egypt country analysis mba 14a rupesh

8/9/2019 Egypt Country Analysis MBA 14A RUPESH

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COUNTRY ANALYSISOF EGYPTINTERNATIONAL BUSINESS

SUBMITTED TO

Mr. PRABU DOSS

SUBMITTED BY

APOORVA BARTHWAL BLR0907033

CHETNA RATHEE BLR0907033

JASKARAN SINGH BLR0907033

RUPESH KUMAR SHUKLA BLR0907033099

VEEKSHA RAI BLR0907033

2010


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COUNTRY ANALYSIS OF EGYPT 2010

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EXECUTIVE SUMMARY

The Republic of Egypt is conceived in the constitution as a semi-presidential state; but in

practice President Hosni Mubarak, who has been ruling Egypt since 1981, holds most of the

power. In a constitutionally proclaimed multi-party system in Egypt, the National Democratic

Party, headed by Mubarak, has been the dominant party while others have a relatively miniscule

presence. The president had recently announced some reforms to establish a democratic process

for elections.

On the economic front, Egypts real GDP has been growing at a consistent rate for over a decade

averaging 4.6% during the period 1990-2008. However, the economic growth rate is unable to

generate enough jobs to curb the high unemployment rate in Egypt, which in 2008 stood at over

12%. The authorities are trying to address the problem by attracting more foreign investors

through its privatization program and economic liberalization. These investments would

primarily be in the banking, finance and tourism sectors which hold significant growth potential

for the economy.

There are certain impediments that would curb the economy from moving into a sustainable

growth path. Foremost among them are high unemployment rates, sub-standard levels of

education, poor healthcare system, gender bias, especially in the job market, regional inequalities

and excessive government controls in certain heavy industries. However, appropriate

macroeconomic reforms coupled with growth in business opportunities in the telecom,

petroleum, banking & finance and tourism sectors have raised investor confidence in Egypt.

Egypt stands at an enviable strategic location bridging the three continents

ofAsia, AfricaandEurope the gateway to some of the worlds largest markets by way of

preferential and regional trade agreements. Thereduction of custom duties has opened Egypts

markets to more foreign trade and stimulated domestic producers. State assets in all sectors ofbusiness are being transferred into the private sector. Companies are being restructured.

The cost of doing business in Egypt is extremely favorable, particularly labor and land costs.

Electricity and gas are priced extremely competitively. The movement of goods is being speeded

up with an improved transport system. The ports are being modernized.


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CONTENTS

KEY FACTS 03

POLITICAL ENVIRONMENT 04

EGYPT ROLE IN WTO 05

ECONOMICAL ENVIRONMENT 05

INFRASTRUCTURE ISSUES 06

SOCIAL ENVIRONMENT 07

CORRUPTION AND BRIBERY 07

TECHNOLOGICAL ENVIRONMENT 08

TRADE AND INVESTMENT CONDITIONS 09

BANS AND BARRIERS 10

CONCLUSION 11

REFERENCES 12

APPENDIX 13


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KEY FACTS

Full Name: Arab Republic of Egypt

Capital City: Cairo

Government Type: Republic

Head of State: President Hosni Mubarak

Head of Government: Prime Minister Ahmed Nazif

Population: 80.3 million

Total Area: 1001450 sq km

Language: Arabic (Official), English and French

Ethnic Composition: Egyptian 98%, Berber, Nubian, Bedouin and Beja 1%, Other European 1%

Major Religion: Muslim (mostly Sunni) 90%, Coptic 9%, others 1%.

Life Expectancy: 71.6 years (total population), 69 yrs (men), 74.2 (women)

Currency: Egyptian Pound


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POLITICAL ENVIRONMENT

The Political system of Egypt is envisages as a semi-presidential republic by the constitution

where executive power is separated between the President and the Prime minister. President

heads the executive branch and wields more power than prime minister. Hosni Mubarak has been

serving as the President of Egypt since 1981 and now he entered into fifth term. National

Democratic Party is the single party which is dominating and holding the power in Egypt. In

2005, President announced to reform the election procedure and other candidates are allowed to

contest for the post which was prohibited earlier. President Mubarak is one of the most powerful

leaders of Arab countries. (Egypt- Politics , 2010)

Key Policy Areas

In 2005, tax law amendments was introduced to simplify tax payment process and to reduce

overall tax rates with the intention of broadening the tax base and thus increasing revenues. The

corporate tax rate was condensed from 42% to 20% and there was reduction in the highest

individual income tax rate from 40% to 20%. Tax revenues improved nearly by 28% in the fiscal

year 2007-08, which is 12.8% of GDP. (Political Risk Yearbook: Egypt, 2009)

The government decided to increase the investment in 2007-08 to about 20% of the Gross

Domestic Product. Out of these, the state will invest 55% of the total towards fundamental

development projects, 31% towards projects by the governorates and other 14% will be directed

towards to service projects. The fiscal deficit of Egypt was 8.6% of GDP in fiscal year 2007-08

even though there was increase in government expenditure. This decrease is primarily due to the

payments of tax overdue and receipts from the privatization procedures. (Egypt Business

Forecast Report, 2009)

Egypt continues to focus for an influential and effective role at both the international and

regional levels. The authorities emphasize on having good economic and political relations with

the Arab World. Egypt has exhaustive trade link with EU. Egypt also consider Asian continent

very important at diplomatic level as Asian countries are becoming the second largest

commercial partner of Egypt. Egypt is a prime member of the Movement of Non-Aligned States

(NAM). It also belongs to many international organizations, including the World Bank, the


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United Nations, International Monetary Fund, the League of Arab States, WTO and the African

Union. (Egypt-Politics Overview, 2010)

Egypt role in WTO

Egypt has been a member of WTO since 30 June 1995. It plays a key role inside the WTO in

terms of active trade diplomacy and a trade bridge between the North and the South and

developed and developing nations.

Role of trade openness in the world of today is very important and Egypt is contributing their

part very well. Trade openness means reducing trade barriers, as an important factor in

development and growth; improving living standards and fighting poverty. Development was

considered one of the main priorities of the new millennium that could never be realized except

through peace, security and freedom. (Egypt and WTO, 2010)

ECONOMICAL ENVIRONMENT

The economy of Egypt is in a conversion stage from the being highly centralized to becoming

amenable to the market forces. From the year 1990-2008 the Egyptian economy grew at an

average rate of 4.6%. (World Bank - World Development Indicators October 2009, 2010) This

growth in the economy is the culmination of series of reforms introduced in the economy and of

the support of the International monetary fund. Regardless of the constant growth in the

economy the employment rate is also increasing. In the year 2008 the number of unemployed

was 3.1 million and the unemployment rate is growing at a rate of around 8%. Increase in the

unemployment rate along with the rise in the inflation rate has been creating hassles for the

people especially those living below the poverty line. (IMF-World Economic Outlook October

2009, 2010)

The net FDI inflows in the year 2008-09 reached $8113.4 million. The inflation rate in the year

2008 was as high as 18.3% almost doubling from the previous year mainly because of

depreciation in the exchange rate. The service sector in the country is the largest in terms of its


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has 85 airports in total, of which 71 have paved runways. Cairo airport is served by flights to the

Gulf, New York and most major European capitals. There are three weekly departures to Tokyo,

but otherwise links to Asia are poor. (Business- Egypt, 2010)

SOCIO CULTURE ENVIRONMENT

Egypt has a population of 78.8 million people (2008) which mainly consist of Muslims (mostly

Sunni). Around 90% of the population is Muslim and rest is Christians (mainly Egyptian

Christian natives acknowledged as Copts). Nearly half of the population of Egypt is urban which

lives in the thickly populated cities like Alexandria and Cairo and the remaining resides in the

fertile land area near the Nile River. (Egypt- Culture and People, 2010)

It has a population growing at 1.8% per year and the economic growth of 4.4% is not sufficient

to restrain the increasing unemployment rate. Its growing at a faster pace than the rate of

employment and increasing the poverty level as the unemployment rate and the population

growth has joined with insufficient wages in public sector companies. Approximately 70% of the

population is within the age group of 20-45 so; it is a big challenge for Egypt to create jobs in

near future. (IMF - World Economic Outlook, 2009)

The education system of Egypt cannot be considered as good as the literacy rate is only 58%. It

also indicates the gender discrepancy as the percentage of male literacy is 68% pretty higher than

the female literacy rate which is only 47%. Egypts healthcare structure is underdeveloped and

only 29% of the population is under government health insurance and spending on the health

care is only 4%. Public healthcare system is also under-funded and the government commitment

is around 1 billion only in 2006-07 for the up gradation of the sector which represent 2.7% of the

total state budget. Ministry of health is the largest institutional sponsor which provides free

healthcare services but with limited reach. (Egypt- Culture and People, 2010)

Corruption and bribery

Experts agree that corruption in Egypt is pervasive and the use of wasta ('influence' in Arabic)


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and facilitation payments are essential to get most things done. They further note that that

corruption has infiltrated all aspects of Egyptian society. The country is facing major challenges

in combating both grand and petty corruption. In 2007, the government even admitted that

corruption is a serious problem and the Prime Minister expressed his dedication to combatingbribery. In general, Egypt has maintained a weak position in the Corruption Perception Index

(CPI) from 1998 to 2009. It ranks 89 out of 147 countries in the last CPI of 2009. (Democracy

Audit, 2010)

TECHNOLOGICAL ENVIRONMENT

Egypt has improved a lot under technological factors. It initially sustained the

expansion of information services and communication by supporting foreign and local

investors to provide these services to them, this lead to job opportunities for the people in

Egypt especially the youth. The number of companies operating under Information,

Communication and Technology(ITC) sectors have gradually increased from 266 in 1999 to

about 1817 by mid- 2008. Telecommunication sector also contributed quiet a lot. The rural

and urban regions of the state did not have telecommunication services therefore to viaduct

the gap between the rural and urban areas; the telecommunication companies started with

inclusive service which helped them to build relationship between rural and urban areas.

(Communication, 2009)

The telephone density has increased about 15% in 2008 in Egypt, while the total

capacity of telephone exchange increased to 12.9 million lines in 2008 compared to 6.4 million

lines in 1999. There were around 10.7 million telephone subscribers in 2006 which rose to 11.1

million telephone subscribers in 2007 which further rose to 12.1 million in 2008. In the year

1999 project national for technology development was held and their main goal was making

Egypt a main stand for information sector. Companys functions in the internet space in Egypt

had increased up to 20 in 1999 and up to 85 in 2007.There were also broadband subscribers

over a last couple of years having average growth of 236.9% during the period 2002-2009. The

number of broadband subscribers in Egypt in 2007 rose up to 237,720. (UN: International


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Telecommunication Union, 2010)

There were limitations under information technology sector like IT workforce in private

industries in Egypt was small and not adequately trained. But the problem was that, the demand

of the software products was supple, mainly because the bandwidth cost was highly expensivein the world market and the speed limit was slow; because of which customers started

complaining about the internet service. Egypt Telecom, with its domination over domestic and

international services, opposed the introduction of more bandwidth and high speed integrated

networks. They also had a separate specialized ministry of communication and information

technology (MCIT).Mr. Ahmed Nazif, was appointed as Minister. A new authorization was

established in Egypt called the Telecommunications Regulatory Authority (TRA). (Science and

Technology, 2009)

Changes to Egypts Trade and Investment Conditions

In February 2007, Egypt announced a significant reduction in import duties on a wide

range of manufactured goods and raw materials. The decree encompasses white goods and

home appliances; medication and medical equipment; garments; food products; raw

plastics; and livestock feed, among other items. The average import tariff dropped from 25per cent to 6.5 per cent. This is a positive move to stimulate trade, since almost 90 per cent

of the customs tariffs charged on the 1,114 products included in the reforms are now in the

15 per cent or less import duty bracket. (UN - UNCTAD, 2010)

According to the decree, some imported food products such as meat, fish, beans and

cooking oil are among 176 items which enjoy zero tariffs. The decree also aims at

balancing out custom duties on raw materials and components, semi-produced goods and

final products. Government approval is required for all foreign direct investment (FDI) in

Egypt. The General Authority for Investment (GAFI) supervises and licenses projects

incorporated under the Investment Guarantees and Incentives Law. The law allows up to

100 per cent foreign ownership and secures the right to repatriate income earned in Egypt.

(UN - UNCTAD, 2010)


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Encouraged by ongoing economic and regulatory reform, FDI in Egypt has risen over the past

few years, totaling US$ 11.1 billion in 2006-07. Much of this investment has been in the real

estate, petroleum, telecommunications, banking and tourism sectors. (UN - UNCTAD, 2010).For

more information on Egypts market and state conditions refer Appendix 2.

Import Bans and Barriers

Passenger vehicles may only be imported into Egypt within 12 months of the year of

production. The Egyptian Ministry of Health (MOH) prohibits the importation of natural

products, vitamins, and food supplements. No foreign bank seeking to establish a new

bank in Egypt has been able to obtain a license in the past 10 years.

