. Within Egypt’s talent. Egypt-based Orascom Telecom (OT), established in 1998, ICT development strategy, virtual R&D centers of excellence have is among the largest and fastest-growing emerging-market mobile been established in niche areas such as data mining and wireless network operators with more than 70 million subscribers in countechnologies. Other support comes from the private-sector Techtries including Algeria, Egypt, Pakistan, Bangladesh, Tunisia and nology Development Venture Capital Fund. Zimbabwe. In early 2008, Orascom Telecom won the first-ever liMore than 50% of the ICT business community in Egypt is cense to operate a mobile network in North Korea. Wind, OT’s comprised of SMEs ― in the short and medium terms, they will sister company under the Weather Investments umbrella, is now be the key drivers of growth in the sector. a growing European player with mobile, fixed line and data networks in Italy and Greece. A True Partnership A number of promising Egyptian software developers have also Incentive packages have attracted global multinationals in instarted penetrating international markets. Companies including dustries including call centers, business-process outsourcITWorx, ITsoft, Sakhr, Harf and Arabize are now exporting softing and knowledge-process outsourcing to open shop in Egypt ware ranging from Arabic-language solutions to plugins and modwith promises of expansion and further investments. They have ules for some of the world’s most popular software packages. Profound that Egypt’s talented young workforce and world-class grammers at ITWorx are developing solutions for the regional and telecom infrastructure help them do business faster, better and global telecommunications and banking sectors ― and software cheaper. for Microsoft, Adobe and Corel. Major multinationals are developOver the past decade, the groundwork for the sector’s explosive ing products here for export to the global market. growth has been laid through a series of megaprojects designed to Meanwhile, the government is incubating the next generation of create a globally competitive ICT industry in Egypt. Key to this

40

INVEST IN EGYPT
Industry Profiles

Steady Growth in the CIT Sector in Egypt Number of Companies Working in CIT Sector Number of Professinal Staff in CIT Sector
Professional 77% 1,716
Thousand Company

Basic skills

140.34

970 2005 Source: GAFI 2006

1.6

28.2

19.1 June 2007

2000 Source: GAFI

Potential Fields Attract investment in call centers and encourage BPOs
Source: GAFI

Develop infrastructure and provide integrated communication services

Encourage the establishment of international CIT projects providing value added services

process: close cooperation between government and industry stakeholders. This partnership created the nation’s robust technology and communications infrastructure and today serves as the basis for the ongoing commitment to public-private partnerships in all sector-related developments and initiatives. Underpinning the success of domestic and multinational players alike: a qualified base of human resources, a bouquet of enabling laws and a solid infrastructure at the crossroads of major global submarine cables. Each year, 250,000 university graduates enter the workforce; a great many are immediately employable, while others take advantage of government-backed training programs to find jobs in the ICT sector — part of a proven government plan that is seeing heavy investment flowing into both professional IT education and training for the basic needs of the industry. The nation’s rock-solid IT infrastructure includes three robust mobile networks and widespread access to broadband (see page 14 for more details). Finally, enabling laws regulating everything from telecommunications and labor to e-signatures and the protection of both intellectual property and the rights of investors provide local and global competitors with a solid, rights-based foundation from which to do business. ■

Smart Village

Smart Village is Egypt’s first fully operational technology park. Inaugurated in 2003, it is a clear demonstration of the sector’s development and maturity. From government headquarters to global ICT multinationals, from the local private sector to innovation centers, incubators, and training institutions, Smart Village is an all-inclusive community. Home to international ICT giants such as Oracle, Microsoft, Motorola, Vodafone and Alcatel, it is the physical expression of the international industry’s faith in Egypt’s promise. Today, other countries are looking to replicate the concept and create productive ICT communities of their own. The concept of an IT cluster has been so successful that it has expanded to include other business segments including financial services: In 2009, the Cairo and Alexandria Stock Exchange is expected to relocate to Smart Village along with other financial institutions and major national and regional investment banks and private equity firms, creating the nation’s first Financial Zone. Building on the success of the Smart Village and serving the aims of Egypt’s export strategy, the ministries of CIT and Investment are establishing a call-center facility in the upscale Cairo suburb of Maadi and are looking to replicate the model in other parts of Egypt. At the same time, intensive training and capacity-building programs are taking place, designed to ensure that local, regional and multinational players alike can find the qualified staff they need to be globally competitive from their base in Egypt.

