Egypt Macro Economics Assessment Template

April 2007

Social Composition of the Market

Egypt is overwhelmed of Eastern Hermitic stock with smatterings of Greek, Armenian, French and Italian influences.

Arabic Is the Primary Language

Total of Labor force is 20.2M, total of employment is 18.2 M as follows: Government sector 5.3 M, Public & public enterprises sectors 0.9M, Regular private sector 5.1M, Irregular Private sector 6.9M

Egyptian Sunni Muslims make up about 90% of the total Population, with the remaining 10% consisting mostly of Coptic Christians and other religions.

There are 12 Celebrated Holidays; New Year, Coptic Christmas, Islamic New year, Sham El Nessim, Sinai Liberation day, Prophet’s Birthday, Revolution day, Armed Forces day,  Ramadan, Bairam and Christmas day.

Of the total population only 51.4% is literate and it is even lower for females at 38.8%. Males have a literacy rate of 63.6%, the number of children remaining in school past their sixth year has almost doubled in recent years and literacy rates are higher among younger age segments

Educational System: Local Governmental Courses and some Multinational schools

Size of Target Consumer Market

Egypt’s population passed 70M mark in 2003, population growth currently at 1.66%. Egypt’s population is expected to reach 90M by 2025 and 100M by 2040.

Age Structure:

0-14 years:    35.00%

15-64 years:   41.1%

65 years+:       2.5%

Gender:          50% Male : 50% Female

There is an estimated 16.3M households in Egypt while the average household size is 4.2 persons and continues to decline

A + B + C1 + C2 segments = 28.84 M

Percent of population = 41.8%

A=   1.7%

B=   5.9%

C1= 15%

C2= 19.2%

D=   24%

E=    34.2%

Total of labor force is 21M, total of employment is 18.2M. The Major sectors for employment in Egypt are agriculture at 29%, industry at 22% and services at 49%.

The income in Egypt is very concentrated, with the highest 10% of the population controlling 25% of income and the lowest 10% only having 4.4. 22% of the population lives below the poverty line and wages are very low in Egypt. Salaries are very polarized, with the private sector average salaries at three times the governmental levels.

Egypt is very urbanized country with over 60% of the population residing in the major cities. It has some of the highest density rates in the world. Almost all of the population lives in Cairo, Alexandria, The Nile Delta and along the banks of the Suez canal.

Economic Environment in Egypt

Egypt's economy is the most varied of the Middle East economies, where sectors of tourism, agriculture, industry and service contribute at almost equal rates in the national production. Consequently, Egypt s economy is picking up development at increasing rates, based on a climate luring investments represented in proper legislation, convenient policy, internal stability, trade and market liberalization.

This is besides what Egypt possesses of solid infrastructure of transportation, communication, energy sources, skillful manpower, modern industrial communities, banking system and stock market

Given their many advantages, especially their being directly in contact with the outside world, free zones in Egypt contribute to increasing both exports and national revenue.

Privileges & incentives


• Free choice of investment activity.
• Unrestricted nationality of capital.
• Free choice of legal format; (individual project -  

  partnership - joint stock - branch of foreign company)

  Capital assets are exempt from customs duties and all   import procedures: all equipment, supplies,  

  machinery and necessary means of transport (except 

  passenger cars).


• Imports and exports are exempt from customs 

  duties, sales taxes, other tariffs.
• Free zone projects and dividends earned are not

  subject to taxes and duties throughout the lifetime of

  the project.

Domestic components are exempt from customs duties.

Macro summary:

Over the last few years the Egyptian Economy has been hit by several exogenous and endogenous shocks that have affected the banking sector. These include the Asia crisis in 1997, The terrorist attack in Luxor 1997, the domestic real estate bust and subsequent economic down turn, the devaluation since 2000, September 11 attack and the Iraq war in 2003.

Foreign Currency Challenges:

The above factors contributed to a weakening in Egypt’s external accounts. From 1998 till 2000, CBE released its foreign currency reserves and absorbed Egyptian pounds so as to maintain the EGP 3.4/USD peg. This led to a drastic depletion of its foreign reserves. From early 2000. the authorities became unwilling to use FX reserves to support the EGP but were also unwilling to devalue and therefore forbade banks to trade at a rate other than the official rate. As a result, a parallel Market for the EGP developed

Monetary policies for Local Currency:

Float of the Egyptian pound in January 2003 aiming at preventing the peg to the US dollar being used as an anchor for monetary policy.

Pound is supported by a combination of Central Bank intervention, boosting demands by currency speculators, demonstrating healthy demand for exports.

Risks to the interest rate in order to reverse the trend of dollarisation in the financial sector, which in return will boost the pound.

Monetary policies for USD:

Despite Promising full liberalization, the authorities have retained controls on foreign exchange

Governor of Central Bank of Egypt has vowed to try to make the exchange rate regime more transparent and as promised to unify it.

