Growth, stability and balance are recently considered the most distinguished features of Egyptian economy in the framework of a developmental strategy whose core is the liberalized economy that is based on market mechanisms, activate the power of demand and supply together with paving the way for the private sector to engage strongly in the various economic activities.

 

In the context of these changes, the indicators of developmental performance improvement reflected the components of power in the Egyptian economy as the economic growth rate increased during 2004/05 to reach about 4.9 percent. Furthermore, contributions of the leading sectors have helped realizing rates higher than the economic growth as the energy, transportation, tourism sectors and some service activities have realized high growth rates. Thus, contributions of the tourism sector in the GDP have increased by 19.5 percent and Suez Canal by 19.8 percent. 

 

 Total production rate has increased by 10.2 percent. Contributions of the transformation industries sector has mounted to about 11 percent, in addition to 7 percent as a contribution to the transportation and telecommunication sector.

 

  In early 1980s and in the framework of the world economic changes over reconsidering the role of the state in the economic activities, Egypt adopted the economic reform policy through rectifying the economic and social track by a coordinated, an integrated and a gradual group of economic, fiscal, monetary and legislative policies with the aim of liberating national economy, thus restoring its balance domestically and internationally.

 

Furthermore, the change of state's role in managing and steering the economic activity from the direct to the indirect management was one of the most distinguished trends that were entrenched during this period.  This was done in the context of an ambitious programme for economic reform that was characterized by being gradual and observing the social dimension in a manner that rendered it, according to many analyses from international institutions, on top of which is the IMF, one of the most successful economic programmes.

 

In the framework of the state's interest in economic development, being the only means towards realizing prosperity and raising incomes, thus consequently raising the Egyptians' standard of living, the first phase of the Economic Reform Programme in Egypt started with the beginning of the first five-year plan (1982/87) through starting a process of comprehensive reform that targeted constructing a strong infrastructure that provides a solid basis to begin the development process in modern agriculture, industry and various production sectors. This is done to provide a suitable atmosphere for environment and qualify the Egyptian economy to a competitive position among the advanced world economies.

 

The most distinguished features of the economic reform that started in Egypt during the 1980s are represented as follows:

1- Convert from the central economic system that is based upon the hegemony of the state over the economic life to a system that embraces the philosophy of economic freedom and believes in the power and mechanisms of the market.

2- Liberate prices as to banking interest rates, exchange rates, prices of products and production requirements.

3- Control cash demand and encourage saving together with increasing the state revenues.

4- Enhance and encourage the private and investment sectors while activating the privatization policy.

5- Activate the security market as one of the vital pivots of reform and economic liberation policy through issuing a law on capital market in 1992 and its executive regulations in 1993, together with establishing the Public Authority for Capital Market as a first step for the market development programme.

a- Liberate and upgrade the public enterprise sector.

b- Establish the Social Fund for Development in 1991 to create real job opportunities and encourage the small industries that contribute to the development process.

 

In the framework of the second phase for the policy of reform and liberating the Egyptian economy, Egypt, since 1991, has applied the privatization policy, as the state is no longer the only investor and its role is based on the indicative planning and directly implementing the public investments necessary for economic and social development that is mainly based on infrastructure works.

 

As the privatization policy is deemed an essential component of economic reform, its programme was based on special mechanisms that aim at adjusting the Egyptian economy for the privatization process through restructuring the economic institutions and regaining the balance needed in the main economic changes, together with adopting policies that contributed to opening the door wide before the private sector to enhance its participation in the economic activity.

 

The third phase of the Egyptian economic reform programme is based on a new philosophy of following the rules of world economy as to activate partnership and mutual confidence between the state and the citizens together with giving the private sector the chance to turn from being the small partner who needs support and orientation to a full partner in mobilizing investment necessary for employment, generating incomes and drawing and implementing policies.

The most distinguished features of this phase are as follows:

 

The new Tax Law represents a qualitative leap and a new turning point in the Egyptian national policy. This law contributes to reducing the tax categories to about 50 percent or less for the benefit of the citizens and those working in economic activities. It provides many privileges, the most prominent of which are, tax exemption, tax conciliation, eradicate tax complications together with building the bridges of mutual understanding between the state and the financer in a manner that encourages local and foreign investment in Egypt.

Facilitating customs procedures is considered one of the most distinguished economic reforms that were entrenched during the recent phase through a number of customs amendments that aim at realizing the following:

1- Facilitate the customs tax structure.

2- Promote investments in light of tax reduction on imports, tools and spare parts.

3- Move the market ahead and reduce prices together with a major increase in exports.

4- Raise the economic efficiency by offering the consumer high quality commodities.

5- Eliminate the disputes that might emerge from the various categories of customs tariffs through reducing the average of the customs tariffs to about 9 percent, in addition to reducing the number of tariff categories from 27 custom categories to 6 only.            

Banking reform in Egypt started 3 years ago with issuing a new law for the Central Bank in 2003. Such law grants the bank full independence to practice its mission with freedom and efficiency and make the necessary amendments in the monitory policy, thus increasing the bank resources of foreign currency. In this framework, the state pays special attention to accelerate the banking restructuring programme so that all merging operations will be finished during the first four months of 2006 in addition to orienting towards reducing the number of banks working in the Egyptian market from 56 banks to between 35-37 banks only.                                                                                                    

Positive Indicators for the performance of the Egyptian economy in 2004/05 reflects an improvement towards promoting the growth rate of the Egyptian economy within the tendency towards merging in the global economy as follows:

Gross domestic production in 2004/05 amounted to LE 872 billion (at current prices) against about LE 710 billion in 2003/04.

(in LE million and current prices)

Year	Public sector	Private sector	Total
2004/05	302681.7	569196.3	871878.0
2005/06	342397.6	636699.6	979097.2

 

GDP is 2004/05 amounted to about LE 558 billion (at current prices and at production factors cost) at a growth rate of 4.9 percent against about LE 426 billion in 2003/04.

Stimulating growth and raising the GDP requires an increase in investment and capital accumulation, besides giving the private sector a bigger role in pushing the wheel of development forward through increasing its investment in the state socio-economic development plan as investments in 2004/05 plan reached about 28 percent from the total investments implemented during this year that amount to about LE 85 billion, of which LE 20.4 billion are government investments.

In 2004/05, labour force amounted to about 21,241 million of whom 6 million are employed by the government and economic bodies with a total payroll of LE 42.6 billion against about LE 37,8 billion in 2003/04, with an increase of about LE 3.9 billion, i.e. 10.1 percent. Labour force during 2005/06 is expected to reach about 21.8 million, with an increase of about 2.8 percent. This leads to a decrease in the volume of unemployment from about 2125,000 in 2004/05 to about 2075 in 2005/06, thus bringing down unemployment rate from 10 percent to 9.5 percent.

                                                                                                                (in 1000)

Year	Labour force	Employees	Unemployment
			Number	Percent
2004/05	21241	19116	2125		10.0
2005/06	21841	19766	2075		9.5

In 2004/05, the exchange rate policy that the state adopted lead to a further merges of the Egyptian economy in the global economy. Thus, foreign trade imports and exports increased to about 61 percent of GDP. The improvement in current transactions of the payment balance represents one of the major goals of the Egyptian economic policy through preserving the achieved value of the surplus of total balance of transactions with the outside world in 2004/05 that amounted to about US Dollar 2.5 billion. Moreover, the same year has witnessed an increase in the current surplus and transactions that reached about US Dollar 3.8 billion.

Trade balance deficit in 2004/05 amounted to some US Dollar 9.5 billion. The state economic policy for the next phase is orienting towards decreasing the deficit to reach about US Dollar 9.1 billion in 2005/06.

(in US Dollar million)

Description	Expected 2004/05	Targeted 2005/06
Trade balance deficit	9500	9122
Services balance surplus	9311	9362
Account of commodities and services balance	189	240
Account of production returns balance	2967	3155
Account of remittances balance	1053	1010
Account of current transactions and remittances	3791	4405

 

Consumption expenditure is distributed on two main pivots:

Government consumption: means the government expenditure over wages, requirements, health and population and utility services.

Household consumption: means the expenditure over the various commodities and services.

Volume of government and household expenditure in 2004/05 reached about LE 466 billion (at fixed prices), of which LE 68 billion as government consumption and about LE 398 billion as household consumption, i.e., 83.5 percent of the GDP, with a real growth rate of 3.5 percent. In this context, per capita share of the GDP during the same year reached about LE 7972.

