The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving. Thanks in part to the macroeconomic reforms it completed as part of a three-year, $12-billion International Monetary Fund (IMF) program from 2016 to 2019, Egypt was one of the fastest-growing emerging markets prior to the COVID-19 outbreak. Egypt was also the only economy in the Middle East and North Africa to record positive economic growth in 2020, despite the COVID-19 pandemic and thanks in part to IMF assistance totaling $8 billion. Increased investor confidence and high real interest rates have attracted foreign portfolio investment and increased foreign reserves. In 2021, the Government of Egypt (GoE) announced plans to launch a second round of economic reforms aimed at increasing the role of the private sector in the economy, addressing long-standing customs and trade policy challenges, modernizing its industrial base, and increasing exports. The GoE increasingly understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI. FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, before falling 39 percent to $5.5 billion in 2020 amid sharp global declines in FDI due to the pandemic, according to data from the Central Bank of Egypt and the United Nations Commission on Trade and Development (UNCTAD). UNCTAD ranked Egypt as the top FDI destination in Africa between 2016 and 2020.
Egypt has passed several regulatory reform laws, including a new investment law in 2017; a “new company” law and a bankruptcy law in 2018; and a new customs law in 2020. These laws aim to improve Egypt’s investment and business climate and help the economy realize its full potential. The 2017 Investment Law is designed to attract new investment and provides a framework for the government to offer investors more incentives, consolidate investment-related rules, and streamline procedures. The 2020 Customs Law is likewise meant to streamline aspects of import and export procedures, including through a single-window system, electronic payments, and expedited clearances for authorized companies.
Egypt will host the United Nations Climate Change Conference, COP 27, in November 2022. Recognizing the immense challenges the country faces from the impacts of climate change, government officials announced that the Cabinet will appropriate 30 percent of government investments in the 2022/2023 budget to green investments, up from 15 percent in the current fiscal year 2021/2022, and that by 2030 all new public sector investment spending would be green. The GoE accelerated plans to generate 42 percent of its electricity from renewable sources by five years, from 2035 to 2030, and is prioritizing investments in solar and wind power, green hydrogen, water desalination, sustainable transportation, electric vehicles, smart cities and grids, and sustainable construction materials. The government continues to seek investment in several mega projects, including the construction of smart cities, and to promote mineral extraction opportunities. Egypt intends to capitalize on its location bridging the Middle East, Africa, and Europe to become a regional trade and investment gateway and energy hub and hopes to attract information and communications technology (ICT) sector investments for its digital transformation program.
Egypt is a party to more than 100 bilateral investment treaties, including with the United States. It is a member of the World Trade Organization (WTO), the African Continental Free Trade Agreement (AfCFTA), 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 certain sectors, such as upstream oil and gas as well as real estate, where joint ventures are required.
3. Legal Regime
7. State-Owned Enterprises
State and military-owned companies compete directly with private companies in many sectors of the Egyptian economy. Although Public Sector Law 203 of 1991 states that state-owned enterprises (SOEs) should not receive preferential treatment from the government or be accorded exemptions from legal requirements applicable to private companies, in practice SOEs and military-owned companies enjoy significant advantages, including relief from regulatory requirements. IMF reports show that Egyptian SOEs have an average return on assets of just two percent and are only one-fourth as productive as private companies. Some 40 percent of SOEs are loss-making, despite access to subsidized capital and owning assets worth more than 50 percent of GDP. Profitable SOEs, meanwhile, tend to exploit a natural monopoly or hold exclusive rights to public assets. Few of Egypt’s 300 state-owned companies, 645 joint ventures, and 53 economic authorities release regular financial statements.
Egypt has a set of laws to combat corruption by public officials, including an Anti-Bribery Law (articles 103 through 111 of Egypt’s Penal Code), an Illicit Gains Law (Law 62 of 1975 and subsequent amendments in Law 97 of 2015), and a Governmental Accounting Law (Law 27 of 1981), among others. Countering corruption remains a long-term focus. However, corruption laws have not been consistently enforced. Transparency International’s Corruption Perceptions Index ranked Egypt 117 out of 180 countries in its 2021 survey. Past surveys from Transparency International reported that nearly half of Egyptians said they had paid a bribe to obtain a public service.
Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. There is no government requirement for private companies to establish internal codes of conduct to prohibit bribery.
Egypt ratified the United Nations Convention against Corruption in 2005. It has not acceded to the OECD Convention on Combating Bribery or any other regional anti-corruption conventions.
While NGOs are active in encouraging anti-corruption activities, dialogue between the government and civil society on this issue is almost non-existent. In a 2009 study demonstrating a trend that continues to this day, the OECD found that while government officials publicly asserted they shared civil society organizations’ goals, they rarely cooperated with NGOs, and applied relevant laws in a highly restrictive manner against NGOs critical of government practices. Media was also limited in its ability to report on corruption, with Article 188 of the Penal Code mandating heavy fines and penalties for unsubstantiated corruption allegations.
U.S. firms have identified corruption as an obstacle to FDI in Egypt. Companies might encounter corruption in the public sector in the form of requests for bribes, using bribes to facilitate required government approvals or licenses, embezzlement, and tampering with official documents. Corruption and bribery are reported in dealing with public services, customs (import license and import duties), public utilities (water and electrical connection), construction permits, and procurement, as well as in the private sector. Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.
10. Political and Security Environment
Stability and economic development remain Egypt’s priorities. The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression. Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident. In 2020 and 2021, all terrorist attacks took place in the Sinai Peninsula. Nevertheless, terrorist plans to target civilians, tourists, and security personnel in mainland Egypt and the greater Cairo region remained a concern. The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups.