Thursday, 13 May 2010

Egypt PEST Analysis

Key FACTS about Egypt:

Full name: Arab Republic of Egypt

Capital: Cairo

Population: 80.3 million

Area: 1 million sq km

Major language: Arabic

Major religions: Muslim 90% , Coptic 9% & other Christian 1%

Currency: Egyptian Pound

Main exports: Petroleum, petroleum products, cotton, Textile, Metal

product and Chemicals.

Geographical Location: Northern Africa, bordering the

Mediterranean Sea, between Libya and the Gaza Strip, and the Red Sea
north of Sudan, and includes the Asian Sinai Peninsula

To make an external scanning on Egypt, we have to know what

characterizes the political, economical, sociocultral and
technological environments in Egypt.

Economical Environment:
Occupying the northeast corner of the African continent, Egypt is bisected by the highly
fertile Nile valley, where most economic activity takes place. Egypt's economy was highly
centralized during the rule of former President Gamal Abdel NASSER but has opened up
considerably under former President Anwar EL-SADAT and current President Mohamed Hosni
MUBARAK. Cairo from 2004 to 2008 aggressively pursued economic reforms to attract
foreign investment and facilitate GDP growth, but is postponing further economic reforms
because of global economic turmoil. With the installation of the 2004 Egyptian parliament,
the Government of Egypt began a new reform movement, following a stalled economic
reform program begun in 1991, but moribund since the mid-1990s.

In the past year, the cabinet economic team has simplified and reduced tariffs and taxes,
improved the transparency of the national budget, revived stalled privatizations of public
enterprises and implemented economic legislation designed to foster private sector-driven
economic growth and improve Egypt's competitiveness. Despite these achievements, the
economy is still hampered by government intervention, substantial subsidies for food,
housing, and energy, and bloated public sector payrolls. Moreover, the public sector still
controls most heavy industry.
The international economic downturn slowed Egypt's GDP growth to 4.5% in 2009,
predominately affecting export-oriented sectors, including manufacturing and tourism.
Unemployment is rising. In 2009 the government implemented a $2.7 billion stimulus
package favoring infrastructure projects and export subsidies, and is considering up to $3.3
billion in additional stimulus spending in 2010 to mitigate the slowdown in economic growth.
In September 2009 - Egypt was ranked among the worlds 10 most active reformers for the
fourth time. The country moved up to 106 from 116 among 183 economies worldwide in the
overall ease of doing business ranking. According to the recently released report by IFC and
the World Bank Doing Business 2010: Reforming through Difficult Times , Egypt
made business start-up less costly, expedited the construction permit process, expanded the
information available from the private credit bureau, and created commercial courts to
speed up contract dispute settlements.
Being a former global leading reformer and a regional leading reformer in 2008/09, Egypt
continued to make it easier to deal with construction permits by issuing executive articles for
the 2008 construction law and eliminating most preapprovals for construction permits.
Contract enforcement was expedited with the creation of commercial courts. Access to credit
information has expanded with the addition of retailers to the database of the private credit
bureau. Finally, company start-up was eased by the removal of the minimum capital
requirement.

Facts and figures on the Egyptian economy:

GDP (purchasing power parity):
$470.4 billion (2009 est.)
country comparison to the world:
27
$450.1 billion (2008 est.)
$419.9 billion (2007 est.)

GDP (official exchange rate):

$188 billion (2009 est.)

GDP - real growth rate:

4.5% (2009 est.)
country comparison to the world:
29
7.2% (2008 est.)
7.1% (2007 est.)

GDP - per capita (PPP):

$6,000 (2009 est.)
country comparison to the world:
133
$5,800 (2008 est.)
$5,500 (2007 est.)

GDP - composition by sector:

agriculture: 13.1%
industry: 37.7%
services: 49.2% (2009 est.)

Labor force:
25.8 million (2009 est.)
country comparison to the world:
21

Labor force - by occupation:

agriculture: 32%
industry: 17%
services: 51% (2001 est.)

Population below poverty line:

20% (2005 est.)

Household income or
consumption by percentage share:
lowest 10%: 3.9%
highest 10%: 27.6% (2005)

Budget:
revenues: $48.86 billion
expenditures: $61.61 billion
(2009 est.)