Telecom Egypt continues to hold a de facto monopoly since additional fixed-line

licenses have not yet been issued by the National Telecommunications Regulatory

Authority (NTRA.) The NTRA postponed a plan to issue a second license in mid-2008,

as a response to the changes taking place in the international markets. (Communication,

2009)

The government is liberalizing maritime and air transportation services. The

government's monopoly on maritime transport ended in 1998, and the private sector now

conducts most maritime activities including loading, supplying, ship repair, and,

increasingly, container handling. Private courier and express delivery service suppliers

seeking to operate in Egypt must receive special authorization from the Egyptian

National Postal Organization (ENPO).

Investment Barriers

Based on a review of Egypt's investment policies, the OECD has invited Egypt to adhere

to the OECD Declaration on International Investment and Multinational Enterprises.

Egypt signed the Declaration in 2007, becoming the first Arab and first African country

to join. During this process, Egypt agreed to review the restrictions on investors

identified in the OECD's 2007 Investment Policy Review of Egypt, such as certain limits

in the tourism sector as well as the discriminatory treatment of foreign investors in

construction and courier services. (UN - UNCTAD, 2010)


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CONCLUSION

In spite of a large number of reforms in recent years, which have undoubtedly improved theinvestment climate significantly, Egypt's business environment continues to bear the legacy of years

of state domination of the economy and a strong public-sector focus. Bureaucracy is a major issue

for foreign companies, with legal and property transactions often subject to severe delays, and there

is evidence of a public backlash against the pro-market reforms. Strikes are increasingly common,

and a generalised anti-Western sentiment could also make life difficult for investors.


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Reference

Bank for International Settlements. (2010, Jan). Retrieved Jan 25, 2010, from

http://www.bis.org/cbanks.htm

Business- Egypt. (2010, Jan). Retrieved Jan 16, 2010, from Business Monitor:http://www.businessmonitor.com/eg/

Communication. (2009). Retrieved January 2010, from www.cia.gov:

https://www.cia.gov/library/publications/the-world-factbook/geos/eg.html

Democracy Audit. (2010, Jan). Retrieved Jan 18, 2010, from World Audit:

http://www.worldaudit.org/corruption.htm

Economy Overview. (2009). Retrieved January 2010, from cia.gov:

https://www.cia.gov/library/publications/the-world-factbook/geos/eg.html

Egypt. (2010, Jan). Retrieved Jan 2010, from CIA The World Factbook.

Egypt and WTO. (2010, jan). Retrieved jan 21, 2010, from WTO:

http://www.wto.org/english/thewto_e/countries_e/egypt_e.htm

Egypt Business Forecast Report. (2009). Retrieved Jan 17, 2010, from Ebscohost:

http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=46035942&site=ehost-live

Egypt- Culture and People. (2010). Retrieved Jan 14, 2010, from Egypt State Information Service:

http://www.sis.gov.eg/En/EditCulture.aspx?Category_ID=496

Egypt- Politics . (2010, jan). Retrieved jan 21, 2010, from Egypt State of Information Service:

http://www.sis.gov.eg/En/Editpolitics.aspx?Category_ID=28

IMF-World Economic Outlook October 2009. (2010, Jan). Retrieved Jan 24, 2010, from IMF:

http://www.imf.org/external/country/EGY/index.htm

Monetary Policy. (2009). Retrieved January 2010, from www.cbe.org.eg:

http://www.cbe.org.eg/Monetary-Policy/Monetary-Policy.htm

Political Risk Yearbook: Egypt. (2009). Retrieved Jan 12, 2010, from Ebscohost:

http://web.ebscohost.com/ehost/pdf?vid=14&hid=101&sid=3c727c6f-e286-47b0-9196-

d42455e9cbe9@sessionmgr114

UN - UNCTAD. (2010, Jan). Retrieved Jan 23, 2010, from UN:

http://www.unctad.org/Templates/Search.asp?intItemID=2068&lang=1&frmSearchStr=egypt&frmCateg

ory=all&section=whole

UN: International Telecommunication Union. (2010, Jan). Retrieved Jan 13, 2010, from

http://www.itu.int/ITU-D/ict/


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World Bank - World Development Indicators October 2009. (2010, jan). Retrieved Jan 23, 2010, from

World Bank: http://www.worldbank.org/eg

APPENDIX

Appendix 1


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Appendix 2

9147 VIEWADVANCE

Data Profile : Egypt2000 2005 2007 2008

World view

Population, total (millions) 70.17 77.15 80.06 81.53

Population growth (annual %) 1.9 1.9 1.8 1.8

Surface area (sq. km) (thousands)1,001

.51,001

.51,001

.51,001

.5

Poverty headcount ratio at national poverty line (% of population) 16.7 .. .. ..