 

(in LE billion)

Description	2004/05		2005/06		Average growth rate %
	Value	Average product	Value	Average product	2004/05	2005/06
Household consumption	398.0	71.3	443.0	70.4	3.6	4.5
Government consumption	68.0	12.2	74.5	11.8	3.0	2.9
Total end-use consumption	466.0	83.5	517.5	82.3	3.5	4.2

 

Description	2003	2004	January-May 2004	January-May 2005
European Union Exports Imports Trade balance Asia (Without Arab countries) Exports Imports Trade balance Arab countries Exports Imports Trade balance North America Exports Imports Trade balance East Europe Exports Imports Trade balance Africa (without Arab countries) Exports Imports Trade balance Latin America Exports Imports Trade balance Other geographical places/ or undistributed Exports Imports Trade balance Total Exports Imports Trade balance	2026 2801 -775   1034 1648 -614   1032 953 78   537 1323 -786   251 1165 -914   163 186 -23   28 719 -691     1076 2132 -1055   6147 10927 -4780	2548 3245 -697   1112 2196 -1084   1395 1460 -65   639 1426 -787   382 1303 -921   159 110 50   35 790 -755     1406 2303 -898   7676 12833 -5157	984 1136 -151   504 795 -291   565 494 71   205 487 -282   178 510 -331   81 50 31   16 314 -299     528 878 -350   3061 4663 - 1602	1201 1864 -662   550 1143 -593   832 1158 -326   262 842 -580   196 992 -796   93 77 16   8 540 -531     593 1324 -731   3735 7939 -4204

 

Attraction of foreign investment is a mainstay of Egyptian economic policy within a strategy that aims to build a robust economy that can positively and efficiently deal with global economic transformations. Thus, the state pays due attention to create a favorable climate for investment work in Egypt by providing suitable infrastructure to accommodate major investments under a legislative umbrella to protect and encourage influx of investments provided. 

 

In light of facilities and incentives offered to investors, the investment climate in Egypt has gained appreciation of many international economic organizations and institutions. These have underlined efficient performance of the Egyptian economy. Since the second half of the 1990s, Egypt has witnessed a leap in investment leading to an increase in its rate in various production and service sectors. In 1997, President Mubarak declared Egypt an open market for investment with no limits.

 

This was followed by the issuance and development of the Law on Investment Incentives and Guarantees so as to encourage investment projects.  Moreover, an integrated system of administrative procedures that contributed to achieving accelerating leaps in rates of investment. These all have qualified Egypt to be an international investment-attracting zone despite the turbulent global atmosphere and unstable regional conditions.

 

Egypt enjoys several physical and other constituents that make her capable of attracting foreign and domestic investments. These can be summed up as follows:

 

Egypt is distinguished by a unique geographical location which renders her a centre for boosting trade ties across Europe, Middle East and Africa as Egypt represents a land and air crossover for moving goods and communications, thus enhancing success opportunities for investment projects across Egypt and Arab, African, Asian and European markets.

Thanks to her existing favourable conditions, Egypt enjoys political and economic stability. On the political level, Egypt enjoys excellent relations with all countries. Recently, foreign moves by the Egyptian diplomacy have been employed for serving development goals and opening wide vistas for international and regional cooperation based on mutual interest.

On the economic level, Egyptian economic performance has shown positive indicators thanks to inherent strengths that enhance sustainable development plans in various fields and attract further international investments.

 

Smooth transportation is an effective success factor for investment projects. In this context, Egypt enjoys a foreign and domestic, land and air transportation network linking Egypt with the whole world, in addition to a great number of bridges all over Egypt to facilitate transportation.

Moreover, the maritime transportation sector possesses one of the most important trade waterways in the world; the Suez Canal that links together the east and the west, apart from the giant Mubarak/as-Salam  bridge that  links the Asian and African continents, thus contributing to the influx of investments.

Egypt possesses a human wealth estimated at about 70 million, including labour force of about 20 million. The State at present exerts substantial efforts in various educational and training fields, thus graduating promising skilled and trained labour force in various vacations at suitable wages.

 

Egypt is keen on coping with the international developments in the field of communication and information technology. In this context, Egypt launched two satellites; Nilesat 101 and Nilesat 102. These satellites contributed to realizing an effective presence for the Egyptian media all over the world, thus promoting Egyptian investment projects abroad. Moreover, the State has recently activated electronic government system as an advanced means for raising the efficiency and quality of the administrative machinery in government agencies and economic bodies to serve investment and investors in Egypt.