Public debt:
79.8% of GDP (2009 est.)
country comparison to the world:
15
86.5% of GDP (2008 est.)
Stock of money:
$31.72 billion (31 December
2008)
country comparison to the world:

Distribution of family income Gini index:

34.4 (2001)
country comparison to the world:
90
Inflation rate (consumer prices):
10.1% (2009 est.)
country comparison to the world:
193
18.3% (2008 est.)
Stock of quasi money:
$112.2 billion (31 December 2008)
country comparison to the world:
21

Unemployment rate:
9.7% (2009 est.)
country comparison to the world:
113
8.7% (2008 est.)
Investment (gross fixed):
17.9% of GDP (2009 est.)
country comparison to the world:
121

Commercial bank prime lending

rate:
11.82% (31 December 2008)
country comparison to the world:

Central bank discount rate:

11.5% (31 December 2008)
country comparison to the world:
48
9% (31 December 2007)
Stock of domestic credit:
$126.5 billion (31 December
2008)
country comparison to the world:

67
12.51% (31 December 2007)

27
$27.6 billion (31 December 2007)

$102.6 billion (31 December 2007)

35
$113.9 billion (31 December
2007)

Market value of publicly traded

shares:
$85.89 billion (31 December
2008)
country comparison to the world:
43
$139.3 billion (31 December
2007)
$93.48 billion (31 December
2006)
Current account balance:
$-3.32 billion (2009 est.)
country comparison to the world:
160
$-1.331 billion (2008 est.)

Agriculture - products:
cotton, rice, corn, wheat, beans,
fruits, vegetables; cattle, water
buffalo, sheep, goats

Industries:
textiles, food processing, tourism,
chemicals, pharmaceuticals,
hydrocarbons, construction,
cement, metals, light manufactures

Industrial production growth rate:

3.9% (2009 est.)
country comparison to the world:
30

Exports:
$22.91 billion (2009 est.)
country comparison to the world:
64
$29.85 billion (2008 est.)

Imports:
$43.98 billion (2009 est.)
country comparison to the world:
48
$56.62 billion (2008 est.)

Debt - external:
$28.45 billion (31 December 2009
est.)
country comparison to the world:
60
$32.12 billion (31 December 2008
est.)

Stock of direct foreign investment

- at home:
$66.43 billion (31 December
2009 est.)
country comparison to the world:
44
$59.13 billion (31 December
2008 est.)

Stock of direct foreign investment

- abroad:
$12.23 billion (31 December 2009
est.)
country comparison to the world:
43
$12.08 billion (31 December 2008
est.)

Reserves of foreign exchange and

gold:
$34.99 billion (31 December 2009
est.)
country comparison to the world:
27
$33.85 billion (31 December 2008
est.)
Exchange rates:
Egyptian pounds (EGP) per US
dollar - 5.6 (2009), 5.4 (2008),
5.67 (2007), 5.725 (2006), 5.78
(2005)

Source: CIA the world fact book - USA

Egypt Risk Assessment

Rating: B
Risk Assessment
The economy grew strongly in 2007 driven by domestic demand. The government's liberal
approach since 2004 has fostered a climate of confidence conducive to consumption and
investment. The economy has also benefited from oil country boom via their investments
and emigrant worker remittances. In this context, the business environment is improving
with the Coface payment incident index remaining below the world average. While the gas
sector has continued to develop, manufacturing, construction, tourism, and communications
have achieved excellent performance. The outlook for 2008 is bright with growth likely to
reach between 7.0 and 7.5 per cent.
.
The external financial situation remains healthy amid the good trend on foreign currency
earnings and the increase in foreign direct investment fuelled by the privatizations. Debt
service is low and Egypt is building up foreign exchange reserves. However, the fiscal deficit
and public sector debt remain a source of concern. Controlling public spending and reducing
the debt necessitates a spending overhaul that will take time. Regional conflicts and poverty
have strengthened Islamist opposition movements. In this context social climate is tense
and officials have exercised caution in pursuing reforms.

STRENGTHS

The business climate has benefited from an active reform program and a regional economic
boom.

Egypt boasts diversified sources of foreign exchange (the Suez Canal, tourism, private transfers,
and oil and gas exports).

Foreign exchange reserves are high.

The country enjoys the political and financial support of Western countries.

WEAKNESSES

The interest on public debt and the cost of subsidies weighs on public finances limiting the
capacity for infrastructure development.

The banking system is not yet capable of meeting the economy's needs.

The tourism sector, whose revenues are of fundamental importance to the current account
balance and economic growth, remains vulnerable to the terrorist menace

Performance statistics:
Source: The international Monetary Fund

Subject Descriptor

Units

Gross domestic
product, constant
prices

Natio
nal
curren
cy
Annua
l
perce
nt
chang
e
Natio
nal
curren
cy
U.S.
dollar
s
Index

Gross domestic
product, constant
prices

Gross domestic
product, current
prices
Gross domestic
product, current
prices
Gross domestic
product, deflator
Gross domestic
product per capita,
constant prices
Gross domestic
product per capita,
current prices
Gross domestic
product per capita,
current prices
Gross domestic
product based on
purchasing-powerparity (PPP) valuation
of country GDP
Gross domestic
product based on
purchasing-powerparity (PPP) per
capita GDP
Gross domestic
product based on
purchasing-powerparity (PPP) share of
world total
Implied PPP
conversion rate

Sca
le
Billi
ons

Billi
ons
Billi
ons

Natio
nal
curren
cy
Natio
nal
curren
cy
U.S.
dollar
s

Uni
ts

Curre
nt
intern
ationa
l
dollar
Curre
nt
intern
ationa
l
dollar
Perce
nt

Billi
ons

Natio
nal
curren
cy per
curren

Uni
ts

Uni
ts

Uni
ts

200
0

200
1

200
2

200
3

200
4

200
5

200
6

200
7

200
8

200
9

201
0

354.
70

367.
20

378.
90

391
.00

407
.00

425
.20

454
.30

486.
50

521.
39

545.
89

570.
44

5.38

3.52

3.19

3.1
9

4.0
9

4.4
7

6.8
4

7.09

7.17

4.70

4.50

340.
10

358.
70

378.
90

417
.50

485
.30

538
.50

617
.70

744.
80

896.
50

1,03
8.60

1,18
2.62

99.1
6

95.4
0

87.5
1

81.
38

78.
80

89.
79

107
.38

130.
35

162.
62

187.
96

208.
46

95.8
8

97.6
8

100.
00

106
.78

119
.24

126
.65

135
.97

153.
09

171.
95

190.
26

207.
32

5,60
3.52

5,67
5.47

5,74
0.91

5,8
09.
81

5,9
32.
95

6,0
74.
29

6,3
71.
67

6,61
0.05

6,93
3.32

7,11
6.81

7,29
1.09

5,37
2.83

5,54
4.05

5,74
0.91

6,2
03.
57

7,0
74.
34

7,6
92.
86

8,6
63.
39

10,1
19.5
7

11,9
21.5
4

13,5
40.3
6

15,1
15.7
1

1,56
6.42

1,47
4.48

1,32
5.85

1,2
09.
27

1,1
48.
71

1,2
82.
77

1,5
05.
96

1,77
1.00

2,16
2.45

2,45
0.41

2,66
4.41

247.
52

262.
03

274.
76

289
.63

309
.65

333
.35

367
.76

405.
11

443.
43

471.
51

500.
25

3,91
0.25

4,04
9.93

4,16
2.96

4,3
03.
62

4,5
13.
88

4,7
62.
12

5,1
57.
97

5,50
4.17

5,89
6.67

6,14
7.12

6,39
3.94

0.59

0.60

0.60

0.6
0

0.5
9

0.5
9

0.6
0

0.62

0.64

0.66

0.67

1.37

1.37

1.38

1.4
4

1.5
7

1.6
2

1.6
8

1.84

2.02

2.20

2.36

Inflation, average
consumer prices
Inflation, average
consumer prices

Inflation, end of
period consumer
prices
Inflation, end of
period consumer
prices

Population

t
intern
ationa
l
dollar
Index,
2000
=100
Annua
l
perce
nt
chang
e
Index,
2000
=100
Annua
l
perce
nt
chang
e
Perso
ns

Mill
ion
s

100.
00

102.
43

104.
92

108
.28

117
.06

127
.36

132
.71

147.
25

164.
48

191.
20

207.
36

2.85

2.43

2.43

3.2
1

8.1
1

8.8
0

4.2
0

10.9
5

11.7
0

16.2
4

8.45

100.
00

102.
23

105.
04

109
.26

122
.05

127
.76

137
.01

148.
73

178.
75

196.
55

212.
27

2.54

2.23

2.75

4.0
1

11.
71

4.6
8

7.2
4

8.55

20.1
8

9.96

8.00

63.3
0

64.7
0

66.0
0

67.
30

68.
60

70.
00

71.
30

73.6
0

75.2
0

76.7
0

78.2
4

Technological Environment:
Egypt's IT spending is expected to increase from US$1.3bn in 2010 to US$2.1bn by
2014 and the Egyptian IT market growth is forecasted to remain below preeconomic crisis levels in 2010, but economic recovery, tenders delayed from 2009
and higher incomes boosted by pay raises for civil servants and other groups should
help to keep sales on an upwards trajectory.
.
A number of policies have been implemented to attract foreign investment in IT
outsourcing, including local employment subsidies, lower corporate taxes and
deductions for training costs. The Egyptian minister of state for administrative
development has said that 200 government services will soon be available online
through a new e-government portal. The portal will offer 70 services in both English
and Arabic. According to the Ministry for Administrative Development, more than 20
government
agencies
currently
offer
services
and
licenses
online.
.
Egypt's computer hardware sales are projected at US$821mn in 2010 and are
forecast to reach around US$1.3bn in 2014. Egypt's IT market will stay hardware
dominated, with spending on PCs sustained by initiatives like the 'Computer for
Every Student' and 'PC for Every Home' programs. Hardware accounted for an
estimated 62% of Egypt's IT spending last year. Households account for 20-25% of
unit sales, with almost 1-1.5mn households said to possess a computer at present.
.

Overall spending on software remains rather low, which reflects the relative
immaturity of Egypt's IT market. One market driver has been a significant fall in
software piracy, with the illegal software usage rate, as measured by the Business
Software Association, falling a further 1% to 59% in 2008. While large corporations
have long understood the business case for deploying technology, small and
medium-sized enterprises is increasingly beginning to see such investments as
important if they are to avoid being overtaken by more tech-competent
competitors.
.
In 2008, Egypt continued liberalization of the telecoms market, with the award of a
second national fixed license. This development, which followed the award of 3G
licenses to three mobile telecoms service providers in 2007, is likely to drive new
opportunities for IT vendors. As well as generating additional spending on IT
products and services from the telecoms sector, the spread of internet should
provide a boost to the PC market over the next few years.
.
.
.
The Egyptian IT services market is dominated by demand from government, finance
and telecoms sectors, which account for more than 25% of Egypt's total spending.
.

Sociocultural Environment:
Egypts total population stood at 80.3 million. Out of this approximately 90% are
Muslims while the remaining are Christians. Most of the population inhabits the area
near the Nile River and almost half of Egypts population is urban, living in the
densely populated cities such as Cairo and Alexandria.

One of Egypts biggest socio-economic problems is the high unemployment rate

which has been growing over the years. The unemployment rate, which has
averaged more than 10% over a decade, increased to over 12% in 200506. With
the population growing at 1.8% per annum, the economic growth of 4.4% is not
enough to curb the unemployment rate. While the average growth in employed
population during the last five-year period stood at 2.3%, the rise in unemployed
population has been much higher during the same period averaging around 8%. The
high rates of unemployment and population growth coupled with meager wages in
most of the public sector companies contribute to the poverty levels, with close to
20% of Egypts population below the poverty line. A big challenge for Egypt in the
near future will be to create jobs, as the population within the 2045 age-group
constitutes around 65% of the total population.

The education indicators of Egypt project a poor image of the education system.
Only about 58% of the population is literate and there is a big difference in the
literacy rates for males and females. Male literacy rate is around 68%, while female
literacy rate is just about 47%, indicative of gender disparity. The National Council
for Women, a nodal government agency that works for the welfare of women in
Egypt, aims to completely eradicate illiteracy among females.

The healthcare system in Egypt is underdeveloped with only around 29% of the
population covered by governmental health insurance. Egypts public healthcare
system is under-funded, with the government committing only around $1 billion in
200506 for upgrading the healthcare sector, which represents a meager 2.7% of
the total state budget. The ministry of health is the largest institutional financier
providing free healthcare services in Egypt but its reach is limited. Almost 65% of
the Egyptian people pay for their own insurance through private and other health
insurance organizations. The total spending on healthcare in Egypt is only about 4%
of its GDP.

Political Environment:
Political structure

The Egyptian Constitution provides for a strong executive. Authority is vested in an

elected president who can appoint one or more vice presidents, a prime minister,
and a cabinet. The president's term runs for 6 years. Egypt's legislative body, the
People's Assembly, has 454 members--444 popularly elected and 10 appointed by
the president. The constitution reserves 50% of the assembly seats for "workers and
peasants." The assembly sits for a 5-year term but can be dissolved earlier by the
President. There also is a 264-member Shura (consultative) Council, in which 88
members are appointed and 174 elected for 6-year terms. Below the national level,
authority is exercised by and through governors and mayors appointed by the
central government and by popularly elected local councils.I n March 2007,

Mubarak introduced several constitutional amendments that would increase

presidential powers and, more significantly, ban any political parties based
on religion, race, or ethnicity. The amendments were put to a popular
referendum and, despite low voter turnout and boycotts by opposition
groups, passed with 75.9% approval.