41

INVEST IN EGYPT
Industry Profiles

Tourism

E

GYPT’S RICH HISTORY and strategic geographic location at the crossroads of Europe, Africa and Asia have bestowed the country with a natural comparative advantage in the tourism sector. Egypt’s Pharaonic, Greek, Roman, Christian and Islamic past — combined with its year-round sunshine and beautiful beaches — has attracted growing numbers of visitors from around the world. With new plans to expand and upgrade tourism services, Egypt is preparing to host 18 million visitors annually by 2015. The Egyptian tourism industry is among the world’s largest and most diverse. With revenues in 2006/2007 hitting US$ 8.2 billion, tourism is a key contributor to the country’s GDP and a primary source of foreign exchange. In Egypt, tourism accounts for 3% of GDP, while the sector’s total direct and indirect impact on the Egyptian economy is about 11.3% of GDP. A labor-intensive industry, tourism employs 2.3% of Egypt’s nonagricultural workforce and generates employment and income in supporting industries including financial services, construction, security, handcrafts, food and beverages. The target for Egypt is to consolidate its position as a key player in the global tourism scene by promoting the country as a cultural, entertainment, health and business destination. According to the World Tourism Organization, Egypt is currently among the top 25 destinations worldwide accounting for approximately 1% of the global market. Tourists visiting Egypt currently account for 25% of all tourism coming into the Middle East and 33% of visitors to North Africa. Leisure tourism is the largest market segment, followed by business and conference tourism. Health tourism presents another viable area for Egypt, with Cairo assuming prime importance as one of the most important healthcare hubs of the region. The government’s national target is to increase Egypt’s share of global tourism to 2.2%, boosting annual income from the sector to US$ 13.4 billion. Meanwhile, operators are ramping up to grow hotel capacity to 300,000 rooms — enough to serve the goal of hosting 18 million visitors by 2015, up from 9.6 million in 2007. These targets will generate some 1.2 million new job opportunities in the sector by 2015. Today, Russian tourists account for the largest share of tourist arrivals from a single country to Egypt at 12% of total arrivals during FY 2006/07. While Europe remains the largest market for tourist arrivals to Egypt, increasing numbers of tourist are coming from the Arab region. These visitors are presently served by 183,000 hotel rooms. More than 130,000 rooms are currently under construction and 665 new hotels are in the pipeline. In 2005, average room occupancy stood at 68.5%, with average room rates reaching US$ 57 per room night. In 2007, some notable additions were made to the luxury hotel market, with the opening of the Four Seasons Hotel Alexandria (the brand’s fourth property in Egypt) and the Sofitel ElGezirah Cairo (Sofitel’s eleventh property in the country). In 2008, Egypt’s first luxury Fairmont Hotel is also expected to start receiving visitors.

Egypt’s goal: 18 million visitors by 2015

Recognizing that traditional tourism venues such as the Red Sea and Upper Egypt’s antiquities are nearing saturation, the Egyptian Tourism Authority (ETA) is looking to develop alternative markets, including medical and ‘golf’ tourism. In December 2007, Egypt hosted an international conference on health and therapeutic tourism, highlighting the importance of this sector to the industry. ■

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INVEST IN EGYPT
Industry Profiles
International Tourist Arrivals in Egypt
million 12 10 8 6 4 2 2002/03 2003/04 2004/05 2005/06 2006/07 0 5.2 7.5 8.7 8.7 9.8

Airports

International Tourist Nights
million 120 100 80 60 40 33.0 20 0 2002/03 2003/04 2004/05 2005/06 2006/07 5.0 3.4 2006 96.3

Egypt’s primary airports include Cairo International Airport, Borg El-Arab International Airport in Alexandria, Luxor Airport and Sharm El-Sheikh Airport. The country’s national airline is EgyptAir, which flies to more than 84 destinations worldwide. All the major international carriers serve the Egyptian market, among them Air France, British Airways, KLM, Lufthansa and Swiss. New airports in the resort areas of Marsa and Alamein on Egypt’s North Coast have also become operational.