The Central Bank of Egypt has taken successful measures to narrow the gap between the official and parallel market rates, suggesting convergence  may be attainable over the following eighteen months

-  Economic Environment in Egypt (Cont’d)

Governmental Involvement in the country's economic matters:

Re-float: the government is to resolve the “Re-float” issue of the EGP involving number of measures of which the sharp rise in interest rates and the provision of sufficient foreign exchange to provide liquidity to the market. While a successful re-float would remove a significant deterrent o foreign investment, allow companies to access the hard currency necessary for imported inputs, thus stimulating economic activities. The authorities will still resist the demands to weaken the Pound, because of its likely impact on inflation in the short term.

Inter-Ban Market: The inter-bank mechanism for foreign currencies is regarded as an essential component to enhancing the much-needed liquidity of foreign exchange in the banking sector. The central Bank of Egypt will be able to adjust the liquidity levels in banks by tweaking inter-bank interest rates. Due to higher deposit rates and lower lending rates for local currency.

-   Economic Environment in Egypt (Cont’d)

Adjusting the rates: It aims to funnel dollars that are currently traded through the informal market into the formal market. Around the world, interest rates are monetary tool used to fine tune currency movements; when the interest rates on local currency are high, people are more inclined to invest in it for promised higher returns, hence reversing the trend of Dollarization.

Dipping into reserves: The speculators were playing a central role in driving the black market as well as shaping the monetary market, the Central Bank f Egypt adopted serious measures to boost the availability of dollars in the banking sector by dipping the Country’s international reserves. To succeed, the Central bank of Egypt dipped generously into the reserves to support the free float

-  Economic Environment in Egypt (Cont’d)

The money solution: Under the right conditions, allowing market forces to move the currency market in a transparent monetary environment without restraints would prompt dollars from the parallel market to be funneled into the banking system. If the banking sector proves to the public that it is able to meet demand, the impulse of depositors who hold their US dollars would subside. The currency Market would stabilize and the Egyptian pound would regain a degree of its former dignity.

Decree#506: The government continues to intervene in the exchange rate through decree# 506 where all businesses must convert 75% of hard currency at official banks rates rather than restoring to parallel markets where they receive better prices. Decree# 506 was intended to last for six months pet persists over a year, despite the objections of firms in the export sector

Types of Free Zones


Public Free Zones

In Egypt, there are seven Public Free Zones provided with basic infrastructure and utilities: in Nasr City; Alexandria; Port Said; Suez; Ismailia; Damietta; and The 6th of October City.

A Public Free Zone is managed by a board of directors, in addition to an administrative body, which provides technical, economic and legal counsel and offers facilities for project establishment and license issuance


Private Free Zones

Private Free Zones are created by virtue of decrees issued by the General Authority for Investment and Free Zones.
Private zone location should comply with its economic surroundings e.g. being close to raw material sources or being established in a place appropriate with the nature of its activity (navigation & maritime transport projects, insurance companies, cement silos …etc)

It should contribute to the establishment of new communities.
 
Areas of land requested should not be available in public free zones.

Projects could turn into a Private Free Zone given that:

 They are already in operation.
 
They are committed to exporting no less than 50 per cent of their output

 
 
They operate in accordance with set specifications                                                                                                                              The project must observe all environment protection regulations))

-  Tourism In Egypt

Egypt has been always a country of tourism where Europeans used to visit and see its antiquities dating back to the various eras and civilizations. In the recreational tourism domain, there are scores of unique tourist destinations such as Sharm -el-Sheikh, Hurghada, Safaga and others.

Moreover, Egypt is renowned for therapeutically and environmental tourism as well as other kinds such as Safari, conferences and sports

-  Statistical Indicators for Tourism Development

-  Transportation in Egypt

Transport, communications and information is one of the most important, vital institutional sector in Egypt as it directly affects day-to-day life, as well as all social, economic and service activities in Egypt. This integrated sector plays an important role in urban communities such as large cities and capitals, where human activity is dense, as well as distant-spaced rural communities, industrial communities where transportation of products and raw materials is in high demand, and coastal communities where seaports and airports are also required. Demand for the services of this sector mirrors human needs for transport, communication in addition to needs of producers, exporters and tradesmen. 

  

First: Transport

Transport sector in Egypt witnessed important enhancements and achievements. The state has given due attention to that sector, being the mainstay for infrastructure, leading to increased production and investment and higher standard of living for citizens. In addition, transport plays a pivotal role in socio-economic development plans through improving productivity and competitiveness, increasing job opportunities, achieving public national goals and bettering the quality of life in Egypt in general.

