The Egyptian government understands that attracting foreign investment is key to addressing many of the economic challenges it faces, including low economic growth, high unemployment, current account imbalances, and hard currency shortages. Despite significant structural improvements since the floating of the Egyptian Pound (EGP) and the start of a three-year International Monetary Fund (IMF)-backed economic reform program in November 2016, Egypt’s investment climate remains challenging.
The government continues to implement an economic reform agenda to address its fiscal and structural imbalances, which, in addition to floating the pound, has included the imposition of a new value added tax (VAT), fuel and electricity subsidy cuts, and a new civil service law. After establishing a more stable macroeconomic outlook, buttressed by IMF and other multilateral funds, a successful Eurobond issuance, and bilateral financing agreements, Egypt’s government will focus on structural reforms to improve productive capacity, increase exports, and grow the economy. The next phase in its reform program will most likely include a new investment law and revised bankruptcy law, which should improve the ease of doing business and further increase clarity for foreign investors. The government is also hoping to attract significant international investment in several “mega projects” including a large-scale industrial and logistics zone around the Suez Canal, the creation of a new national administrative capital, a 1.5 million feddan (acre) agricultural land reclamation and development project, and the development of mineral extraction opportunities in a special 10,000 square kilometer zone.
Higher investor confidence and the restarting of Egypt’s interbank foreign exchange (FX) market since November 2016 has resulted in increased foreign portfolio investment and foreign reserves. Although FX is more available than before the floatation and the parallel market has all but disappeared, hard currency, especially for uses other than the import of commodities, can be difficult to access. Despite progress in working through the backlog in demand among companies for foreign exchange, investors report there can be delays of weeks to months for transfers of foreign exchange to be executed.
Egypt honors its laws, treaties, and trade agreements. It is party to 100 bilateral investment treaties, including a 1992 treaty with the United States, and is a member of the World Trade Organization (WTO), the Common Market for Eastern and Southern Africa (COMESA), and the Greater Arab Free Trade Area (GAFTA). In many sectors, there is no legal difference between foreign and domestic investors. Special requirements exist for foreign investment in particular sectors, such as upstream oil and gas development, where joint ventures are required, as well as real estate.
Egypt is a signatory to international arbitration agreements, although Egyptian courts do not always recognize foreign judgments. Dispute resolution is slow, with the time to adjudicate a case to completion averaging three to five years. Other obstacles to investment include excessive bureaucracy, regulatory complexity, a mismatch between job skills and labor market demand, slow and cumbersome customs procedures, and non-tariff trade barriers.
Labor rules prevent companies from hiring more than 10 percent non-Egyptians (25 percent in Free Zones), and foreigners are not allowed to operate sole proprietorships or simple partnerships. A foreign company wishing to import for trading purposes must do so through a wholly Egyptian-owned importer. Inadequate protection of intellectual property rights (IPR) is a significant hurdle in certain sectors to direct investment in Egypt. Egypt remains on the U.S. Trade Representative’s Special 301 Watch List.
|TI Corruption Perceptions Index||2016||108 of 176||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2016||122 of 190||doingbusiness.org/rankings|
|Global Innovation Index||2016||107 of 128||https://www.globalinnovationindex.org/
analysis-indicatorpage 19 – chapter 1 – The Global Innovation Index 2016: Winning with Global Innovation, PDF
|U.S. FDI in partner country ($M USD, stock positions)||2015||$2.3 billion||http://www.bea.gov/
|World Bank GNI per capita||2015||$3,340||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The floatation of the Egyptian Pound (EGP) in November 2016 and the reestablishment of Egypt’s interbank foreign exchange (FX) market as part of the IMF program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and may lead to increased FDI over the long term. As the government continues its economic reform agenda, a more stable macro-economic outlook should allow Egypt to focus on the structural reforms necessary to support strong economic growth. The next phase of reform will include a new investment law, a bankruptcy law and other reforms to reduce regulatory overhang and improve the ease of doing business. Successful implementation of these reforms should give greater confidence to foreign investors leading to increased FDI. Egypt’s government has announced plans to improve its business climate through investment promotion, facilitation, efficient business services and advocacy of investor friendly policies.
With a few exceptions, Egypt does not legally discriminate between nationals and foreign individuals in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital. Despite this guarantee, companies have experienced difficulty remitting earned income.
The Tenders Law (law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.
The Capital Markets Law (law 95 of 1992) and its amendments and regulations govern Egypt’s capital markets. Foreign investors can buy shares on the Egyptian Stock Exchange on the same basis as local investors. Foreign investors, both institutional and private, have reported difficulties obtaining hard currency for profit repatriation.
The General Authority for Investment (GAFI) is Egypt’s investment promotion agency to facilitate foreign investment. GAFI is an affiliate of the Ministry of Investment (MOI) and the principal government body regulating and facilitating investment in Egypt. Although GAFI retains its traditional regulatory powers, today it is attempting to act as an effective, proactive investment promotion agency with promotion, facilitation, business matchmaking, organizing events for Egyptian expatriates, investor aftercare, and research and market intelligence functions.
GAFI has developed a “One-Stop Shop” (OSS), designed to be Egypt’s one-stop shop for investment, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Arab world and Africa. In addition to promoting Egypt’s investment opportunities in various sectors, GAFI has announced new initiatives aimed at promoting the investment climate in Egypt including the adoption of new investment regimes (investment zones and special economic zones) and the establishment of the SME Entrepreneurial Center and Fund (Bedaya).
GAFI’s OSS was established to help investors obtain regulatory approval to facilitate start-up operations in Egypt. It has a mandate to coordinate with the 47 ministries and government agencies who control the issuance of the licenses and approvals required for the establishment of businesses in Egypt. Services offered through the OSS include: establishment services, legal services, technical services, governmental services, publication in Investment Gazette, and tax exemption services. Other services GAFI provides include:
- Advice and support to help in the evaluation of Egypt as a potential investment location;
- Identification of suitable locations and site selection options within Egypt;
- Assistance in identifying suitable Egyptian partners through the organization of business forums;
- Aftercare and dispute settlement services.
There are five OSS Branches, including Cairo (the main center), Alexandria, Ismailia, Asyut, and 10th of Ramadan City.
Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), one-on-one investment meetings, and through the public GAFI .
Limits on Foreign Control and Right to Private Ownership and Establishment
The Egyptian Companies Law does not set any limitation on foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers should be an Egyptian national. In addition, all companies, both foreign and domestic, are required to acquire a commercial and tax license. All foreign companies must pass a security clearance process. Although companies are able to operate while undergoing this often lengthy security screening, if it is rejected they must cease operations and undergo a lengthy appeals process. Businesses have cited instances where Egyptian clients were hesitant to engage in protracted business contracts with foreign businesses that have not yet received security clearance, and have expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and a lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at the General Authority for Investment, lack of familiarity or experience working with foreigners has sometimes led to inconsistent and questionable treatment by banks and government officials, delaying registration.
Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians (the percent ownership was reduced from 100 to 51 percent by Presidential decree). In 2016, the Ministry of Trade prepared an amendment to the law allowing the registration of importing companies owned by foreign shareholders; as of April 2017, the law had not yet been submitted to Parliament.
Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporate ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). The ownership of land by foreigners is governed by three laws: Law No. 15 of 1963, Law No. 143 of 1981, and Law No. 230 of 1996. Law No. 15 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law No. 143 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.
Under Law No. 230 non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:
- Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government.
- The area of each real estate property does not exceed 4,000 m².
- The real estate is not considered a historical site.
Exemption from first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained. Additional information is available .
Other Investment Policy Reviews
Neither the Organization for Economic Cooperation and Development nor the World Trade Organization nor the United Nations Conference on Trade Development has conducted an investment policy review of Egypt in the past three years.
The World Bank ranks Egypt among the easiest countries in the Middle East and North Africa in which to establish a business, although there are often significant delays obtaining required licenses, approvals, and permissions to engage in business after establishment. According to the World Bank, a business can be started in 8 days, compared to a regional average of 19 and a global average of 42. Business registration is unavailable online and must be done in person at the General Authority for Investment (GAFI), located in Nasr City, Cairo, or at GAFI’s branch offices in Ismailia, Assyutt, and Alexandria. In addition to administrative processes at GAFI, new business founders must open a company file and register employees at the National Authority of Social Insurance and obtain a bank certificate from an authorized bank in order to open a bank account. Businesses have reported registration times anywhere from 1-10 weeks. In addition to registering, businesses must obtain licenses authorizing business activity. Businesses have reported the time required to obtain business licenses ranges from 3-12 months.