The state plays an active role in attracting more foreign capitals for direct investment in Egypt by offering a number of guarantees and incentives that help render investment a success and protect rights of investors. These are all included in the Law on Investment Guarantees and Incentives No. 8 of 1997, which provide a number of guarantees for investors, companies and establishments operating in this field. The Law guarantees the right of companies and establishments to own building plots and real-estates necessary for them to exercise their activities. They are also entitled to import, whether on their own or through a third party, production requirements, materials, tools and spare parts needed to build or operate their establishment. They also have the right to export their products on their own or through a mediator without having to obtain a license from any authority.

 

Furthermore, this Law provides many other investment attractive-incentives, notably a 5-year tax exemption on income from commercial and industrial activities, and profits for companies and establishments. Such exemption may reach ten years for companies and establishments built in remote industrial zones and new urban communities.

 

In the framework of the state's great interest in attracting foreign investments and providing a favourable climate for investment in Egypt, the first Ministry for investment in Egypt was established in 2004. The Ministry resources all investment obstacles, unifies all exerted efforts to provide the various required services.

 

In addition, the Ministry is responsible for increasing Arab and foreign investments through enhancing the investment awareness and promoting to attract more investment for financing various projects.

 

The Ministry also plays an important role in widening possession base public enterprises sector companies, monitoring and developing the legislative and legal framework that regulates investment climate in Egypt so as overcome obstacles

 

The new procedures declared by the state to encourage investment and raise the rate of employment have achieved a great leap of establishing companies in 2005. The number of the established companies from July, 2004 to July, 2005 reached 5880 with Capitals of about LE 16 billion compared with 2608 companies last year. That represents an increase of 226 percent in one year.

 

686 companies expanded their activities and rose their Capitals to be LE 17 billion. Thus, the grand total of export Capitals is LE 33 billion. The foreign participations of the registered companies at Public Investment and Free-Zones Authority have implemented a distinguished development to reach LE 4836 million in 2004/05.

 

The investment map to Egypt's governorates has been prepared to show a comprehensive survey to the investment projects in Egypt to push forward the wheel of development. This map clarifies the available natural resources and the infrastructure in the governorates, in addition to the current services, the constituents and capabilities they have which are elements of attraction to the suggested investment projects.

 

The propagation plan of investment in Egypt gives information to the investors about all the great strategic projects and the projects of infrastructure in Egypt, in addition to full studies about the promising investment sectors in the fields of Tourism, Petrochemicals, Cement, spinning and texture, food industries, medicine and the financial and health services.

 

Free zones in Egypt are a distinguished investment pattern. They represent an important mechanism for increasing exports and domestic product and generating new job opportunities. These zones enjoy numerous privileges, the most important of which are direct connection to the outside world, the availability of land plots complete with utilities and infrastructure specificity of customs, import and monetary treatment, among others that are related with the ingress and egress of goods, thus allowing a great amount of freedom of transaction. These all serve as magnets to investments.

 

Investment in free zones enjoys many privileges and incentives such as lack of restrictions on the nationality of the capital, freedom of selecting the legal form of projects and of pricing products and the percentage of profits. In addition, capital assets, production requirements, imports and exports are exempted from tax duties, sales and other taxes and duties. Furthermore, projects operating in free zones are granted a number of guarantees, notably inadmissibility of nationalization, confiscation, and sequestration or expropriation of property except by judicial procedures.

There are two types of free zones in Egypt; public free zone and private free zone as follows:

There are seven public free zones in Egypt equipped with utilities and infrastructure for receiving investment projects; Nasr City Public Free Zone, Alexandria Public Free Zone, Port Said Public Free Zone, Suez Public Free Zone, Ismailia Public Free Zone, Damietta Public Free Zone and Sixth of October  Public Media Production  Free Zone

Investment activities can be conducted inside Egyptian private free zones under certain conditions, the most important of which are that the investment project should affect or help develop new urban communities and should not pollute the surrounding area.

Any investment project may be converted to a free-zone project, provided that it will have satisfied rules specified by the regulations, has actually started its activities and has generated exports of more than 50 percent of its production.