  

1-Railways

Railways have always enjoyed great care by the state as the principal means of transport. Community, urban and economic development plans depend on the availability and efficiency of railways. In Egypt, railways play a main role in the passenger transport market, with a trip/year share of more than 460 million trip/year, (excluding the Under-Ground Metro passengers); more than 35 percent of the total passenger/km, and 1.2 million passenger/day. Moreover, railways transport 13 million tons of cargo every year; 8 percent of the total km/ton capacity. Railway operates 1270 train/day, providing 630,000 seat /day.

  

Railway Achievements: salient of which are the following:

- A length of 1,000 km of rail lines were revamped or overhauled and 320 km were maintained at a cost of LE 149 million. A length of 190 km were completed.

Tractions capabilities on lines were reinforced with about 50 locomotives of various capacities. Moreover, 145 other locomotives were reconditioned and 300 special coaches were manufactured. In addition, air-conditioned and regular coaches were upgraded. Cost of replacement and revamping of coaches and mobile rolling stock hit LE 277.6 million.

The New Valley-Red Sea rail line and ad-Dekheila line were upgraded.

The Qalyoub-Menouf-Tanta line was upgraded at a cost of LE 15 million and phase II of Ismailia-Rafah rail line was completed at a length of 115 km, at a cost of LE 89 million as well as Suez-Adabiya rail line at a cost L.E 18 million.

  

2- Underground Metro

  

The final phase of the second line, Shubra el-Kheima-Giza, covering the distance from Ummul-Masriyeen to Mouneeb was completed at a length of 2.6 km. Studies were started for phases I and II of the third line for the Greater Cairo underground metro between 'Ataba 'Abbassia and Haroun el-Rashid at a length of 9.5 km, in addition to studies for phase I of Alexandria-Abu Quir underground metro at a length of 21.5 km.

- Studies and designs were started for Belbees vehicular tunnel project in Sharqiya Governorate, and construction was started. The project consists of two tunnels, each consists of 4 vehicular lanes with a clearance of 5.5m. One is 520-m-long, while the other is 385-m-long.

  

  

3- Roads and Bridges

  

Roads and bridges network is the main artery for development and progress and the smooth flow of national economy. Through it, new urban communities that attract dense population beyond the narrow valley are created.

Furthermore, it helps push forward agricultural and industrial development everywhere in the country.

 

4- River Transport

  

River transport figures high in the state plans and programs already implemented. In view of its low cost, special attention is now accorded to this vital and environment-friendly mode of transport.

To this end, the following achievements were made:

The Nile Damietta branch was upgraded into a first-class waterway by developing and raising efficiency of ar-Rayah al-Behairi, an-Nubaria Canal and Cairo-Aswan waterway, in addition to constructing new river harbors and a container-handling harbor.

- Efforts were made to upgrade, raise efficiency and secure navigation in Lake Nasser.

  

 5- Maritime Transport

Maritime transport is one of the most important sectors that tremendously affect national economy. It particularly facilitates cross-border flows of various commodities and merchandise in a world where international trade has become an indicator of economic advancement or backwardness. Ports are of great economic importance to maritime countries due to the availability of various activities and direct effect on trade and economic returns to Egypt regionally and internationally. Ports are a pivotal chain in maritime transport industry as it plays a main role in serving vessels and commodities.

  

6- Air Transport

Air transport is an important element in economic development as it is directly related to tourism, export and urban development. Egypt is the pioneer of air transport in the Arab region and the Middle East. Egypt Airlines reaches out to almost all parts of the world, i.e. to 72 world cities and capitals in addition to 12 Egyptian cities, against only 28 world cities and 5 Egyptian cities in 1981.

7- Suez Canal:

For almost a century and a half, Suez Canal has been one of Egypt's most outstanding geographical, historical, political land marks. With its central location it links east to west. As a major artery of world trade, it plays a pivotal role in enhancing peace, prosperity and cooperation among peoples of the world. Suez Canal plays a pivotal rule in the flow of trade and travel between east and west. It figures out as the fourth tributary of Egypt's balance of payments as it injects into the Egyptian treasury about US Dollar 5.3 million every morning.

Achievements:

Work was underway for developing and deepening the navigational course of the Canal down to a draft of 66 feet allowing the passage of ships with loads up to 250,000 tons.

- Dredging equipment and plant were modernized and replaced and new dredgers are being built. New launches, some locomotives and a closed circuit TV. network to monitor navigation movement were purchased.

- Arsenal quays were revamped. Operating equipment necessary to raise efficiency of traffic through Shaheed Ahmed Hamdi Tunnel were provided.

New equipment were provided and quays and anchorage were revamped to service tugboats and sophisticated launches.

- Water supply, sanitary drainage and power stations in the three Canal Zone governorates were reinforced. To meet its social responsibility, the Suez Canal Authority is enhancing infrastructure facilities and social, cultural and entertainment clubs, frequented by citizens, in the Suez Canal zone

  

 source: Egyptian ministry of investment