Egypt Open for Business
By
Dr. Hany Barakat
Ministry of Trade & IndustryEgypt
2008
Sustainable economic growth Deregulation as a driver for success Public-private partnership as a vehicle
for growthInvestor-friendly business environmentStable political conditionsReliable and transparent operating legal
environment
•Key Reform Objectives
•Introduction• Principles • Values
Macro-economic Fundamentals
Real Economy
GDP growth rate increased to 6 % and expected to reach over 7% in 2007
GOE introduced significant changes in the past 36 months increasing the ability of the economy to withstand exogenous shocks
Inflation down by approx. 13 percentage points between 2003/2004 and 2005/2006
Stable exchange rate
External position
C/A posted its fourth surplus in a row reaching $2.9Bn in 2005/2006
Key current inflows: hydrocarbons, Suez Canal, tourism, Exports , private remittances and FDI
C/A balance reached 3% of GDP in 2005/2006
Current Account Surpluses & capital inflows (2006) led to a significant rise in CBE reserves.
FDI Surge
Non-oil FDI tripled to USD 1.3 Bn bringing total FDI in June 2006 to USD 6 B.
In 2005/2006, newly established companies reached 6236 with an issued capital amounting to EGP 19.3 B, representing a leap from 1434 established in 2002/2003 with only EGP 3.8 B in issued capital
Issued capital from foreign sources doubled in 2005
Issued capital from Egyptian sources was twice as much as capital from foreign sources
68% of total issued capital was in the industrial and finance and services sectors in 2006
• Privatization
Reform of the public sector has been the hallmark of the new Govt.
Cumulative Privatization proceeds over the period July 2005 - 2006 reached LE 20 B representing 55 deals
This value is approximately equivalent to the total privatization proceeds between the years 1995-2000
Banking Sector Reform
A plan has been initiated to restructure the six main
Public Banks in Egypt .
Privatizing State owned Banks and Divesting Public Shares in Joint Venture Banks
Bank of Alexandria was totally acquired by Sao Paolo
10 major transactions over a period of 12 months
Stock Market
Market cap rose to 83% of GDP in April 2006 up from 50% in January 2005.
Reshaping of the organizational structure of the CMA and introduction of corporate governance department
Issuance of the executive regulation of the securitization law.
Strong Earnings Reports
Attractive valuations in absolute terms
Attractive valuations in comparison with other emerging markets Average price earnings ratio of most of the actively traded
securities is 14-16 times 2005 earnings.
Strong fundamental economic backdrop Strong earnings reports Active Mergers and Acquisitions Market
Attractive dividend yields Many companies offer yields in excess of 10%
Stock Market
Mergers & Acquisitions
A 4-fold increase in M&A transactions between 2004 and 2006
15 M&A Major transactions in the financial sector in 2006
22 M&A Major transactions in the Industrial sector in 2006
Source: CBE and EFG-Hermes
The privatization program has regained momentum under the current government
The pace is likely to pick up in 2007 with additional targets in industries including banking, oil and gas, cement and insurance
Acquiring Party Date
Italcementi Group March 2005
Consortium led by Citadel Capital
July 2005
NSGB August 2005
IPO December 2005
Calyon January 2006
SIDPEC
IPO May 2005
Acquisitions in 2006
Measures to Improve Business Climate
New Customs Law
New Tax Law
Mortgage Law
Securitization Law
An amendment on the Corporate Law to allow the adoption of Employee Stock Option (ESP) Plans
Established the Investor Protection Fund (IPF) against non-commercial risk
Issuance of Codes of Ethics and Conduct for the Brokerage and Fund Management Activities
Legal and Structural Reforms
Europe-Mediterranean Partnership
Trade and Investment Framework Agreement
(TIFA)(with the US)
Greater Arab Free Trade Area
Bilateral Agreements with Libya, Tunisia, Morocco, Lebanon, Jordan and Syria
World Trade Organization
Free trade zone Agreement with Israel
Common Market for Eastern and Southern
Africa (COMESA)EGYPT
Preferential Trade Agreements
Immediate access to over 1 billion customers
Free Zones
•Corporate income tax exemption•Low infrastructure cost•No customs duty (except for sales into Egypt)•No Sales tax•Mere 1%annual duty on the value added of the project
Inland•Low infrastructure cost•Project contracts exempted from stamp duties and feesfor five years from the date of registry in the commercial register (Bank loan agreements, Mortgages)•Free land in Upper (South) Egypt•20% Tax rate on industrial projects•0- 5% customs duties on imported machinery
Incentive Schemes
Qualified Industrial Zones (QIZ) Agreement with the United States and Israel in December 2004 & other FT agreements
Special Economic Zones (SEZ)–The tax rate on all activities within these zones is 10%–First Zone Created under the new law: The North West Suez Special
Economic Zone.The Red Sea port of Ain Sokhna East Port Said located on the Mediterranean Sea.