73.0

85.7

85.1

Source: Ministry of Tourism

Source: Ministry of Tourism

Tourism Receipts
US$ billion 10

Investments in the Tourism Sector
EGP billion 7.2 5.5 6.4 8.0 10 4.8 5 0 0.5 2.0 2005 3.9 Foreign Domestic

New Tourism Investments

8 6 4 3.8 2 2002/03 2003/04

More and more real estate developers from the Gulf are becoming interested in investing in Egypt’s vibrant tourism sector. In July 2006, Emaar, the Dubaibased global real-estate giant, paid US$ 175 million at an auction for seafront resort land at Sidi Abdel Rahman on the Mediterranean coast. The highly coveted acquisition includes seven kilometers of pristine coastline that belonged to the state-owned Egyptian General Company for Tourism and Hotels. Emaar is presently hard at work developing and marketing Marassi, its new year-round Mediterranean tourist destination in Sidi Abdel Rahman. The new resort will include several hotels, including a revamped version of the historic Sidi Abdel Rahman Hotel, as well as luxury villas, chalets, a marina and an 18-hole golf course. The project is expected to be complete in five years. Following in the footsteps of Emaar, DAMAC — one of the Middle East’s largest luxury property developers best known for its Dubai towers — made its debut on the Egyptian market. DAMAC is currently developing a 320 millionsquare-meter tourism project in Gamsha Bay, 60 kilometers north of Hurghada. The project, which is being billed as a “township,” will be completed in phases over the course of 10 years. The outlook for Egypt’s tourism sector remains highly promising, with the year-on-year growth rate in tourist arrivals, easily surpassing the worldwide average.

2004/05

2005/06

2006/07

2002

2003

Source: Ministry of Tourism

Source: General Authority for Investment and Free Zones

Top Tourists Numbers by Nationality 2007

Sau

Russian Federation 14%

di A 6% rabia

Others 17%

Lybia 6% nce Fra % 6 Italy 14%

Germany 14%

Source: Ministry of Tourism

Stock of Investments in the Tourism Sector During the Period 1/1/1970 to 28/02/2008 (EGP million) Issued Capital by Nationality of Investor Number of Companies Share of Egyptian Investors Established
Hotels and Resorts Tourism Development Projects Tourism Transportation Tourism Management Tourism Entertainment Centers Other Tourism Projects Diving Centers Grand Total 2,012 190 550 215 181 453 2 3,603 45,361 9,742 1,691 1,581 968 897 60,241

Arab Other Foreign Total Issued Nationalities Capital
6,075 1,609 84 82 86 48 7,983 5,082 547 126 122 80 37 5,994 56,518 11,898 1,900 1,786 1,134 982 0 74,218

Source: General Authority for Investment and Free Zones

2004

0

ite Un

m do ng Ki d 4% 1

43

INVEST IN EGYPT
Industry Profiles

Distribution

T

HE DISTRIBUTION SECTOR provides the crucial link between producers and consumers, playing a key role in price formation and the efficient allocation of resources across the economy. A major contributor to GDP, it is also a prime generator of employment that has expanded significantly with Egypt’s economic uptick since 2004–05. Egypt’s distribution sector is grouped into four categories: wholesale, retail, franchising and commission agents’ services. Wholesale includes businesses selling merchandise to retailers, industrial, commercial, institutional or other professional business users, or to other wholesalers. Retailers are those selling goods for personal or household consumption. Franchisers sell specific rights and privileges such as the right to use a particular retail format or a trademark, while commission agents trade on behalf of others. The services sector as a whole accounts for 54% of the nation’s GDP and 58% of employment. Together, wholesale and retail trade account for 11.4% of GDP in FY 2006/07. Wholesale and retail services are also the third-largest employer in the Egyptian economy after agriculture and manufacturing, accounting for 9% of total employment and 12.6% of private sector employment in FY 2006/07. Greater consumer demand for service and quality in a period of intense economic growth, combined with the constant search for cost efficiency, is driving a trend towards more integrated distribution chains and even the total bypassing of wholesalers to deal directly with manufacturers. The increasing uptake of information technology across the Egyptian economy is facilitating this, as large enterprises in particular improve their inventory, warehousing and logistics capabilities. At the same time, the modernization of production processes (including the adoption of just-in-time distribution methods, single or dual sourcing policies, transnational sourcing and contract manufacturing) is encouraging increased cooperation between retail and wholesale. It also encourages wholesalers to increase the range of services they offer and moves them towards increased specialization in market focus. To compete in this increasingly competitive industry, small companies are engaging in cooperative arrangements (buying groups, strategic alliances and franchise agreements). Franchising is of particular interest given that some key players in the retail sector have entered the Egyptian market via franchising. In addition to major global restaurant, clothing and electronics franchises (to name but a few), Egypt has also begun generating its own franchise brands. Retail Services Retail services account for 59% of total businesses in Egypt according to the latest Census of Establishments in Egypt. Within the retail sub-sector, 99.7% of all establishments are microenterprises, employing between one and four workers. The approximately US$ 31 billion food, beverages and tobacco retail market in Egypt comprises the largest share in terms of the number of establishments and employees in the retail sub-sector. This group, however, remains largely fragmented with mass re-

Egypt’s large consumer market is hungry for local and imported goods.

tailers accounting for 8.6% of the total market (by value) while traditional convenience grocery stores dominate the retail scene. In the private sector, more than 1.1 million establishments are active in retail. Food and beverage retailers dominate the subsector, accounting for 50.9% of total establishments and 43.5% of employment among microenterprises. This is followed by textiles, garments and footwear enterprises, which make up 8.6% of total establishments and 9.6% of employment in the retail sub-sector.