Main political parties

The multi-party system was restored in 1976 by the then president Sadate.
However, in practice it is the ruling National Democratic Party (NDP) which
completely dominates the political arena. The Muslim brothers, a brotherhood
created in 1928 by Hassan El Banna is the main opposition party of the country.
They were banned but in spite of it, they were able to win 88 seats in the People's
Assembly in the 2005 elections. The other opposition parties like Wafd, El-Ghad or
the Nasserian Party are minority parties and were nearly wiped out in the 2005
elections.
Environmental laws
According to the Law 4/1994 for the Protection of the Environment, the Egyptian
Environmental Affairs Agency (EEAA) was restructured with the new mandate to
substitute the institution initially established in 1982. At the central level, EEAA
represents the executive arm of the Ministry.
The Principal Functions of the Agency Include:
. Formulating environmental policies.
. Preparing the necessary plans for Environmental protection and Environmental
development projects, following up their implementation, and undertaking Pilot
Projects.
. The Agency is the National Authority in charge of promoting environmental
relations between Egypt and other States, as well as Regional and International
Organizations.

Foreign trade

The Egyptian market is gradually opening up, especially after signing an agreement
with the European Free Trade Association (EFTA) in 2006, and a free trade treaty
with the United States. Its three primary export partners are the European Union,
which represents more than a third of the trade, United States and Syria. Its three
primary import partners are the European Union, the United States and China. Egypt
mainly exports mineral fuels and oil, cotton, iron and steel. It imports mainly
consumer electronic goods and capital goods, nuclear reactors and nuclear-powered
boilers, cereals, food products and chemical products. Import volume has doubled
and is twice the export volume, a fact which contributed to the deterioration of the
country's trade balance.
Tax Rate
The standard rate of corporate income tax is 40%. The rate is 32% on profits arising
from export operations and on profits of an industrial company as long as they arise
from its industrial activities.
Withholding Tax
Any business operating in Egypt must withhold against any payments-- made to any
contractor or supplier of goods or services-- the following basic percentages:
Contracting and supplying: 1%
Services: 3%
Commissions: 10%
Professional fees (under LE 500): 10%
Professional fees (over LE 500): 15%
Leasing of property or selling of goods for trading or manufacturing: 1% - 5% (to be
added on the payee's tax liability account.
Corporate Tax Exemptions and Deductions

Almost all business expenses are deductible including depreciation, interest,

royalties, rent, profit sharing payments to employees, legal expenses,
pension and Egyptian state social insurance contributions.

Profits of companies located in the free zones.

capital gains are applicable in some cases of asset replacement.

All tax holidays granted under Investment Law No.8/1997.

Joint stock companies employing more than 50 employees and maintaining

proper books of accounts are granted a tax holiday for a five-year period.
Also, hotels and tourist projects are granted a tax holiday for a five-year
period which can be extended to ten years if the project is located in a
remote area.

For joint stock companies listed in the stock market, a deductible allowance is
made that is equal to interest income, which can be earned on a bank deposit
(currently 10.5 percent).

Ninety percent of income generated by companies from their movable

capitals which have been subject to the new tax imposed by Law 187 of
1993.

Personal Income Tax

Taxable Income
Tax Law No. 187 of 1993 distinguishes among the following categories of income of
individuals (as well as partners in partnerships):

Salaries and wages.

Commercial and industrial profits

Income from immovable property

Income from movable capital

Noncommercial profits.

Taxation of Foreigners
Foreigners that have been working in the country for more than 183 days with their
annual salaries varying from LE 1.00 to LE 50,000 are subject to paying a 20
percent income tax. However, if the employee's annual income exceeds LE 50,000
then they will be liable to pay 32 percent income tax.
Social Insurance Contribution Rates
Employer(
%)
On basic monthly salary up to L.E. 500 /
26
month
On variable pay (such as production
incentive bonuses)-up to L.E.
500/month

Labor force and laws

Labor force
Government, armed forces & public sector : 36%
Agriculture : 34%
Private sector : 30%

24

Employee(
%)
14

11

The Egyptian labor market is regulated by the new unified Labor Law No. 12 for
2003. The new Law comprises 257 articles that address all the legal aspects
regulating the Egyptian labor market. The new law aims at increasing the private
sector involvement and at the same time achieving a balance between employees'
and employers' rights. Amongst the most important issues that the new law
addresses is the right of an employer to fire an employee and the conditions
pertaining to this as well as granting employees the right to carry out a peaceful
strike according to controls and procedures prescribed in the new law.

================