Incentive Schemes
Establishing a ‘One-Stop-Shop’ at the General Authority for Investment Promotion (GAFI)
The one Stop Shop started operating in Cairo head office in 2004,
Opened in Alexandria in 2005 Three other governorates (Assiut, Giza and Ismailia).
Reduction of some administrative start up and operational barriers
Simplification Procedures
Investor Protection & Transparency
• Implementation of the executive regulations of Intellectual Property Rights Law passed in 2002
• Issuance of Antitrust Law (August 2005)
• Set up Competition Council to ensure the prohibition of anti-competition practices
• Institute of Directors (IOD) was established with the aim of strengthening corporate governance practices
• Issuance of the Corporate Governance Best Practice Code in Aug 2005
• Restructure of the Ministerial Committee for Dispute Settlement
• Specialized Economic Courts (in Progress)
•A new budget classification system compliant with IMF has been adopted to improve transparency on budget reporting
Investor Protection & Transparency
Fortune Global 500 (2006) Egypt
And the list goes on…..Egypt
Industrial profile
Strategic Vision &Targets
1.6
2.7
5.2
6
0
1
2
3
4
5
6
7
2002/2003 2003/2004 2004/2005 2005 / 2006
Real Growth of the Industrial Sec .
Ministry of Trade and Industry Trade & Industry Growth Plans
• Industrial Growth
Factories Built and Operated
( 2005 – 2006 ) : 610
–Number : Large ( <15 M ) : 110 Medium ( 5 – 15 M ) : 140 Small ( > 5 M ) : 360
–Total Investments : 10 B
–Employment : 100 Thousand Direct Jobs
Factories Under Construction
–Number of Factories Under Construction : 1227
– Land Allocated for new factories ( 2005 – 2006 ) : 4.8 M Sq meter for 496 factories
Total Number of Factories Under Construction : 1723
New Industrial Parks (Under Construction)
#CityProjectTotal Area
(Acers)
Total Investments
(LEM)1Robaiky / Badr
CityLeather Tanning
and Manufacturing110500
2Al Safa / Kalioubeia
Foundries142596
3Borg El ArabTextile & Ready Made Garments
60420
4DamiettaFurniture & Wood Products
150378
5Al Mahalla Al Kobra
Textile35249
6AssiutFurniture City20120
Ministry of Trade and Industry Trade & Industry Growth Plans
Ministry of Trade and Industry Trade & Industry Growth Plans
• Exports Performance
8826
33963675
4735
6201
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
01/02 02/03 03/04 04/05 05/06
M $
Total Exports (M$) : 2004/2005 : 6201
2005/2006 : 8826
Growth : 42%
Sectorial Distribution
• Exports Performance
Million $
Sector 05/06 Exports
Building Materials2425
TEX
Finished Garments620
Home Wear394
Spinning and Textiles294
**Total TEX1308
Chemicals1420
Engineering1179
Agriculture1665
Food Industry519
Pharma109
Furniture102
LeatherTannery82
Leather Products17
**Total Leather99
TOTAL8826
05/06 Exports Sectorial Distribution
Strategic Thrusts
–Industrial Zones–Human Resource Development–Industrial Modernization–Technology Transfer Centers–Exports Promotion–Development of Local Market
Egypt Open for Business
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