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INVEST IN EGYPT
Industry Profiles

Supermarkets and Hypermarkets The late 1970s saw a small number of local supermarkets emerging in Cairo’s large neighborhoods, followed by the introduction of hypermarkets in the 1980s, through foreign enterprises. The hypermarket concept has been successfully adopted by local companies including Ragab Sons, Abu Zikri and ElHawary, which operate at the middle to lower end of the market, specializing in retail sales at highly discounted prices. French retail giant Carrefour began operations in 2003 and now has three massive outlets with a fourth under construction and plans for several more. One of the most recent entrants to Egypt’s retail sector is the Middle East chain Spinney’s, which opened its first 13,500-square-meter, US$ 10 million hypermarket outlet in CityStars in 2006. The development of the supermarket / hypermarket sector in Egypt is exerting significant pressure on the small scale traditional grocery stores. In affluent neighborhoods in particular, they are being increasingly transformed into convenience stores catering on an ad-hoc basis to consumers, rather than on the basis of consistent large-scale household sales. In the less affluent and more densely populated districts of Cairo, traditional grocery stores have survived due to the fact that most supermarkets have been almost exclusively catering to middle and higher income consumers. Department Stores and Clothing The concept of department stores is hardly new in Egypt. Before the 1960s, Cairo and Alexandria boasted a large number of department stores — at that time on par with those in Europe. The decline of these department stores was matched by the expansion of small scale clothing retail shops. In 1986, the first shopping mall was opened as an annex to the Cairo Ramses Hilton, following which malls spread across Cairo. CityStars, the opening of which coincided with the lifting of the import ban on clothing, is one of the largest malls in the Middle East region and has added a new dimension to the standards and quality of retail shopping in Cairo. Today, international brands including Nike, Mango, Esprit, Levi’s, Benetton and Sisely have taken advantage of streamlined customs regimes and procedures to add a new angle of competition in the clothing retail sub-sector in Egypt. The sophistication of foreign owned retail outlets and the quality requisites imposed for products to be displayed is putting pressure on local retailers to improve the quality of their products. Despite the competition, the market is far from saturated. Department stores are currently targeting a small percentage of the market — wealthy consumers — who make up only 4.9% of the total population (approximately 3.55 million people). This small percentage, however, still remains significant in relative terms, since this 3.5 million is larger than the entire population of Dubai and almost as large as the population of Lebanon, the region’s two largest retail hubs. Wholesale In what is termed the organized wholesale sub-sector, 2004 turnover stood at EGP 15.2 billion, focusing mainly on fuel and related products. In the unorganized private sub-sector, wholesale turnover stood at EGP 7 billion, with an additional EGP 1.8 billion as sales on behalf of others.

