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Trade and Investment Opportunities in

Egypt

Emane Abdalla Muhamed

Eisa Abdelgalil

Economic Research Department

May 2013The views expressed in this study are those of the author(s) and do not necessarily reflect the official

position of Dubai Chamber of Commerce and Industry.

Trade and Investment Opportunities

Series

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Executive Summary

Egypt economy is one among the most advanced in Africa and the Arab countries. In2012, Egypt has the third-largest economy in the Arab world after Saudi Arabia and the

UAE in terms of gross domestic product (GDP). Also, Egypt has the biggest market size

among the Arab countries in terms of population that estimated around 80.4 million

people in 2012.

The country presents lucrative investment opportunities for both domestic and foreigninvestors at the back of its natural endowments and diversified economic base. Over the

years, Egypt growth model is defined and driven by the private sector. The country has

adopted economic reforms and drew development strategy that focused on increasing

foreign investment.

Post the up rise in January 2011 and due to the political disorder, the Egyptian economywitnessed instability resulting in a pullout of many foreign investors and tourists out of

the country, causing a sudden abrupt in the countrys main sources of foreign flow of

capital and hence the countrys balance of payment and its exchange rate. That has been

amplified by the loss in confidence and uncertainty of the economic outcomes and

outlook.

Egypt economy is expected to relatively slowdown in the coming few years whileaccommodating for the new political and economic restructuring post the revolution that

has ended 30 years political regime. Therefore, the country has to attend to both political

and economic reforms simultaneously. As such the economy is not expected to return to

strong pre-revolution growth rates of the 6-7% range in the near term, but Egypt sits in

the heart of the Middle East with a diversified economy which will continue to present

opportunities for firms interested in doing business in Egypt. The short run outlook of the

Egyptian economy is positive, in 2013; the economic recovery is expected to gain pacewith a growth rate of 3.3%, as both investors and tourists confidence in the Egyptian

economy is expected to be restored.

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The main objective of this report is to identify the potential trade and investmentopportunities for UAE and Dubai businesses in exploring lucrative business opportunities

in the Egyptian market.

Egypt has always presented a lucrative investment destination for the UAE investors whocapitalized on the countrys large market size in terms of population and the expanded

consumer base. In 2012, Egypt population reached about 80.4 million persons and ranked

as the world 15th country in terms of population.

The Egyptian economy is predominantly dependent on the service sector that account onaverage for about 50% of the real GDP. Mining and manufacturing sector both represent

on average about 16% and 17% respectively on average over the past five years. While

construction sector accounts on average for about 5.1% and expected to take a greater

share in the Egyptian economy in the coming few years. Agriculture sector accounts on

average for about 13% in the Egyptian real GDP contribution lesser than the service and

the industry sectors. Despite the relative low share of the agriculture sector in the

Egyptian real GDP nonetheless, sector employs about 27% of Egypt total labor force.

Over the years, Egypts business environment improved, despite the expecteddeterioration post the January 2012 uprising. According to the World Bank, 2013 Ease of

Doing Business raking, Egypt took the 109th out of 185 countries from 110th in 2012.

Compared to other Arab countries in the region, Egypt ranks in the 4th

place after Saudi

Arabia, UAE and Jordan. Egypt might be challenged by maintain or improving its

business environment regulatory framework as required post the revolution. Additionally,

in 2012, Egypts Logistics Performance Index score, which reflects the extent of trade

facilitation, is below the regional and income group averages, reflecting a less conducive

climate for trade.

Foreign direct investment (FDI) flows to Egypt came to virtual standstill post the politicalunrest witnessed in 2011-2012, which is not expected to return to the pre-revolution

values until security and stability return to the country. Bulk of the FDI into Egypt is

dominated by foreign investment in oil and gas sector. According to the General

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Authority for Investment (GAFI), US foreign investment is the highest and estimated

around USD 5.8 billion over the period 1971-2008.

Egyptian market presents ample investment opportunities for the UAE and Dubaibusinesses that literally cover all economic sectors, mainly include; investment in

petrochemical sector where the government has put in place an institutional framework

for private-public partnerships (PPPs). PPP projects in the pipeline include two

wastewater treatment plants in 6th of October City and Abu Rawash, Alexandria

Medical City, and East Port Said Port, to cover the development of the ports industrial

and free-zone areas, and a high tech development park or millennium city, industrial

sector.

Investment opportunities within the industrial sector (EPS) are many, including forexample opportunities within the electricity and power generation sector given the fact

that Egypt is the largest energy producer in the Middle East. Prospect investment

opportunities within the EPG sub-sector include; Circuit Breakers for more than 66kv,

Nuclear related consultation and generation equipment and peripherals, power

transformers more than 25MVA-66kva , power transmission lines, turbine generator units

with associated equipment and vibration dampers.

In addition, Egypt offers lucrative investment opportunities with the construction andhousing sector. Currently, in Egypt unmet demand for housing construction is estimated

to be 250,000 units annually. Other significant sectors of interest to UAE and Dubai

businesses may include steel, cement, chemicals, pharmaceuticals, renewable energy and

light consumer goods, Port Development Sector and in the food processing sector.

Due to the political unrest that took place in 2011, Egypt both merchandize trade andnon-merchandize exports started to deteriorate considerably resulting in a wide trade

deficit during the last few years. Egypt depended heavily on the tourism sector as a main

source for foreign exchange and GDP value added, in 2011, the sector returns declined

markedly.

The average total value of the UAE trade (exports plus imports) over the period 2005-2011 is about USD 338.1 billion as compared to Egypt average total trade of about USD

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60.7 billion over the same period, implying that UAE average total trade is about 5.5

folds of the Egypt average total trade over the period under investigation.

Egypt average total import from UAE over the period 2005-2011 is about USD 467.9million while its average total imports from the world over the same period is about USD

39.6 billion representing about 1.2% of Egypt average total imports from the world. On

the other hand, an Egypt average total export to UAE is about USD 473.5 million over

the same period under investigation while its average total exports to the world is about

USD 21.1 billion , therefore Egypt average exports value to UAE is about 0.02% of

Egypt average total exports to the world. From the above figures it is apparent that the

value of the bilateral trade between Egypt and UAE is significantly small. In addition, it

has been found that UAE is not among Egypt top 10 trading partners. . By the same token

Egypt is not among UAE major trading nor the Egypt imports or exports present a

significant share of the UAE respective exports and imports.

Egypt has a very open trade system as evidenced by the relatively low Tariffs whencompared to other MENA countries, nonetheless and similar to many countries in the

region the country is supporting some local industries by applying high import tariffs,

including automotive industry, agriculture and textile. So UAE businesses should be

aware of the high cost of exporting any products related to these produced industries.Alternatively, UAE and Dubai businesses have the option of investing in Egypt free trade

zones to benefit from the countrys large market size and high consumption expenditure.

When trading with Egypt , UAE and Dubai Businesses should carefully considersindustries that the Egyptian government is protecting from foreign competition such as

The list of products the Egypt imposed new import tariffs include; cocoa, cigarettes,

chemicals, steel products, and machineries, while has eliminated import tariffs on yarn,

tin, and textiles. The government also reduced import tariffs on specific capital goods notproduced domestically to stimulate investment, and the prime minister issued instructions

prohibiting government authorities from importing any final goods that have domestic

subsidies.