The government seeks to facilitate the creation and operation of small and medium-sized enterprises (SME) in order to support job creation and entrepreneurship in Egypt. To support this government priority, the Central Bank of Egypt has directed banks present in Egypt to lend 20 percent of their loan portfolio to Egyptian SME’s by the year 2020. In addition, microfinance institutions are now licensed and regulated by Egypt’s non-bank financial regulator, the Egyptian Financial Services Authority (EFSA), in accordance with a new law to support lending to Egypt’s smallest firms. The government defines small and medium-sized enterprises as follows: Enterprises with paid-up capital of less than 50,000 EGP and fewer than ten employees are classified as micro enterprises. Enterprises with paid-up capital between 50,000 and 5 million EGP (for industrial establishments) or 50,000 and 3 million EGP (for non-industrial establishments) and fewer than 200 employees are classified as small enterprises. Enterprises with paid-up capital between 5 million and 10 million EGP (for industrial establishments) or 3 million and 5 million EGP (for non-industrial establishments) and fewer than 200 employees are classified as medium-size enterprises.
GAFI has an Arabic registration page on its website. Investors can create a username and password and interact with the Authority’s staff to proceed with initial registration. Then, the investor must appear in person at GAFI to pay fees and receive incorporation documents. Additional information is available on the GAFI .
Egypt promotes and incentivizes outward investment. According to the FDI Markets database for the period from January 2003 to May 2015, outward investment featured the following:
64 Egyptian FDI projects were implemented by Egyptian companies. Estimated total value of projects, which employed some 41 thousand workers, was $19.8 billion.
Algeria, Saudi Arabia, United States, Georgia, Jordan, United Arab Emirates, Pakistan, Iraq, Sudan and Indonesia, respectively, received the largest sum of Egyptian outward investment in terms of total project value. Algeria, Saudi Arabia and the United States accounted for about 49 percent.
The Orascom Group was the largest Egyptian company investing abroad, implementing 31 projects with total investment estimated to be $9.5 billion.
The host country does not restrict domestic investors from investing abroad.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Measurements of foreign direct investment (FDI) in Egypt vary according to the source and the definitions employed to calculate the figure. The Central Bank of Egypt records figures on quarterly and annual investment flows based on financial records for Egypt’s balance of payments statistics. They are reported in the table below. The Ministry of Petroleum keeps statistics on investment in the oil and gas sector (which accounts for the bulk of FDI in Egypt), while GAFI keeps statistics on all other investments – including re-invested earnings and investment-in-kind. Statistics are not always current. GAFI’s figures are calculated in Egyptian pounds at the historical value and rate of exchange, with no allowance for depreciation, and are cumulative starting from 1971.
U.S. firms are active in a wide range of manufacturing industries, producing goods for the domestic and export markets. U.S. investors include American Express, AIG, Ideal Standard, Apache Corporation, Bechtel, Bristol-Myers Squibb, Cargill, Citibank, Coca-Cola, Devon Energy, Dow Chemical, ExxonMobil, Eveready, General Motors, Guardian Industries, H.J. Heinz, Johnson & Johnson, Kellogg’s, Mars, Mondelez, Microsoft, Proctor and Gamble, Pfizer, PepsiCo, Pioneer, and Xerox. Leading investors from other countries include BG, ENI-AGIP, BP, Vodaphone, and Shell (in the oil/gas sector), Unilever, Al-Futtaim, (UAE), the M.A. Kharafi Group (Kuwait), and the Kingdom Development Company (Saudi Arabia).
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions, 2016)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||8263||100%||Total Outward||N/A||100%|
|United Arab Emirates||1328||10.6||Saudi Arabia||2.5b||N/A|
|United States||883||7.0||United States||343m||N/A|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars, 2016)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||1,886||100%||All Countries||888||100%||All Countries||998||100%|
|Cayman Islands||416||22%||Saudi Arabia||347||39%||Cayman Islands||406||41%|
|Saudi Arabia||392||13%||International Organizations||250||28%||United States||190||19%|
|International Organizations||250||12%||United Kingdom||45||5%||Qatar||103||10%|