As with retail, food and beverages activities dominate the wholesale sub-sector, making up 47% of establishments in the private sector and 34% of employment. Franchising Franchising has developed extensively in Egypt over a short period, particularly in the fast-food sector. The current food franchise market size is estimated at more than US$ 300 million. Popular chains include: Chili’s, TGI Fridays, Hard Rock Café, KFC, Little Caesars Pizza, McDonald’s, Pizza Hut and Baskin Robins. From seven chains in 1993, Egypt currently boasts 45 franchises — either operational or with imminent plans to open. Market sources project the franchising business to continue growing at an annual rate of 10–20% over the coming years. An example of franchising success is the Kuwait Food Company, the food-processing arm of the Al Kharafi Group, better known under the brand name Americana. The group owns the largest food company in the Middle East and in Egypt has invested US$ 700 million, in the food processing industry, the tourism sector (which includes the franchise business segment) and infrastructure projects. Americana is the market leader for franchise business in the Middle East and is the franchisee for KFC, Pizza Hut, Subway, Hardee’s and TGI Fridays in Egypt. During the 1990s, non-food franchises also began to experience considerable development, particularly in the garment sector. A limited number of companies in the fields of hotel management (Marriott), car rental (Hertz), language education (Berlitze), health and fitness (Weight Watchers), electronics (Radio Shack) and computer training are also currently franchised in Egypt. The presence of franchise business in Egypt has been extensively beneficial to both the fast-food and garment sectors. In the fast-food sector, where the bulk of ingredients are sourced locally, franchising has created strong backward linkages with the agricultural and the industrial sectors. The quality standards imposed by the franchisee has also upgraded the standards adhered to in the agricultural field as well as in the industrial sector. Commercial Agents According to the latest statistics available in Egypt, in 2003 there were 3,900 commercial agents representing 105,200 foreign firms. Agencies generally base themselves geographically, covering Alexandria with or without the Delta cities on one hand, and Cairo and the Nile valley on the other. It is mandated by law that all commercial agents and importers have Egyptian nationality. Even though foreigners are not allowed to operate commercial agencies in Egypt, from a contractual view-point, Egyptian law concerning commercial agency agreements is considered to be among the most liberal in the Middle East region. Agent commission rates may vary according to the type of product or service as well as volume of sales. Usually the larger the volume of sales, the smaller the commission. For commodities such as rice, wheat, sugar, lumber or cotton, the commission ranges between 1–3%. For chemicals and foodstuffs the commission is 3–5%, while for machinery and technical equipment it ranges between 10 and 15%. ■

45

INVEST IN EGYPT
Industry Profiles

Ports and Logistics

S

INCE ANCIENT TIMES, Egypt’s location between the Mediterranean and Red Sea and the land masses of Asia, Europe and Africa has seen the country play a key role in international trade. Today, the maritime transportation sector is one of the major contributors to the Egyptian economy, through not only cargo traffic and Suez Canal revenues, but also because of its role in facilitating the rapid growth of Egypt’s exports. Indeed, 90% of Egypt’s foreign trade is shipped through ports, while the country’s logistics capacity continues to expand hand-in-hand with the volume of trade. Beyond the country’s location and the importance of the Suez Canal to global trade, Egypt’s maritime transportation sector enjoys several advantages over regional competition as a result of the ongoing economic reform program. These include the expansion of private sector involvement in the construction of ports under the Build Operate Transfer (BOT) and Build Own Operate Transfer (BOOT) concession schemes and increased private-sector opportunities in maritime and transport activities under Maritime Law 1 of 1998, including loading, supplying and ship repair. These opportunities are showcased in the range and sophistication of logistics facilities at the EGP 3.4 billion, electronically managed Sokhna Port. Developed under a BOT contract, Sokhna Port is the first and largest privately operated port in Egypt, offering strategic warehousing capabilities and a state-of-the-art logistics center. Beyond business and investment opportunities, economic reforms have also resulted in streamlined customs procedures, reduced tariffs and improved cargo-handling times across Egypt’s maritime transportation operations. The sector has also benefited from mega development projects that have attracted significant attention from foreign investors. Modern ports have been built to handle the newer generations of container ships and, even as they are reaching completion, are already being expanded to meet growing volumes of trade. Old ports are also being modernized, while specialized ports have been upgraded to meet the needs of today’s international trade. Egypt’s Ports: Bringing Wealth to the Nation Realizing the essential link between port facilities and the export-driven economic reform programs, the Egyptian government has focused on developing and upgrading ports to accommodate larger ships and to increase capacity and handling for a larger volume of trade. In 2007, the number of containers handled through Egyptian ports increased dramatically to an average of 5.0 million 20foot equivalent units (TEUs), up from 4.6 million TEUs in 2006 and a 117% increase over the 2.3 million TEUs handled in 2003. In 2006, cargo exports at Egypt’s ports reached 48.4 million tons, a 16% increase over 41.7 million tons headed for export in 2005. Cargo exports consisted of dry bulk (30%), transit (28%), general cargo (13%), containers (12%), special cargo (9%) and liquid bulk (8%).

Exporters benefit from a wide and sophisticated network of ports.