GNI, Atlas method (current US$) (billions) 97.34 92.82120.0

5146.8

5

GNI per capita, Atlas method (current US$) 1,390 1,200 1,500 1,800

GNI, PPP (current international $) (billions)250.3

5332.4

3407.3

3445.3

7

GNI per capita, PPP (current international $) 3,570 4,310 5,090 5,460

People

Income share held by lowest 20% 9.0

9.0

.. ..Life expectancy at birth, total (years) 68 70 70 70

Fertility rate, total (births per woman) 3.3 3.0 2.9 ..

Adolescent fertility rate (births per 1,000 women ages 15-19) 50 43 39 ..

Contraceptive prevalence (% of women ages 15-49) 56 59 .. 60

Births attended by skilled health staff (% of total) 61 74 .. 79

Mortality rate, under-5 (per 1,000) 51 40 36 ..

Malnutrition prevalence, weight for age (% of children under 5) 4 5 .. ..

Immunization, measles (% of children ages 12-23 months) 98 98 97 ..

Primary completion rate, total (% of relevant age group) 98 98 98 ..

Ratio of girls to boys in primary and secondary education (%) 92 .. .. ..

Prevalence of HIV, total (% of population ages 15-49) .. .. .. ..

Environment

Forest area (sq. km) (thousands) 0.6 0.7 .. ..

Agricultural land (% of land area) 3.3 3.5 .. ..

Renewable internal freshwater resources per capita (cubic meters) .. .. 22 ..

Improved water source (% of population with access) 97 .. .. ..

Improved sanitation facilities, urban (% of urban population with access)

79 .. .. ..

Energy use (kg of oil equivalent per capita) 652 794 .. ..

CO2 emissions (metric tons per capita) 2.2 2.2 .. ..

Electric power consumption (kWh per capita) 958 1,235 .. ..

Economy

GDP (current US$) (billions) 99.84 89.69130.4

8162.8

2

GDP growth (annual %) 5.4 4.5 7.1 7.1

Inflation, GDP deflator (annual %) 4.9 6.2 12.6 12.3

Agriculture, value added (% of GDP) 17 15 14 14

Industry, value added (% of GDP) 33 36 36 36

Services, etc., value added (% of GDP) 50 49 50 50

Exports of goods and services (% of GDP) 16 30 30 38

Imports of goods and services (% of GDP) 23 33 35 44Gross capital formation (% of GDP) 20 18 21 24

Revenue, excluding grants (% of GDP) .. 24.3 27.1 ..

Cash surplus/deficit (% of GDP) .. -6.4 -4.6 ..

States and markets

Time required to start a business (days) .. 22 9 7

Market capitalization of listed companies (% of GDP) 28.8 88.8 106.8 52.7

Military expenditure (% of GDP) 3.2 2.9 2.5 2.3

Mobile cellular subscriptions (per 100 people) 2 18 38 51

Internet users (per 100 people) 0.6 11.7 13.2 15.4

Roads, paved (% of total roads) 78 .. .. ..


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High-technology exports (% of manufactured exports) 0 0 0 ..

Global links

Merchandise trade (% of GDP) 19.9 39.4 43.2 45.4

Net barter terms of trade (2000 = 100) 100 123 131 ..

External debt stocks, total (DOD, current US$) (mill ions)29,01

529,50

530,44

4..

Total debt service (% of exports of goods, services and income) 8.5 6.3 4.4 ..

Net migration (thousands) -536 -291 .. ..Workers' remittances and compensation of employees, received (currentUS$) (millions)

2,852 5,017 7,656 9,476

Foreign direct investment, net inflows (BoP, current US$) (millions) 1,235 5,37611,57

8..

Official development assistance and official aid (current US$) (millions) 1,328 995 1,083 ..

Source: World Development Indicators database, September 2009

World Bank

SHARED 2 VIEW_SHARED

S C VIEW_SHARED_

Appendix 3


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egypt country analysis mba 14a rupesh

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