On the flipside, cargo imports hit 58.2 million tons in 2006, up from 55.7 million tons the previous year, an increase of 4.5%. Cargo imports consisted of general cargo (22%), transit (25%), dry bulk (30%), containers (13%), special cargo (8%) and liquid bulk (2%). Egypt has 15 commercial and 30 specialized ports (six tourism, 14 petroleum, seven mining and three fishing). The four main ports include the multi-purpose Alexandria Port, the largest in Egypt — handling over 55% of the country’s foreign trade. Damietta port is the leading Egyptian container handling port, with a handling capacity of 1.15 million TEUs, contributing 40% of total containers handled in Egyptian ports. The East Port Said Port, located at the crossroad of the world sea trade route between Asia and Europe near the northern en-

46

INVEST IN EGYPT
Industry Profiles

2003/04

2004/05

2005/06

2002/03

2006/07

trance of the Suez Canal, is becoming increasingly important as a regional transshipment hub for container traffic. In 2006, shipping giants such as Maersk SeaLand, China Shipping Company and Zim Lines channeled some of their business investments to the 2.2 million TEU-capacity port. Equally important is the Suez Port, which also plays an important role in both cargo handling and Suez Canal transit operations. The Suez Canal: Linking the World The 190-kilometer Suez Canal has played a critical role in international trade since it was opened in 1869. According to the Suez Canal Authority, 7.5% of world trade passes through the Canal annually. Following a project to deepen the Canal in 1994, the waterway now handles super-tankers and large vessels. In 1999, the Suez Canal Container Terminal (SCCT) was incorporated, and commenced operations in 2004 under a concession to AP Moller-Maersk (APM) Terminals. In September 2007, Egypt started the second phase of the SCCT, which is expected to double the Terminal’s capacity to 5.1 million TEUs by 2011. The ongoing development efforts have been reflected in the continued success of the Canal. The number of vessels using the canal increased from 14,610 vessels during FY 2002/03 to 19,419 vessels in FY 2006/07. At the same time, net tonnage transiting the Canal grew rapidly, reaching 792.5 million tons in FY 2006/07 up from 499.9 million tons in FY 2002/03. Financial receipts have experienced a similar upward trend, totaling US$ 4.2 billion during FY 2006/07 compared to US$ 2.2 billion during FY 2002/03, a growth of 86.5%. The Future As Egypt’s export driven economic growth continues, the crucial role of the country’s ports in linking the domestic economy with international markets will only continue to grow. As a result of increased public investment and private sector involvement in the industry, planned investment in the Egyptian maritime transport sector, is expected to increase from US$ 1.7 billion in 2008, to reach US$ 3.8 billion in 2010. And with investments of around US$ 5 billion yet to be tendered, this figure may even be surpassed by then. ■

Capacity of Egypt’s Sea Ports
Million Tons 140 120 100 80 70.6 60 58.5 40 20 0

Containers Handled Through Egyptian Ports
Million TEUs 6 5 4 3 2 1 0 2003 2004 2005 2006 2007 Number 15,000 702.3 792.5 2006/07 10,000 5,000 0 8.5 Total 3.7 2.3 2.9

125.8 82.0 97.5

4.6

5.0

Source: Ministry of Transport

Source: Ministry of Transport

Cargo Exports at Egypt’s Ports in 2006

Suez Canal Traffic
Net Tonnage (Million Tons)

General Cargo 13% Transit 28% Dry Bulk 30%

Co nt a 12 ine % rs

o rg Ca al i ec 9% Sp

2003/04

2004/05

Source: Ministry of Transport

Source: Suez Canal Authority

Suez Canal Proceeds
US$ billion 4.5 4.0 3.5 3.0 2.5 2.2 2.0 1.5 1.0 0.5 0 2002/03

Planned Investments in Maritime Transport 2008-2010
US$ billion 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.7 1.0 0 2008

4.2 2.8 3.3 3.6

2002/03

2.9

3.8

2003/04

2004/05

2005/06

Source: Suez Canal Authority

2006/07

2009

2010

Source: Ministry of Transport

2005/06

900 800 17,334 700 14,610 16,174 600 500 400 300 200 100 0 499.9 578.7 646.2

19,419 25,000 18,476 20,000

k Bul uid Liq 8%

47

INVEST IN EGYPT
Industry Profiles

Financial Services

E

GYPT’S FINANCIAL SERVICES sector — one of the oldest and most-established in the Middle East — is also one of the best-developed in the region thanks to the industriousness of the private sector and a series of key regulatory reforms launched in 2005. Today, the nation’s banks, brokerages, investment banks and private equity houses are among the most vibrant in the MENA region, attracting heavy foreign investment from major Arab and international names while launching their own ambitious regional expansion plans. And despite the recent wave of privatization sales, mergers, acquisitions and expansions, the sector still holds massive untapped potential in everything from retail and commercial banking to brokerage, insurance and mortgage finance. The growth story began in 2005 with key regulatory reforms addressing issues including increasing capital adequacy requirements, the privatization of public-sector banks and the consolidation of small private institutions into more robust The financial industry’s four-year boom continues. entities. The result was a series of mergers and acquisitions in 2006 and 2007 that has left the growing sector on exceptionally solid ground. The government endorsed an aggressive reform program that addressed the financial and administrative restructuring of and Arab banks have joined Sanpaolo IMI in courting the local state-owned banks, the problem of non-performing loans and market since 2005. In the past three years, international banks the strengthening of the Central Bank of Egypt’s regulatory and have moved into Egypt through large acquisitions, signaling an supervisory apparatuses. At the same time, the state began sellinternational trust in the Egyptian banking sector. (See box for ing its stakes in joint-venture banks and pledging to privatize a list of recent M&A activity in the sector.) at least one of the “Big Four” state-owned banks that dominate Investment banking, private equity and brokerage services the sector. have roared to new life in Egypt, with several of the country’s The implementation of Unified Banking Law No. 88 of 2003 leading institutions now established as the dominant regional has enforced a minimum capital requirement of EGP 500 milplayers or well on their way to becoming so. lion for local institutions and US$ Select M&A Activity in the Egyptian Banking Sector, 2005-07 50 million for branches of foreign banks. This requirement streamBuyer / Investor Acquired lined a relatively crowded banking National Bank of Kuwait Al-Watany Bank of Egypt (2007) sector and brought the number of liAbu Dhabi Islamic Bank and Emirates Internacensed banks operating in Egypt National Development Bank (2007) tional for Investments down from 57 in 2004 to the curSanpaolo IMI Bank of Alexandria (2006) rent 37. The result: A much healthier cohort of competitors who are Ahli United Bank of Bahrain and consortium Delta International Bank (2006) now courting retail and corporate Alexandria Commercial and Maritime Bank Union National Bank (2006) client alike with new products and Banque Audi Cairo Far East Bank (2006) improved commitments to customer service. Credit Agricole and Mansour-Maghrabi InvestEgyptian American Bank (2006) ment and Development The Bank of Alexandria (BA) was Blom Bank Misr Romanian Bank (2005) the first of the Big Four to be privatized. In late 2006, Italy’s Sanpaolo National Société Générale Bank Misr International Bank (MIBank) (2005) IMI acquired 80% of BA’s shares for Arab International Bank Suez Canal Bank (2005) US$ 1.6 billion — a record-breaking Societe Arabe Internationale de Banque (SAIB) Port Said National Development Bank (2005) price that was six times the bank’s Piraeus Egyptian Commercial Bank (2005) book value. Meanwhile, the government is moving forward with plans Arab African International Bank Misr America International Bank (2005) to privatize Banque du Caire, the Societe Generale National Societe Generale Bank (2005) third-largest of the former Big Four. Source: Cairo and Alexandria Stock Exchanges A number of leading European

48

INVEST IN EGYPT
Industry Profiles

EFG-Hermes, the country’s largest investment banking, brokerage and asset management firm, has established a regional presence in Dubai, Saudi Arabia and Qatar, among other countries, and has a strategic alliance with Banque Audi, in which it has a substantial holding. Other significant players in the market include Beltone Financial, HC Securities, Prime Securities and HSBC Securities, a subsidiary of UK-based HSBC. In the rapidly growing field of private equity, Cairo-based Citadel Capital has emerged as the regional leader with US$ 8.3 billion in investments under control in sectors ranging from cement to retail and oil and gas. The Commercial International Bank (CIB), which is backed by investment from a consortium led by America’s Ripplewood Holdings, has also established a new company specializing in investment banking and private-equity. ■

Banking Sector Deposits (Except CBE)

Bank Credit Facilities (Except for CBE)
Household Services Industry For Government Total Credit Facilities 385.4

EGP million 800 700 600 500 400 300 200 100 0 Jun Jun 02 03 342,449 405,187

Jun 04

Jun 05

Jun 06

Jun 07

Feb 08

EGP billion 450 400 350 266.1 300 250 200 32.2 33.3 150 46.5 51.2 100 71.4 72.6 50 0 14.6 13.3 Jun Jun 02 03

571,461

658,215

734,492

36.0 39.4 53.6 53.5 75.7 77.4 16.2 22.0 Jun 04 Jun 05

55.5 64.8 50.2 56.4 625 68.5 72.0 74.5 69.7 21.0 26.7 31.0 Jun 06 Jun 07 Feb 08

Source: Central Bank of Egypt

463,548

521,745

Source: Central Bank of Egypt

Insurance

Insurance Premiums Percent of GDP
% 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

New private-sector entrants, strong legislative change and an extensive public awareness campaign have set the stage for growth in the Egyptian insurance sector. Though still relatively small by international standards, insurance premiums as a percentage of GDP have doubled to 0.83% in 2006/07 from 0.59% in 2000/01. There are now 21 insurance and reinsurance companies operating in Egypt, and recent regulatory changes allow foreign firms to wholly own Egyptian insurance companies without a local joint-venture partner. Meanwhile, the People’s Assembly has approved a draft law on mandatory insurance covering civil liability in automobile accidents that will bring millions of Egyptians into the insurance sector for the first time, opening exciting new frontiers for growth.

0.85

0.73

0.59

0.59

0.63

0.69

0.80

0.83 355 388 491 1,509 1,563
First Half of 07/08 06/07

99/00

00/01

01/02

02/03

03/04

04/05

Source: Egyptian Insurance Supervisory Authority

Mortgage Finance

Egypt’s relatively young mortgage finance industry is now in a rapid-growth phase, with more than EGP 2 billion in mortgages being taken out since the executive regulations governing the Mortgage Finance Law were made official in 2005. Of the EGP 2 billion, 76% has been provided by banks backed by five mortgage finance companies including the Egyptian Mortgage Refinance Company (EMRC), a newly established government institution that will enable mortgage finance companies to offer more competitive terms. A reduction of property registration fees (to a maximum of EGP 2,000) has taken place. The market — as all others that rely on credit — can also now avail itself of the services of iScore, the newly established Egyptian credit bureau when verifying the creditworthiness of applicants.

Value of Availed Mortgages July 2005 - Dec 2007
MF Companies EGP million 1,600 1,400 1,200 1,000 800 600 400 200 0

Banks

Jul Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 05 05 05 06 06 06 06 07 07 07 07

Source: Mortgage Finance Authority

0 16 119 74 121 87 325 177 500 214 631 240 728 272 753 314

1,014

05/06

0.52

49

INVEST IN EGYPT
A Vision for the Nation

The Vision for Egypt

H

UMAN CAPITAL IS our nation’s most valuable asset. For our economy to sustain (let alone improve upon) its current level of growth, the nation must invest more heavily in developing the skills of our population. Should it fail to do so, the progress achieved so far will not translate into a genuine improvement in quality of life for all of the citizens of this great nation. The Vision for Egypt is one in which all of this nation’s citizens have equal access to quality education regardless of their gender and economic means. The hope for a better future lies in today’s schoolchildren as they embark on their quest for knowledge. Providing our children with an education that will enable them to compete in a rapidly changing marketplace and progress professionally on the sole basis of merit must be among Egypt’s very top priorities. The Vision for Egypt is one in which the fruits of progress and growth are not limited to urban centers, but equally distributed throughout the nation. By encouraging further investment in underdeveloped regions of the country, particularly Upper Egypt and the border governorates, the economy will attain a more balanced growth that will benefit all of the population, guaranteeing a tangible improvement in the lives of citizens regardless of where they were born or where they reside. No longer will our nation’s children feel pressure to migrate to another city, governorate or country to create their futures. The Vision for Egypt is one in which skills are further sharpened to meet the demand of an increasingly sophisticated and competitive private sector. The private sector is taking the lead and transforming our economy as it moves toward new frontiers with more skill-intensive, high-technology industries and services that are globally competitive. We must ensure that every one of our children has the opportunity to learn the skills he or she will need to participate. This renewed emphasis on developing our nation’s human capital — combined with the rigorous economic and social policy reforms that the government of Egypt is currently undertaking — will allow us to create a better tomorrow for all our citizens. ■

The Vision for Egypt: To guarantee that every child acquires the skills they will need to compete in the global economy.

50

Affiliates to the Ministry of Investment
General Authority for Investment and Free Zones (GAFI) www.gafinet.org Egyptian Insurance Supervisory Authority (EISA) www.eisa.com.eg Mortgage Finance Authority (MFA) www.mf.gov.eg Capital Market Authority (CMA) www.cma.gov.eg Egyptian Institute of Directors (EIoD) www.eiod.org Cairo and Alexandria Stock Exchange (CASE) www.egyptse.com

investment@investment.gov.eg

www.investment.gov.eg


				
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Description: Overview on Egypt's economy. An official report about investing in Egypt including analysis.